When an RIA reaches the $100 million threshold in regulatory assets under administration (RAUM), it is typically required to switch from registration at the state level to registration with the SEC. But while $100 million may be the general rule, in practice it’s not always the hard line. The reality is that volatility in the market and changes in the customer base can cause RIA’s RAUM to rise above or below his $100 million line. For this reason, the SEC’s registration rules include several issues to allow some leeway in determining when an RIA will be registered with the SEC.
For state-registered RIAs, it’s helpful to know when they can (and need to) register with the SEC, especially for companies near the $100 million threshold for SEC registration. Conversely, for an RIA that’s already registered with the SEC but whose RAUM is about to fall below the $100 million threshold, it’s helpful to know when it needs to revert to state registration.
The first important guideline for knowing when to register with the SEC is to understand that the registration requirement is typically triggered by the RIA’s year-end RAUM as reported on Form ADV, Part 1A. Companies that cross the threshold mid-year may enroll if they wish, but will only be required to switch after a Form ADV update has been submitted. In addition, there is a “buffer zone” for state-registered companies with year-end RAUM of $100 million to $110 million that may (but is not required to) register with the SEC. Companies don’t have to register with the SEC until they have at least $110 million at the end of the year.
Similarly, SEC-registered companies have a RAUM buffer zone between $90 million and $100 million that does not need to be deregistered (and reverted to state registration) until RAUM falls below $90 million at the end of the year. I have. However, if RAUM exceeds $90 million at any time during his 180 days after the end of his RIA’s fiscal year, he may choose to deregister and remain an SEC-registered company (at least accounting until the end of the fiscal year). If RAUM again he falls below $90 million, he could face the same situation).
Ultimately, it’s important for investment advisors to remember that you may have choices when deciding when to register (or deregister) with the SEC, and that the best strategy depends on how your assets is expected to change, and most importantly, may be determined by what changes. In the near future, you won’t have to go through the opposite process. An investment advisor only needs to consider enrolling or unenrolling once a year, but once that decision is triggered, it takes a lot of paperwork and careful time to avoid enrollment gaps. It becomes a complex process that requires line management. More than once!
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