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Federal vs State Law
Federal versus State Law
| Question | Answer |
|---|---|
| Definition of Investment Adviser: Any person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in securities including analyses or reports concerning securities | Federal |
| Definition of Investment Adviser: Any person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in securities including analyses or reports concerning securities | State |
| Exclusions from the Investment Adviser Definition: Banks, Lawyers, Accountants, Engineers, Teachers, Broker/Dealers | Federal |
| Exclusions from the Investment Adviser Definition: Banks, Lawyers, Accountants, Engineers, Teachers, Broker/Dealers | State |
| Exclusions from the Investment Adviser Definition: Publisher of any bona fide newspaper, news magazine, or other publication of general circulation; also any person whose advice relates solely to US government securities | Federal |
| Exclusions from the Investment Adviser Definition: Publishers of any bona fide newspaper, news magazine or other publication that does not consist of the rendering of advice on the basis of the specific investment situation of each client; also IAR's | State |
| Exempt from Registration: De minimis: fewer than 15 clients during the previous 12 months , none of whom is a registered investment company and does not hold himself out to the public as an investment adviser | Federal |
| Exempt from Registration: His only clients are insurance companies | Federal |
| Exempt from Registration: Intrastate business only and does not furnish advice with respect to securities listed on any national securities exchange | Federal |
| Exempt from Registration: He has no place of business within the state and his only clients are institutions such as investment companies, banks and trust companies, insurance companies, broker/dealers and other investment advisers | State |
| Exempt from Registration: He has no place of business within the state and he does not direct communications to more than 5 clients in the state during the previous 12 months (de minimis) | State |
| Registration: File form ADV with SEC. Effective within 45 days. No net capital requirements. Nosurety bonds. Annual updating report is filed on ADV Schedule I. Withdrawal of reg is on ADV-W. ADV must be amended promptly for key changes, 90 days after YE | Federal |
| Registration: File app with the Admin & pay initial & renewal (12/31) fees. There are net capital &/or surety bonds requried (custody or discretion). Effective at noon of the 30th day. Successor firm pays no fee until renewal. Auto reg any Adv Rep/part | State |
| Recordkeeping: Records must be kept easily accessible for 5 years | Federal |
| Recordkeeping: Generally 3 years for broker/dealers and 5 years for investment advisers | State |
| Fines/Penalties: $10,000 & 5 years in jail | Federal |
| Fines/Penalties: $5,000 & 3 years in jail | State |
| Custody of Customer Funds/Securities: SEC requires annual filing of audited balance sheet. If custody held by B/D subsidiary, investment adviser balance sheet still required. Auto draft for fee is considered custody. Balance sheet required if Adv/>$500 fe | Federal |
| Custody of Customer Funds/Securities: If not prohibited, with written notice to the Administrator. Requires minimum net worth or surety bond of $35,000 | State |
| Performance Fees: Prohibited unless: 1. Contract with investment company, 2. Certain institutions with more than $1 million in managed assets, 3. Certain clients with $750K under management or net worth over $1.5 million | Federal |
| Performance Fees: Not allowable, but compensation can be based on the total value of the accountaveraged over a definite period. An exception may be made to coordinate with federal law | State |
| Statute of Limitations for Civil Action: Sooner of 3 years after the sale or 1 year after discovery | Federal |
| Statute of Limitations for Civil Action: Sooner of 3 years after the sale or 2 years after discovery | State |
| A "Person": A natural person or company (includes a corporation, a partnership, an association, a joint stock company, a trust or any organized group of persons, whether incorporated or not). | Federal |
| A "Person": An individual, a corporation, an association, a joint stock company, a trust where interests of the bene's are evidenced by a security, an unincorporated organization, a government, or political subdivision of a government | State |
| Filing of Advertisements: No filing with the SEC ever | Federal |
| Filing of Advertisements: No filing for exempt securities or exempt transactions, otherwise filed with the Administrator | State |
| Private Placement Exemption: Up to 35 nonaccredited investors | Federal |
| Private Placement Exemption: Up to 10 offers within the state over a 12 month period. The term accredited investor is meaningless | State |
| Miscellaneous: No assignment of the contract may be made without the clients comment | Federal |
| Miscellaneous: No assignment of the contract may be made without the clients consent | State |
| Miscellaneous: The adviser, if a partnership, must notify the client of any change in the membership of the partnership | Federal |
| Miscellaneous: The adviser, if a partnership, must notify the client of any change in the membership of the partnership | State |
| Miscellaneous: The Brochure Rule | Federal |
| Miscellaneous: States don't have the brochure rule, but most administrators accept the ADV Part II | State |
| Miscellaneous: Withdrawal takes effect 60 days after filing the ADV-W | Federal |
| Miscellaneous: Withdrawal of registration takes effect 30 days after filing | State |
| Miscellaneous: May not use the initials R.I.A. on business cards or letterhead | Federal |
| Miscellaneous: Insolvency is not a cause for revocation | Federal |
| Miscellaneous: Insolvency is a cause for revocation | State |
| Miscellaneous: 30 million or more under management registers with the SEC | Federal |
| Miscellaneous: Less than $25 million under management registers with the state | State |
| Miscellaneous: Investment counsel may not be used unless: principal business is investment advice and substantial portion of his service is providing investment supervisory services | Federal |
| Miscellaneous: An investment adviser rep is an associated person of an adviser firm (not clerical) who: makes recommendations or otherwise gives advice;manages accounts fo clients; solicits or negotiates for the sale of advisory service; & super any above | State |
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daspackard
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