Investment advisers in Massachusetts are required to register with the state before providing investment advisory services to clients. The Massachusetts Securities Division oversees the registration process, which aims to protect investors by ensuring advisers meet qualification and conduct standards. Understanding the key requirements and steps for investment adviser registration in Massachusetts is important for both new and existing advisers seeking to operate legally. This article will provide an overview of the registration process, including eligibility criteria, required disclosures, exam requirements, fees and ongoing obligations.
Eligibility Criteria for Investment Adviser Registration in Massachusetts
To be eligible for registration as an investment adviser in Massachusetts, the adviser must meet certain criteria outlined in the state securities laws and regulations. The main requirements include:
– Maintaining a place of business in Massachusetts – Advisers are required to have a physical office location in the state. Out-of-state advisers may still qualify through certain exemptions.
– Meeting asset under management thresholds – Advisers managing less than $25 million in client assets may be exempt from registration unless they meet other trigger criteria.
– Possessing requisite qualifications and passing required exams – Individuals giving investment advice are expected to meet expertise requirements and pass qualifying exams like the Series 65.
– Submitting a completed Form ADV – This SEC disclosure form provides essential details on the adviser’s business, services, fees and disciplinary history.
– Providing additional disclosures – Advisers must also submit supplemental forms, surety bonds and audited financial statements as mandated by the state.
Steps for Registering as an Investment Adviser in Massachusetts
Here are the key steps involved in registering as an investment adviser in Massachusetts:
– Take and pass the Series 65 or Series 7 and Series 66 exams as applicable for the adviser’s business model. These demonstrate competence in areas like securities regulations and ethics.
– Complete the Form ADV Parts 1 and 2 disclosure documents. Part 1 is submitted electronically to the IARD system. Part 2 is provided to clients.
– Submit the Form ADV and other required documentation along with registration fees to the Massachusetts Securities Division.
– Pass the required background check. The securities regulator reviews advisers’ histories for any disqualifying red flags.
– Obtain the surety bond based on AUM. Advisers managing up to $25 million require a $25,000 bond. The amount increases progressively beyond that.
– If required, submit audited financial statements prepared by a CPA within 90 days of the fiscal year end.
– After approval, make sure registration is renewed annually by submitting an updated Form ADV and paying renewal fees.
Ongoing Compliance Obligations for Registered Investment Advisers
Investment advisers registered in Massachusetts must abide by certain ongoing obligations and compliance responsibilities, including:
– Updating the Form ADV annually within 90 days of the fiscal year end or upon material changes to the business.
– Maintaining requisite net capital and submitting periodic financial statements if required.
– Communicating clearly with clients and providing mandated disclosure documents like the firm’s privacy policy and brochure.
– Retaining detailed records of investment recommendations, trades, communications and other operational data for inspection.
– Instituting a comprehensive compliance program with policies like a code of ethics, risk assessment procedures and internal reviews.
– Participating in periodic examinations by SEC and state securities regulators to validate compliance controls are working effectively.
Staying current on regulatory changes applicable to investment advisers and updating operations accordingly is also essential for maintaining compliance in Massachusetts.
Consequences for Failure to Register as an Investment Adviser
Acting as an unregistered investment adviser in Massachusetts when registration is required carries severe consequences. Violations can result in:
– Fines of up to $10,000 per violation
– Suspension or permanent barring of registration
– Imprisonment of up to 5 years
Additionally, unregistered advisers’ contracts are legally void meaning they cannot enforce advisory agreements or collect fees. Essentially, failing to register makes it impossible to conduct investment advisory business legally.
The regulators perform routine examinations to verify advisers are properly registered. They also follow up on complaints alleging lack of registration. Having detailed compliance policies and experienced legal counsel can help advisers avoid missteps in the registration process.
Proper registration is imperative for investment advisers seeking to provide services in Massachusetts legally and ethically. Understanding the state’s eligibility criteria, required exams, fees and documentation as well as ongoing compliance obligations enables advisers to successfully navigate the registration process. Periodic training and reviews help reinforce policies and procedures for maintaining active registration status.