In Alabama, investment advisors (IAs) and investment adviser representatives (IARs) must register with the Alabama Securities Commission (ASC) unless they qualify for an exemption. This registration process aims to protect Alabama investors by ensuring that those offering investment advice meet certain standards of competence, integrity, and financial responsibility.
Who Needs to Register?
Any person or firm that provides advice to others regarding the value of securities or the advisability of investing in, purchasing, or selling securities, for compensation, generally must register as an investment advisor. This includes financial planners, portfolio managers, and other professionals offering investment advisory services.
An IAR is any individual who represents an IA or a federal covered advisor (an IA registered with the SEC) in providing investment advice. IARs must also register with the ASC if they have a place of business in Alabama or solicit Alabama residents as clients.
Exemptions from Registration
Several exemptions from registration may apply. Some common exemptions include:
- De Minimis Exemption: An investment advisor with no place of business in Alabama is exempt if they have no more than five clients who are Alabama residents during the preceding 12-month period.
- “Federal Covered Advisor” Exemption: Investment advisors managing $100 million or more in assets under management (AUM) are generally required to register with the SEC rather than state regulators. While technically not an exemption, they are not required to register with the ASC. However, these federal covered advisors may need to notice file with the ASC if they have a place of business in Alabama.
- Certain Professionals: Certain professionals, such as lawyers, accountants, engineers, and teachers, whose performance of these services is solely incidental to the practice of their profession, may be exempt.
Registration Process
The registration process for both IAs and IARs typically involves the following:
- Filing an Application: IAs must file Form ADV (Uniform Application for Investment Adviser Registration) electronically through the Investment Adviser Registration Depository (IARD) system. IARs file Form U4 (Uniform Application for Securities Industry Registration or Transfer).
- Examination Requirements: Most IARs must pass the Series 65 exam (Uniform Investment Adviser Law Examination) or hold a qualifying professional designation, such as a Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA). The Series 66 exam, combined with the Series 7 exam, may also satisfy the examination requirement.
- Background Checks: The ASC conducts background checks on applicants, including a review of criminal history and disciplinary actions.
- Financial Requirements: IAs may be required to maintain a minimum net worth or surety bond, depending on whether they have custody of client funds or securities or discretionary authority over client accounts.
- Paying Fees: Registration fees are required for both IAs and IARs.
Ongoing Compliance
Once registered, IAs and IARs are subject to ongoing compliance requirements, including:
- Updating Filings: Promptly updating Form ADV and Form U4 to reflect any material changes.
- Maintaining Records: Keeping accurate and complete books and records as required by the ASC.
- Compliance Manuals: Implementing and maintaining a written supervisory procedures manual.
- Annual Renewal: Renewing registrations annually and paying applicable fees.
- Ethical Conduct: Adhering to a fiduciary duty to act in the best interests of their clients.
Failure to comply with Alabama securities laws can result in disciplinary actions, including fines, suspensions, and revocation of registration. Seeking guidance from legal counsel experienced in securities law is highly recommended for anyone considering becoming an investment advisor or investment adviser representative in Alabama.
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