How to Become a Registered Investment Advisor

Registering an Advice Body
The advisor manages the assets of individuals and institutional investors, and performs the fiduciary duty to their clients of choosing the best possible investments for them, and providing full disclosure of transactions and ensuing fees. The investments may be in the form of stocks, mutual funds, hedge funds, or a combination of one or more forms of investment.

Registration of an investment advice body can be done in three ways, depending upon the sum of market value of assets being managed by that firm. This sum, commonly known as Assets Under Management (AUM), forms the basic registration criteria for the process of registration. While the exact definition of AUM is not clear, for registration purposes, the definition given under Form ADV Part 1, of the SEC, is used.

To register your investment advice firm with the SEC, you have to first determine the amount of AUM that your firm is managing. The amounts can be divided into 3 categories:

1. Up to $25 million
2. between $25 million and $30 million
3. above $30 million

Up to $25 Million
If your investment advice firm is not currently managing a sum of $25 million and does not anticipate managing $25 million within 120 days of registration, the firm has to register itself with the state in which it is operating.

$25 to $30 Million
If your AUM ranges between $25 and $30 million, you have the choice of either registering with the SEC, or with the state in which your firm is operating.

Above $30 Million
If your AUM is over $30 million, then the registration has to be done with the SEC.

Becoming an Investment Advisor
The first step is to figure out your AUM and the jurisdiction under which your investment advice firm falls. The firm has to pay the service provider fees to either the SEC or the state. If registered with the state, the fee comes to between $2,500 and $3,500, while for registering with the SEC, your firm might have to shell out anything between $4,000 to $8,000, depending upon the size and diversity of your portfolios.

As the firm is being registered, the registration bodies would feel compelled to test the knowledge of the investment managers and advisors, to ensure their accountability and investors’ safety. No test needs to be given if the advisor/manager is already qualified as a Chartered Financial Planner (CFP) or a Chartered Financial Analyst (CFA). But in case thy are not equipped with the above qualifications, they are required to give the Series 65 exam two years prior to registration, although many states allow registration on the basis of having given the Series 7 and Series 66 examinations.

Along with the examinations, you have to fill various forms such as the Registration Depository Form (IARD); Form ADV, which is mandatory for all investment advisors; Form ADV Part II, which covers all the information on activities of a registered investment advisor; and Form U4 which has to be filled by those people who represent the advisor.

Actually, a very small amount of advisory firms get themselves registered. A registration does not necessarily mean that the firm or individual is recommended by the SEC or any such body. However, it is considered safer to ‘bank’ upon registered advisors, as they are under the control and supervision of the SEC.

Questions to Ask a Financial Planner

A financial planner is a practicing professional who helps people deal with personal financial issues in areas like cash flow management, retirement planning, investment planning, risk management, tax planning, estate planning, and even business succession planning. Basically he/she is a person who will help you, if you have no clue on how to go about handling and managing your finances. In case you are hiring the services of a planner, there are certain things that you should be clear.

Important Questions to Ask

What are your areas of specialization (if any)?
It is always better to have a person who specializes in an area that you need help with – be it taxes, investments, or insurance. A specialized person can definitely help you better than someone who is a jack of all trades.

For how many years have you been in this profession?
This question helps to build credibility since you don’t want a dabbler to handle all your finances. It is also better to have references from credible clients. Do not hesitate to confirm the credibility, after all, you need to establish trust to hand him/her the rights to plan your financial matters.

How exactly can you help me manage my expenses?
This question will help you fathom, how exactly your relationship will work. This is an important question which will define the terms and conditions of the contract, and the responsibilities of your planner.

Do you have clients with similar needs?
This will guarantee whether the planner has experience in providing advice on similar products or a specific product that you are looking for. It would help if you can contact these clients and get their feedback on his/her services.

What is the remuneration that you are looking for?
Be very clear and specific while discussing the remuneration, since money matters are to be handled very carefully. Make sure you have a documented record or contract to define your agreement on the remuneration.

Do you have any questions for me?
It’s fairly obvious that there’s a correlation between how well an adviser understands your needs and the quality of the advice you get. That said, it’s important that your planner asks the kinds of questions to help you meet your goals, even the ones you haven’t thought to identify.

Remember, there are three important things that you should seek in a financial planner – his ability to guide you in matters of finance, to help you grow financially, and most importantly to ensure security of your investments.