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Federal vs State Law

Federal versus State Law

QuestionAnswer
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
Created by: daspackard