Advisers Must Prepare for Transition from SEC to State Registration

Mid-sized advisers must transition their registration from the Securities & Exchange Commission (SEC) to their applicable state authorities and are encouraged to begin the process as soon as possible to avoid serious consequences. 

As of July 2011, the SEC estimates that approximately 3,200 SEC-registered advisers would have to transition down to their applicable state authorities.

According to Section 410 of the Dodd-Frank Act, regulation of registered investment advisers (RIAs) with AUM between $25 million and $100 million must be registered by the states. The Securities & Exchange Commission (SEC) has set March 30, 2012, as the deadline for all SEC registered firms to file an amendment to their ADV forms. If AUM is below $90 million, the RIA must transition to state registration by June 28.

“It has been our experience that some states can take up to four months to process registrations, and we anticipate that this transition will create a serious bottleneck for many states,” said Zachary Gronich, founder of RIA in a Box. “If your firm has less than $90 million AUM, it must start transitioning well in advance. There are very serious consequences which must not be ignored.”

The final rules of the Dodd-Frank Act established a new “buffer zone” for mid-sized advisers. Under the old limits between SEC and State registration, there was a $5 million buffer from $25 million to $30 million to allow firms the flexibility of not having to switch back and forth between SEC and State registration. This buffer zone was amended and raised to $90 million to $110 million, meaning a mid-sized adviser must register with the SEC at $110 million AUM. Once a state-registered adviser registers and is approved by the SEC at the $100 million level, that adviser will not be required to de-register back to state level until their assets drop below $90 million.

As more firms start switching to state authority, the timeframes for registration are expected to increase, Steve Thomas, director of Lexington Compliance, a division of RIA in a Box, said during a webinar sponsored by the firm. He added that it’s critical to begin the filing process as soon as possible to avoid being out of business in the interim.

“[It’s a] huge problem for firms to wait until the last minute,” he cautioned.

Gronich said some states like California have more intensive registration processes than others.“If you’re in California, do not delay,” Gronich said, adding that the state has a minimum two months’ registration process.

Gronich also mentioned Florida, Massachusetts, Virginia, Michigan and Texas as having long or intensive registration processes.

The final rules are on the SEC website at:

More information from RIA in a Box is available by visiting or calling 866-611-7638.