Capital Markets Compliance®, LLC (CMC) specializes in providing regulatory guidance for firms that offer securities products as well as banks requiring market risk management reviews. Our clients range from U.S. and internationally based one-person retail broker-dealer operations to full-scale multi registered representative broker-dealers, investment advisers, investment bankers, bank affiliated broker-dealers, state and national chartered banks, credit unions, hedge funds, and financial holding companies.

The Broker-Dealer division offers hourly and flat fee compliance consulting concerning SEC, FINRA, NFA/CFTC, NYSE, AMEX, PCX, PHLX, CBOE, MSRB, ISE rules & regulations, hedge funds, and broker-dealer registration services. We also have an annual compliance program to keep your broker-dealer in compliance throughout the year.

The Investment Adviser division offers hourly and flat fee compliance consulting on state and SEC rules & regulations and investment adviser registration services. We also have an annual compliance program to keep your investment adviser in compliance throughout the year.

The Accounting/Bookkeeping division offers financial statement preparation, bill paying/administration, and payroll for broker-dealers, investment advisors, and many other types of financial industry entities.

The FINOP/CFO division has experienced financial industry accountants on staff with broker-dealer series license 27 or 28 that can serve as your Financial and Operations Principal (FINOP) and Chief Financial Officer (CFO) on an interim or permanent basis.

The Hedge Fund division offers hourly and flat fee compliance consulting and can help you through the process of starting and registering a hedge fund.

The Banking division offers hourly consulting concerning interest rate risk modeling, value-at-risk (VAR) methodology, independent risk management reviews, investment portfolio products, liquidity products, derivatives products, and securitization products. We can provide training in market and liquidity risk management to senior management, board of directors, and internal auditors.

The Insurance division offers hourly and flat fee compliance consulting concerning state insurance registration. We provide compliance services for insurance companies and broker-dealers that offer insurance products.

©1999 Capital Markets Compliance®. All Rights Reserved.

Our Investment Adviser division offers hourly and flat fee consulting on State and SEC rules & regulations. We also assist in the State and SEC registration process. We produce and update written supervisory procedures, continuing education needs analysis & written training plans, and execute form filings (Form U-4, Form U-5, Form ADV amendments, etc.) via WebCRD.

Our hourly and flat fee consulting services also include specialized projects, including mock regulatory examinations and branch audits.

Our Investment Adviser registration section can take you through the entire application process of becoming an investment adviser with the different types of regulatory agencies at the Federal and State level.

  Investment Adviser Registration

Capital Markets Compliance® can take you through the process of becoming a State or SEC investment adviser. Our qualified consultants will take you through the entire registration process from start to finish. The costs for the investment adviser registration process varies according to the structure, disclosures, fees and charges to customers, and whether you offer continuous and regular supervisory or management services.

We have helped hundreds of small to fortune 500 companies including banks, credit unions, and hedge funds register with SEC and the States. Click on the link below for more information about this service.

Call us and ask for our Prospect Coordinator and he/she we will set up a FREE telephone appointment to speak with one of our expert consultants. An initial call with our expert consultnat will typically take between 30 and 45 minutes to discuss the following items:

  Items to cover in your FREE telephone appointment with one of our expert consultants

• The exact types of services you will want to offer through your IA firm.
  
  
• Will you want to offer wrap programs?  If so, will the IA serve as “manager,” “sponsor,” or will it simply select wrap programs that are sponsored/managed by outside parties.
  
  
• Types of fees you would like to charge and how charged (i.e. quarterly, monthly, arrears, in advance).
  
  
• The types of clients you expect to have.
  
  
• Whether the firm will have discretionary authority for trading client accounts.
  
  
• Do you intend to vote proxies on behalf of clients?
  
  
• Do you expect to have situations that cause the firm to be considered to have custody of client assets (funds or securities)?  (examples: physical possession or control of funds or securities, including check writing ability over client brokerage accounts or non-brokerage depository accounts)
  
  
• Dollar amount of assets under management (“AUM”) you expect to have within the first 120 days of operation.  (See the attached document titled, “Calculation of Assets Under Management” for details.)
  
  
• Prospective broker-dealer of record and/or custodian?
  
  
• # individuals (Investment Adviser Representatives, or “IARs”) offering investment advice on behalf of the firm.
  
  
• Do all IARs have the S65?  (See licensing information within this web page..)
  
  
• States (home state and others) in which you will be offering investment advisory services.
  
  
• Whether you anticipate having any solicitor (i.e. referral) arrangements in place?
  
  
• Legal entity type and formation (i.e. LLC, corporation, state of formation)?
  
  
• Will the new IA firm be affiliated (i.e. under common control or ownership) with an affiliated IA firm that is currently or in the process of seeking IA registration with the SEC?

Subsequent to the preliminary phone call our expert consultant and after determine the type of investment adviser that you wish to create, the consultant will provide you with a detail proposal based on the type of business you wish to offer. Our proposal will include registration with the SEC or State(s).

FAQ regarding the application process. Click on the menu below for more information:

  SEC Registration VS State Registration

Prior to beginning the IA registration process, you will need to determine your primary regulator – the SEC or your home state. Generally speaking, this determination will be based on your firm’s current dollar amount of Assets Under Management (AUM), or the dollar amount of the assets you expect to have under management within 120 days of becoming registered. 

The National Securities Markets Improvement Act of 1996 created the segmentation of regulatory jurisdiction for IA firms.  This act provides a “line in the sand” that helps to categorize all IA firms as being subject to either federal or state registration/regulation.  The primary defining point of this segmentation involves the size of the IA, which is generally measured by the dollar amount of assets it manages. 

 

$ AUM	Governing Jurisdiction
Below $25 million	Typically subject to state jurisdiction
Between $25 million but below $30 million	“Option” to register with the SEC but can remain at state level and may be required to maintain registration at the state level if unable to satisfy a state IA exemption.
$30 million and above	Typically subject to SEC jurisdiction
Other factors may dictate regulatory jurisdiction and certain exemptions are available for both federal and state registration, however, the preceding categories will determine the primary regulatory body for the majority of IA firms.

 

Firms that have less than $25 million of assets under “continuous and regular” management generally must register with the state or states in which they have a place of business and in which they have clients.

Firms that have more than $30 million under management must register with the SEC.  Between $25 million and $30 million the firm is allowed to register with the SEC or it can still maintain a registration with any applicable states. (There are other ways in which a firm that would normally be subject to state registration can actually seek federal registration, such as acting as an investment adviser in 30 or more states.).  Firm's that "register" with the SEC typically will need to "notice file" with their home state and other states in which they have clients.

If a firm is not required and otherwise does not qualify for SEC registration as an IA, it would typically need to "register" with its home state and other states in which it has clients.  The notice filing and registration processes with the states are similar but are not identical. 

  SEC Registration Process

SEC Jurisdiction

Registering with the SEC as an IA involves completing the Form ADV and filing Part 1 electronically via the CRD/IARD system.  The SEC reviews the ADV and will normally complete their review of the application within 30-45 days.  You do not need to send Part 2 and Schedule F of the Form ADV to the SEC, but it does need to be completed so that it can be distributed to clients once the firm is approved to conduct business as an IA.

State Notice Filings for SEC-Registered Firms

In lieu of “registering” directly with the states in which an SEC-registered IA does business, the firm typically must “notice file” in any state in which the firm has a place of business or more than 5 clients.  This is generally accomplished by identifying on the Form ADV the particular states in which the firm may require notice filing. 

Similar to the state registration process, a notice filing with a state jurisdiction by a federally registered firm will typically carry the same financial cost.  In other words, state registration or notice filing fees are generally the same.

  State Registration Process

State Jurisdiction

Registering with the various states is typically more cumbersome than registering with the SEC.  In addition to filing Part 1 of the Form ADV online for the states to review, you must submit various hard copy materials to the states in connection with your IA application.  These materials vary by state, but generally include some of the following:

• Part 2 and Schedule F of the Form ADV;
• A sample advisory contract;
• Organizational documents;
• Financial statements;
• Proof of passing the required IA qualification examinations;
• Firm and IAR registration fees;
• IAR fingerprints; and/or
• Various state-specific forms.

Once the state receives the application and reviews the materials, it is not uncommon that it will issue a letter requesting clarification or that certain changes be made to the Form ADV.  Depending on the state’s workload, approval usually takes 30-60 days after all of the application materials have been submitted.

  Investment Adviser REpresentative: Definition, Registration, Licensing/Examination Requirements

Definition of Investment Adviser Representative

The states (not the SEC) have jurisdiction over the registration of the individuals (i.e. IARs) who provide advice on behalf of the IA.  Each state has its own definition of IAR, but the definition generally includes all individuals who provide advice to clients, determine which advice should be given, solicit advisory services, or supervise employees who perform any of the foregoing functions.

IARs of SEC-registered firms generally must register in their home state, and may require registration in states in which they have a place of business.

IARs of state-registered firms generally must register in their home state and, typically, in any state in which they have more than 5 clients or a place of business.  These requirements may vary on a state-to-state basis based on the state’s definition of IAR and the state’s registration requirements.

Representative Registration Process

The process for registering as an IAR is accomplished by preparing and filing a Form U4.  The Form U4 is available through the CRD system and thus, is filed electronically along with the IAR registration fees. 

Some state jurisdictions will require IARs to be fingerprinted and may even require the fingerprints to be submitted on that state’s own fingerprint card.  Some state jurisdictions may also require certain other forms or information to be submitted on behalf of an IAR seeking registration. 

Finally, if an IAR has any disclosure history, his/her registration process may be delayed or rejected entirely.  Included in the category of “disclosure” history, are the following:

• Adverse regulatory actions;
• Customer complaints/arbitrations;
• Bankruptcy (personal or for a company the IAR owned or controlled);
• Criminal history; or
• Violations of securities industry rules/regulations.

Failing to provide complete and truthful details about any of these sorts of situations/events can create significant headaches in an IAR’s registration process and possibly even the firm’s IA application. 

Licensing/Examination Requirements

In virtually all states, the Series 65 Uniform State Law Investment Adviser Examination would satisfy the state licensing requirements for individuals serving in the capacity of an IAR in or with residents of that state.  Many states will recognize certain designations in order for an individual to satisfy his/her licensing requirements as well.  Some of these are as follows:

(note – not all states recognize these designations)

• CFA – Chartered Financial Analyst, granted by the Association for Investment Management and Research;
• ChFc – Chartered Financial Consultant awarded by The American College, Bryn Mawr, Pennsylvania;
• CFP – Certified Financial Planner, awarded by the Certified Financial Planner Board of Standards, Inc.;
• CIC – Chartered Investment Counselor, granted by the Investment Counsel Association of America;
• PFS – Personal Financial Specialist administered by the American Institute of Certified Public Accounts;
• CIMC – Certified Investment Management Consultant, granted by the Institute for Investment Management Consultants; and
• CIMA – Certified Investment Management Analyst, granted by the Investment Management Consultants Association.

Before attempting to determine whether a state will recognize these designations in lieu of an IAR’s licensing requirements, it is important first to identify the states in which the IAR intends to conduct IA business from as well as the states in which the IAR has or expect to have clients.  Once the applicable states are identified, it should be possible to then determine the specific licensing requirements or available waivers/exemptions.

Note Regarding Supervisory Personnel:

In the IA world as opposed to a BD, things are much simpler in terms of licensing from a supervisory standpoint.  There are not any “supervisory” exams/licenses for IARs like there are for registered representatives (“RR”) of a BD.  The investment advisory activities of a firm do not require any specific supervisory licensing, however, any individual meeting the definition of an IAR in the particular state jurisdictions in which he/she operates, would typically have to satisfy some licensing requirement (Series 65 or Series 66) or qualify for one of the waivers/exemptions described above. 

A handful of states will ask for an IA firm to identify an individual as a “designated supervisor” on behalf of the firm for its investment advisory activities, however, no additional testing/qualifications are typically required for that person.  Do not let this cloud the issue for you from a BD licensing perspective.  For a firm that is registered as a BD, there are a handful of BD supervisory licenses/exams (Series 4, Series 24, Series 26, Series 27, Series 53, etc.) that may be required because of a firm’s BD-related activities, however, even though a firm’s BD-related activities may require it to have supervisory licensed individuals for those BD activities, the firm’s IA activities alone would not generally mandate those licenses. 

Recap:

Firm is an IA Only	Firm is an IA and a BD	Firm is a BD Only
No supervisory license(s)	No supervisory licenses for IA business, HOWEVER, BD business would require supervisory licenses (Series 24, Series 26, etc.)	BD business would require supervisory licenses (Series 24, Series 26, etc.)

Dual Association (BD and IA)

It is important to note that if an IAR is also registered as an RR with a BD, the registration process as an IAR is separate than the process for registering as an RR.  Even if the firms are affiliated or if a firm is dually registered as both an IA and a BD, registering as an IAR does not automatically register the person as an RR also.  IARs and RRs must satisfy separate licensing requirements. 

  Solicitor Arrangements

Solicitor Arrangements

Under certain circumstances, IAs may be able to pay outside parties for client referrals.  Prior to entering into such an arrangement, the IA must typically sign a “solicitor agreement” with the referring party that details the nature of the relationship and the compensation arrangement involved.  Additionally, depending on the circumstances of the referral, the referring party may need to furnish the potential client with a “solicitor brochure” that describes the solicitor arrangement.

Depending on state law, the referring party may need to become registered as an IAR of the firm prior to being compensated for client referrals or seek its own registration as an IA. 

Proxy Voting

IAs may vote proxies on behalf of their clients.  Additional written procedures need to be in place and the firm needs to maintain and make certain proxy-related records available to its clients and regulators upon request.

Custody

IAs may have custody over client assets.  Custody is not necessarily confined to physically housing client funds or securities.  An IA may be deemed to have custody in any of the following situations:

• The IA has the ability to directly withdraw advisory fees from client accounts;
• The IA has check-writing authority over client’s bank accounts; and
• The IA is also the General Partner (or Managing Member) in an investment-related limited partnership (or limited liability company) (i.e. hedge fund).

Depending on the firm’s primary regulator (SEC or home state), certain additional requirements may apply to IAs that have custody of client assets.  Examples of such requirements include, but are not limited to:

• An increased net capital requirement;
• An annual surprise audit by a CPA; and
• Sending periodic statements to clients pertaining to the assets over which the firm has custody.

Wrap Programs

Many advisers participate in wrap fee programs.  A “wrap fee program” is a program that offers participants a suite of services such as asset allocation; portfolio management; trade execution; and certain administration activities, all for a single fee – typically an annual percentage of the client’s total assets under the investment adviser’s management.  In such a program, the client would not pay a separate fee for brokerage or execution fees (i.e. transaction fees).  A wrap fee program is designed to assist clients in obtaining professional asset management services for a convenient single "wrapped" fee. 

Rule 204-3(f) under the Advisers Act requires a sponsor of a wrap fee program to prepare a "wrap fee brochure" that provides, in narrative form, a full explanation of the program and its sponsor, and to deliver the wrap fee brochure to wrap fee clients. 

An investment advisory program under which all clients pay traditional, transaction-based commissions would generally not be considered a wrap fee program.  Similarly, a program under which client assets are allocated among mutual funds may not be considered a wrap fee program if there would normally not be a charge to the client for the individual trades involved in the allocation process. 

Schedule H to Form ADV sets forth the information required in the wrap fee brochure. The wrap fee brochure must be prepared by the "sponsor" of the wrap fee program, i.e. the person that, for a portion of the fee, sponsors, organizes, or administers the program or recommends portfolio managers under the program. Some wrap fee programs will have more than one sponsor, in which case only one of the sponsors, as selected by the
sponsors, needs to prepare the wrap fee brochure.

An investment adviser providing portfolio management services to wrap fee clients is not a sponsor unless it performs other duties that would cause it to fall within the definition.

Wrap fee programs and other discretionary advisory programs that provide similar advice to a number of clients should be structured in a manner designed to avoid the creation of an unregistered investment company. The Commission has adopted Rule 3a-4 under the Investment Company Act of 1940 to provide a non-exclusive safe harbor from the definition of an investment company for advisory programs that meet certain requirements.  In other words, an improperly structured wrap program may create a registration requirement for the program as an “investment company” under the Investment Company Act of 1940.

  How much does CMC charges to take my Firm through IA registration process

The costs for the investment adviser registration process varies according to the structure, disclosures, fees and charges to customers, and whether you offer continuous and regular supervisory or management services.

  What CMC services are included in the registration process?

• Preparation and submission of IARD entitlement paperwork.
  
  
• Preparation of the Form ADV Preparation and submission of all necessary SEC or state RIA application materials for up to three (3) jurisdictions (i.e. SEC plus two state notice filings or firm's home state plus two additional states).
  
  
• Preparation of the initial Schedule F disclosures.
  
  
• Preparation of the Client Advisory Agreement (CMC does not offer legal or tax advice).
  
  
• Preparation and filing of initial Form U4s for two (2) individuals.
  
  
• Respond to SEC or state information requests regarding the application.
  

  What are the fees charged by the IARD system for an SEC Investment Adviser Registration?

Assets Under Management	Initial Set-Up Fee	Annual Fee
Under $25 Million	$150	$100
$25 Million - $100 Million	$800	$400
Over $100 Million	$1100	$550

Regulatory filing fees are subject to change without notice.

  What are the IARD System Regulatory Filing Fees for investment adviser representatives?

Initial Setup Fee: $45	This one-time fee is charged when your firm transitions an existing investment adviser representative onto the IARD system to create and electronic record of his/her registration. For a new registrant, this one-time fee is charged when your firm electronically files a U-4 for the new investment adviser representative.
Annual Fee: $45	This fee is charged once a year during the IARD renewals program for each investment adviser representative with your firm and covers all electronic filing activity for the next year.
Transfer Fee: $45	This fee is charged when an investment adviser representative changes his/her registration from one firm to another via the IARD system.

Regulatory filing fees are subject to change without notice.

 

 

 

©1999 Capital Markets Compliance®. All Rights Reserved.

Our Banking division offers hourly consulting and auditing services concerning interest rate risk modeling, value-at-risk (VAR) methodology, independent risk management reviews, investment portfolio products, liquidity products, derivatives products, and securitization products. We can provide training in market and liquidity risk management to senior management, board of directors, and internal auditors.

©1999 Capital Markets Compliance®. All Rights Reserved.

Our FINOP/CFO division has experienced Financial and Operations Principals available on an interim or permanent basis. We have accountants that are engaged as broker-dealers' series 27 or 28 FINOP's and CFO's for multiple type of broker-dealer firms including small to, fortune 500 companies, banks and credit unions. Each of our accountant that registers with a firm as a principal, whether it is financial or otherwise is placed in a position of responsibility to that firm and themselves, both of which would suffer the consequences should regulatory actions be taken upon the firm. With that thought in mind, we have created a work methodology that ensures compliance with financial regulations, as well as provide for some general compliance help when the accountant feels the need to interject an opinion with regards to the firm's business practices.

We visualize a compliant firm, whether that means compliant with financials, business product types, or sales practices, to be one that keeps the firm's principals and representatives protected and therefore the clients/customers.

©1999 Capital Markets Compliance®. All Rights Reserved.

Our Accounting/Bookeeping division can prepare your firm's financial statements, pay your bills, and help you with payroll. We have many different types of financial packages and accounting solutions to fit your needs. Your firm's financial statements will be prepared by accounting professionals with financial industry experience.

Our professionals are experts on all complex net capital computations for broker-dealers, investment advisers, and other types of financial industry entities.

©1999 Capital Markets Compliance®. All Rights Reserved.

©1999 Capital Markets Compliance®. All Rights Reserved.