Texas Investment Advisor Registration
In Texas, investment advisors (IAs) and investment adviser representatives (IARs) must register with the Texas State Securities Board (SSB) unless they qualify for an exemption. This registration process ensures that individuals and firms providing investment advice to Texas residents meet certain standards of competence, integrity, and disclosure.
Who Needs to Register?
Generally, anyone who is “in the business” of advising others, either directly or indirectly, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities for compensation needs to register. This includes financial planners, wealth managers, and portfolio managers. There are some key exemptions to this requirement.
Key Exemptions
- Federal Covered Advisors: Investment advisors registered with the Securities and Exchange Commission (SEC) do not need to register with the SSB. However, their IARs who have a place of business in Texas generally do need to register.
- De Minimis Exemption: An investment advisor who has no place of business in Texas and who has five or fewer clients who are Texas residents may be exempt.
- Certain Professionals: Lawyers, accountants, engineers, and teachers whose performance of investment advice is solely incidental to the practice of their profession, and who receive no special compensation for their investment advice, may be exempt.
The Registration Process
The registration process involves several steps, primarily conducted through the Financial Industry Regulatory Authority’s (FINRA) WebCRD/IARD system. Here’s an overview:
- Form ADV Filing: Investment advisors must file Form ADV electronically. Part 1 of Form ADV collects information about the advisor’s business, ownership, clients, and disciplinary history. Part 2, the “brochure,” provides detailed information about the advisor’s services, fees, conflicts of interest, and educational background.
- Examination Requirements: IARs must generally pass either the Series 65 exam or a combination of the Series 7 and Series 66 exams. Certain professional designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC), may waive examination requirements.
- Background Checks: The SSB conducts background checks to assess the applicant’s suitability for registration. This involves reviewing criminal records, regulatory history, and other relevant information.
- Fees: Registration fees apply. These fees vary depending on the size and type of the advisory firm.
- Ongoing Compliance: Registered investment advisors are subject to ongoing compliance requirements, including annual updates to Form ADV, maintaining accurate records, and adhering to ethical standards. The SSB conducts routine examinations to ensure compliance.
Importance of Compliance
Failing to register or comply with Texas securities laws can result in severe penalties, including fines, cease-and-desist orders, and even criminal prosecution. It is crucial to understand the registration requirements and maintain a robust compliance program to protect investors and maintain a good reputation.
Where to Find More Information
The Texas State Securities Board website (ssb.texas.gov) provides comprehensive information about investment advisor registration, including applicable statutes, rules, and forms. Consulting with legal counsel specializing in securities law is also recommended.
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