10 MIN READ
Navigating the regulatory landscape on your own as a financial advisor is nothing short of intimidating, especially when you're trying to simultaneously launch a firm. But however overwhelming and unglamorous as compliance may seem, it's also unavoidable. Advisors simply can't ignore it.
But you also don't have to figure everything out yourself. Because we're in the business of helping people, when you become a member of XYPN, you no longer have to handle compliance on your own. We provide services for all advisors, from those who need to register and launch their own RIA to existing firms who need to think about annual updates and how to deal with regulators.
To give you a better understanding of how XYPN helps advisors handle compliance requirements, we compiled the most commonly asked questions our Compliance Team fields here at XYPN. From designations to dual registration, we have answers to the compliance conundrums keeping you up at night.
General Registration Requirements
What exam/licenses do I need to register as an Investment Advisor?
Series 65 is the most common, or Series 7 & 66 if you are coming from a broker-dealer.
If you have an active series 7 & 66, your series 7 will expire 24 months after no longer being registered with a B/D, and your series 66 will remain active to satisfy the RIA requirement.
Do I need to have passed the required exam(s) to start the initial registration process with XYPN?Yes. Our process is built around getting your firm registered as quickly as possible, after you have met the exam requirements. If you have not yet scheduled or taken your exam, our Compliance Team is still available to help you navigate that process prior to engaging the team for initial registration.
Designations & Exam Waivers
What designations exempt me from the license or exam requirement to register as an investment advisor?The CFP, PFS, CFA, CIC, or ChFC will typically satisfy the exam/license requirements. No other examinations will satisfy the requirement.
Minimum Experience Requirements
Is there a minimum experience requirement in order to register as an investment advisor?
Minnesota requires that at least one management person in the firm meet their experience requirement which requires that “at least one person employed full time in a supervisory capacity, by the applicant for a license, was actively engaged in the securities business in a similar supervisory capacity for a minimum of three of the preceding five years.” - Minnesota Rule 2876.4120
Through XYPN’s Compliance Coaching Services, you may be able to satisfy this requirement if you do not otherwise meet the minimum experience requirement. In this case, during the initial registration process, the regulator would request a draft of our consulting agreement to show that our consultants will be actively assisting you in the implementation and management of your compliance program.
Business Entity Formation/DBA or Trade Name
Can my business name differ from the legal name of the business that is filed with the state?Yes, you can typically have a DBA or Trade Name that your firm operates under as long as it is disclosed on your ADV Part One. Many states do require that you file your DBA or Trade Name with their business division (the same division that you would have filed with to form your entity) in order to operate under that name. You will want to check with your state on their filing requirements for businesses using DBAs/Trade Names.
The Initial Registration Process with XYPN
What documents does XYPN help us draft during the initial registration process?
Our Compliance Team will help you draft all compliance documents your state requires to get your firm registered. This will always include your Form ADV Part 2A and 2B and your Client Agreements as well as a wrap fee brochure if applicable.
Outline of Process
What is the process for initial registration when working with XYPN?Our Compliance Team breaks it down into a few steps to get your firm registered as quickly as possible:
- Step 1: Information Gathering via electronic questionnaires, Finra Firm Gateway setup, and Funding of your Ebill account for state registration fees.
- Step 2: Initial document drafting. (Form ADV and Client Agreements), Your review of our drafted documents for your firm via Google Docs and then finalizing the documents for submission.
- Step 3: Submission of Form ADV via the Finra Firm Gateway to initiate the application for RIA registration with your state regulatory authority. We will then prepare your Form U4 draft and send it to you for review. We will never file the Form U4 without your authorization to do so, in order to avoid notifying your current RIA or BD employer, if applicable.
- Step 4: Prepare and submit any additional state required documents. Our team will send you instructions for any additional forms that your state may require such as a balance sheet, surety bond, affirmation of prior business activity, etc… The required documents vary significantly from state to state. Our compliance team will let you know what is required and how to submit those documents.
- Step 5: Receive & Address any regulatory comment letters following the state’s initial review of your ADV, client agreements, and other submitted documents. We will typically facilitate all communication with the state and prepare and submit response letters on your behalf unless instructed otherwise by the state. We will also submit any revised documents back to the state as needed. Keep in mind that the review time by state regulators can take anywhere from 2-6 weeks based on volume or registrations and their staffing, however in many cases we see their initial review and comments turned around in 2-4 weeks on average.
- Step 6: State will conduct a follow up review and send back any remaining comments (Repeating Step 5 as needed) or your firm’s registration will be approved at this time!
Timing of Initial Registration
How long does it take to get registered as an investment advisor?
It will typically take 2–4 weeks to draft, review, and submit all necessary paperwork to the state from your Form ADV & Client Agreements to any additional state documents that may be required. We will work with you to complete the document preparation, review, and submission as quickly as possible.
Once all documents have been submitted to the state it can take 3–6 on average for the state to complete their review(s), send back questions, comments, and/or required changes, and us make any necessary revisions and send back response letters to their comments along with the revised documents.
The review times and processes vary significantly from state to state based on their staffing and current volume of registrations. Some states may take significantly longer at times and we will work with you to ensure that this time is still used effectively.
Registering while employed by a Broker-Dealer or RIA
I am currently employed by an RIA or a Broker-Dealer. When would they be notified of my registration or when would I need to notify them of my resignation in order to register my firm?
In most states, we can wait to file your Form U4 until the final step, after the state has completed their regulatory review of your firm’s registration application. Filing your Form U4 is what would subject your current firm to notification of your pending registration with another firm via your Finra CRD Record.
You should carefully review any non-competes, non-solicitations, or other employment contracts that you have in place with your current firm to ensure that you do not violate those agreements. Seek legal counsel if you do not fully understand the contents of those documents or what is and is not enforceable.
Being registered with more than one RIA Firm
Dual Registration with two RIAs
If I work for another firm as an advisor, can I still start my own RIA if I plan to continue working for the other RIA firm?Many states do permit dual registration, allowing you to be registered with more than one firm simultaneously. However, there are states that either prohibit dual registration of IARs or have certain requirements that need to be met. You will need to confirm with your state’s securities division whether or not they permit dual registration.
Working for a Non-Fee Only RIA while owning a Fee Only RIA
Do both RIAs need to be fee-only to join XYPN?Yes. Due to the conflict of interest created when you are registered with a non-fee-only RIA as well as your fee-only RIA, you would not be able to hold yourself out as a fee-only advisor because you have the ability to simply refer clients to the non-fee-only RIA so that you can sell commissionable products while operating under that firm.
Registering with the State(s) versus the SEC
Can I register with the SEC since I will have clients all over the country?
Not necessarily. You must have at least $100,000,000 in regulatory assets under management in order to register with the SEC or be subject to the registration requirements of at least 15 states.
If you believe your firm will be managing over $100,000,000 within 120 days of your registration being effective you can file for SEC registration but will be required to withdraw that registration and file with the individual states where applicable if you do not meet that requirement within 120 days. We only recommend that path if you are certain you will exceed that amount within 120 days and therefore want to avoid additional costs and lost time by needing to register in different states.
Can I work with clients in other states if I am not registered in that state?Yes, all states except for Texas & Louisiana have similar de minimis exemptions allowing you to work with up to five clients in those states before needing to register in the state. All states have different registration requirements and fees associated with filing in their state. We charge $800 for each additional state registration and can help you through that entire process as needed when the situation arises.
Adding TD Ameritrade as a custodian
I am an existing or newly registered firm who needs to add TD Ameritrade. What is required and can XYPN help?Our Compliance Team can provide you with the necessary information to update your ADV so you can make the changes yourself, or they can help you knock out the required changes through our Premium ADV Update Service, which costs $300. Through this service, our Compliance Team will make and review all necessary changes, update client agreements as needed, and submit the amended filings on your behalf. You can also schedule a 60-minute call with the team to work through these changes together.
Fee-Only Status/Adding Non-Fee Only Advisors
If we bring on a partner or advisor who wants to sell insurance or non-fee only products, even at another firm, will that impact our fee-only status?In order for your firm to be fee-only, all registered persons at the firm must operate in a fee only capacity. Adding a non-fee-only advisor would make the firm not fee-only.
Compliance Coaching Program - Who can attend calls?
Through the Compliance Coaching Services, does the member have to be the one on the calls or can another member of the firm (or both) attend the coaching calls?
The CCO must attend the initial coaching call and at least two additional calls throughout the year. All other calls can be delegated to whoever is most appropriate in the firm to handle the compliance program and assist the CCO. They do not need to be an XYPN member.
You agree to the following when you sign XYPN's coaching agreement:
The first month of our compliance coaching service is designed to help you gauge the current status of your compliance program and to develop an effective plan going forward in order for you to consistently maintain the compliance program for your firm. As CCO you are responsible for maintaining adequate supervision over your compliance program and those who are registered with and/or employed by your firm. The Firm’s CCO must attend the initial consultation call. The CCO may delegate future calls to an authorized contact person of the firm as needed, however, the CCO must be present during a minimum of 2 additional calls each year thereafter.
Compliance Coaching Program – Minimum Commitment
Is there a minimum commitment to the Compliance Coaching Program or can we cancel at any time?There is no minimum commitment other than providing 30 days notice of termination. However, the program is designed to assist you over at least 12 months to develop and/or refine your compliance program. To get the most out of the program, we strongly suggest engaging in the program for at least 6 to 12 months and evaluating the continued need for it after that time.
About the Author
As XYPN's Director of Compliance, Travis Johnson leads the Compliance Team in the development and delivery of all of XYPN's compliance offerings and resources. Travis leverages his years of experience as a member of XYPN's Compliance Team, as well as prior experience building and running operations and compliance programs within RIAs to provide practical insights into the application of compliance rules, regulations, and industry best practices.