Registered Investment Adviser: Duties, Registration, and Compliance

A registered investment adviser is a person or firm that gets paid to give advice about securities as a regular business and has registered to do so with either the U.S. Securities and Exchange Commission or a state securities regulator. Registration is governed by the Investment Advisers Act of 1940, and it carries a fiduciary duty to put clients first along with a set of filing, licensing, custody, marketing, and recordkeeping rules that continue for as long as the firm operates.¹

Who Counts as an Investment Adviser

Section 202(a)(11) of the Advisers Act sets a three-part test. A person is an investment adviser if they (1) provide advice about securities, (2) do so as a regular business activity, and (3) receive compensation for it.¹ All three must be present. A friend who recommends a stock over dinner isn’t an adviser because no one is paying. A journalist writing about markets isn’t one because advising isn’t the business. A financial planner who charges clients for portfolio recommendations hits all three.

Several groups fall outside the definition even when their work touches securities. Banks and bank holding companies are excluded. So are lawyers, accountants, engineers, and teachers whose investment advice is genuinely incidental to their main profession. Publishers of general-circulation financial media are excluded as long as their advice isn’t tailored to individual subscribers. Broker-dealers are excluded when advice is incidental to brokerage and they receive no special compensation for it.² These carve-outs are narrower than they look. A lawyer who holds herself out as a financial planner probably cannot rely on the incidental-advice exclusion.

The Fiduciary Duty an RIA Owes Clients

Registration triggers a fiduciary obligation the SEC has interpreted as two duties: care and loyalty.³ This is a higher standard than Regulation Best Interest, which governs broker-dealer recommendations to retail customers. An adviser’s duty runs across the whole relationship; a broker-dealer’s obligation attaches at the moment of each recommendation.

The duty of care requires advice grounded in a reasonable investigation of the client’s financial situation and objectives. It also covers seeking best execution when picking broker-dealers to trade on a client’s behalf, and monitoring recommendations over time rather than treating each interaction as a one-off.³ An adviser who builds a portfolio for a 30-year-old and never revisits it is failing the duty of care even if the original advice was sound.

The duty of loyalty bars the adviser from putting its own interests ahead of the client’s. Conflicts are common, through revenue sharing, proprietary products, or referral fees, and the adviser must either eliminate the conflict or disclose it fully enough that the client can make an informed decision.³ Burying a conflict in fine print does not satisfy this. Disclosure must be specific enough for the client to understand the conflict and how it could affect the advice.

SEC or State Registration

Where a firm registers depends almost entirely on how much money it manages. The Dodd-Frank Act set the main dividing line at $100 million in assets under management, pushing most small and mid-sized firms to the states.⁴

Under $100 million: register with the home state’s securities regulator. Firms under $25 million almost always fall here, and mid-sized firms between $25 million and $100 million do as well unless they qualify for an exception.
$100 million to $110 million: a buffer zone. A firm may register with the SEC at $100 million but is not required to do so until $110 million.⁵
$110 million and above: SEC registration is mandatory.
Below $90 million (for existing SEC registrants): a firm already registered federally only has to switch to state registration if its assets drop under $90 million.⁵

The buffer zone exists because assets under management move with the markets, and without it a firm hovering around $100 million could be forced to switch regulators repeatedly. A separate exception lets mid-sized advisers required to register in 15 or more states opt for SEC registration instead.

When Registration Isn’t Required

Two exemptions let some advisers skip registration even while managing significant assets.

An adviser whose only clients are private funds, and whose total private fund assets stay under $150 million, qualifies for the private fund adviser exemption.⁶ The adviser must calculate those assets annually. If the adviser’s principal office is outside the United States, the exemption still applies as long as all U.S.-managed assets belong to private funds totaling under $150 million.

Advisers who manage only venture capital funds are exempt regardless of size, provided the funds fit the regulatory definition. That definition is tighter than most people assume: the fund must pursue a venture capital strategy, hold no more than 20 percent of its capital in non-qualifying investments, limit borrowing to 15 percent of committed capital on a short-term basis, and avoid giving investors redemption rights.⁷

Both groups still file a limited version of Form ADV with the SEC as “exempt reporting advisers,” covering identity, business practices, and disciplinary history.⁸ The exemption removes the duty to register, not the duty to be visible to regulators.

How Registration Works

Registration starts with Form ADV, the uniform application both the SEC and state regulators use. The form has multiple parts, each written for a different audience.⁹

Part 1A is administrative. It covers ownership structure, employee counts, business practices, client types, and any disciplinary history involving the firm or its staff.¹⁰ Past disciplinary events don’t automatically disqualify an applicant, but they draw careful scrutiny.

Part 2A is the firm brochure, the document clients actually read. It requires a narrative description of services, fees, strategies, and conflicts of interest.¹⁰ Advisers must deliver the brochure to prospective clients before or at the time they sign an advisory contract, and must provide an updated version to existing clients within 120 days after the end of the firm’s fiscal year if there are material changes.¹¹ Part 2B supplements cover individual adviser representatives, including educational background and outside business activities.

Filing is done electronically through the Investment Adviser Registration Depository. Filing fees run from $40 to $225 depending on assets under management.¹² The SEC then has 45 days to grant registration or begin proceedings to deny it.¹³ If staff finds missing information and the firm resubmits, a new 45-day clock starts. SEC-registered firms operating in multiple states should also check with each state about notice filing requirements, since many states require separate notifications and fees.

Exams for Individual Representatives

The people who actually meet with clients generally have to pass a qualifying exam before being licensed. The most common path is the Series 65 (Uniform Investment Adviser Law Examination), which covers investment vehicles, economic factors, regulatory requirements, and ethics. A passing score requires at least 92 out of 130 correct.¹⁴

The alternative is the Series 66, which combines pieces of the Series 65 with the Series 63 (Uniform Securities Agent State Law Examination). It’s designed for representatives who also hold a Series 7, letting one exam satisfy both state securities law and investment adviser law requirements.¹⁴ Some states waive the exam for individuals holding designations such as the Certified Financial Planner or Chartered Financial Analyst, though specific waivers vary by jurisdiction.

Ongoing Compliance Obligations

Registration is not a one-time event. Every SEC-registered adviser must adopt written compliance policies designed to prevent violations of the Advisers Act, review them at least annually, and designate a chief compliance officer.¹⁵ The CCO doesn’t have to be a dedicated hire; at smaller firms, a principal often fills the role, but the person must have enough authority and knowledge to be effective. A thin or outdated compliance manual is one of the fastest ways to draw a deficiency letter during an exam.

Advisers must also keep detailed books and records. The categories are broad: financial records like journals and bank statements, memoranda for every securities transaction, copies of all written communications about advice or recommendations, all advertising materials, and performance calculation workpapers.¹⁶ Firms must also keep current and historical copies of the code of ethics, compliance policies, and Form ADV brochures. Most records must be kept at least five years, with the first two in an easily accessible location.

An annual updating amendment to Form ADV is due within 90 days after the firm’s fiscal year end, refreshing both Part 1 and the brochure.¹⁷ If something significant happens between annual filings (a change in ownership, a new disciplinary event, a material shift in business practices), the firm has to file an interim amendment promptly instead of waiting. Missing a deadline or filing inaccurate information is itself a violation.

Marketing and Advertising

The SEC’s marketing rule governs how advisers can promote themselves, including testimonials and third-party endorsements. Testimonials used to be essentially banned; now they are allowed with conditions that create real compliance work.¹⁸

An adviser using a testimonial or endorsement must disclose whether the person is a current client, whether they received compensation, any material conflicts of interest, and the material terms of any compensation arrangement. The adviser must also keep a written agreement with anyone providing a compensated testimonial or endorsement and must have a reasonable basis for believing the content complies with the rule.¹⁸ Endorsements involving $1,000 or less in total compensation over the preceding 12 months are exempt from the written agreement and disqualification screening requirements.

Performance advertising must be backed by workpapers showing how the figures were calculated. Hypothetical performance and model portfolios trigger extra disclosures. No advertisement may contain an untrue statement of material fact or otherwise mislead.

Custody of Client Assets

When an adviser holds client funds or securities, or has authority to obtain possession of them, the custody rule imposes additional safeguards. Custody also exists where a related person of the adviser serves as custodian.¹⁹

An adviser with custody must arrange for an independent public accountant to conduct an annual surprise examination verifying client assets. Two main exceptions exist. First, if the only form of custody is authority to deduct advisory fees from client accounts, no surprise exam is required. Second, advisers to pooled investment vehicles can skip the surprise exam if the fund gets an annual audit by a PCAOB-registered accountant and distributes audited financial statements to investors.¹⁹

If the adviser or a related person actually serves as the qualified custodian instead of using an independent bank or broker-dealer, the rules get stricter. The firm must obtain a written internal control report from a PCAOB-registered accountant at least once per calendar year, in addition to the surprise exam.¹⁹ A proposed replacement called the “safeguarding rule” was withdrawn by the SEC in mid-2025, so the existing custody framework still applies.²⁰

Checking an Adviser’s Record

Once registered, an adviser’s Form ADV filings become publicly available through the Investment Adviser Public Disclosure database. Anyone can search for a firm and review its registration form, including disclosed disciplinary events, business practices, and fee structures.²¹ If you are considering hiring an adviser, this is the simplest due diligence step available, and few consumers actually take it.

Penalties for Operating Without Registration or Breaking the Rules

Operating as an investment adviser without registering is illegal. Section 203(a) of the Advisers Act prohibits any unregistered adviser from using interstate commerce in connection with its advisory business.² The SEC pursues enforcement actions against unregistered advisers, and the antifraud provisions apply whether or not a firm is registered.

For registered advisers who violate their obligations, civil penalties are tiered and adjusted for inflation. As of the January 2025 adjustment, the per-violation maximums are:

Tier 1 (any violation): up to $11,823 for an individual or $118,225 for a firm.
Tier 2 (fraud or reckless disregard): up to $118,225 for an individual or $591,127 for a firm.
Tier 3 (fraud plus substantial losses to others): up to $236,451 for an individual or $1,182,251 for a firm.²²

These are per-violation caps, and a single enforcement action often involves many violations. Beyond money, the SEC can bar individuals from the securities industry permanently. In the most serious cases involving willful violations, criminal prosecution carries a maximum penalty of five years in federal prison and a $10,000 fine.²³

1
U.S. Securities and Exchange Commission. Regulation of Investment Advisers by the U.S. Securities and Exchange Commission
2
Office of the Law Revision Counsel. 15 U.S. Code 80b-3 – Registration of Investment Advisers
3
U.S. Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
4
North American Securities Administrators Association. The IA Switch Report
5
U.S. Securities and Exchange Commission. Transition of Mid-Sized Investment Advisers from Federal to State Registration
6
eCFR. 17 CFR 275.203(m)-1 – Private Fund Adviser Exemption
7
eCFR. 17 CFR 275.203(l)-1 – Venture Capital Fund Defined
8
U.S. Securities and Exchange Commission. Information About Registered Investment Advisers and Exempt Reporting Advisers
9
Investor.gov. Form ADV
10
U.S. Securities and Exchange Commission. General Instructions for Form ADV
11
eCFR. 17 CFR 275.204-3 – Delivery of Brochures and Brochure Supplements
12
U.S. Securities and Exchange Commission. Electronic Filing for Investment Advisers on IARD – IARD Filing Fees
13
U.S. Securities and Exchange Commission. Frequently Asked Questions on Form ADV and IARD
14
North American Securities Administrators Association. Exam FAQs
15
eCFR. 17 CFR 275.206(4)-7 – Compliance Procedures and Practices
16
U.S. Securities and Exchange Commission. Books and Records to Be Maintained by Investment Advisers – 275.204-2
17
eCFR. 17 CFR 275.204-1 – Amendments to Form ADV
18
eCFR. 17 CFR 275.206(4)-1 – Investment Adviser Marketing
19
U.S. Securities and Exchange Commission. Custody of Funds or Securities of Clients by Investment Advisers – A Small Entity Compliance Guide
20
U.S. Securities and Exchange Commission. Safeguarding Advisory Client Assets
21
Investment Adviser Public Disclosure. Investment Adviser Public Disclosure – Homepage
22
U.S. Securities and Exchange Commission. Inflation Adjustments to the Civil Monetary Penalties
23
Office of the Law Revision Counsel. 15 U.S. Code 80b-17 – Penalties