Federal Covered Advisor
Contents
Demystifying the Role of Federal Covered Advisors
Understanding the Concept of Federal Covered Advisors
A federal covered advisor, also known as a federal covered investment advisor or an SEC-registered investment advisor, is an entity registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. This registration signifies compliance with regulatory standards and grants legal authority to provide investment advice.
Navigating the Landscape of Federal Covered Advisors
Federal covered advisors play a crucial role in the investment landscape, offering advisory services to clients on matters related to securities and investments. They are subject to stringent regulations outlined by the SEC, ensuring transparency, integrity, and investor protection.
Exploring Regulatory Thresholds
The registration of investment advisors with the SEC is contingent upon meeting specific asset thresholds. Advisors with more than $110 million in assets under management (AUM) are mandated to register with the SEC. However, there are exceptions and nuances based on the advisor's jurisdiction, AUM, and the nature of their services.
Understanding the Categories of Advisors
Federal covered advisors are categorized based on their AUM:
Small Advisors: Advisors with less than $25 million in AUM are required to register with state authorities, except for those based in Wyoming, which necessitates SEC registration.
Mid-sized Advisors: Advisors with AUM ranging from $25 million to $100 million must adhere to state registration requirements unless exempted or based in New York or Wyoming.
Large Advisors: Advisors with AUM exceeding $110 million are mandated to register with the SEC, with certain exemptions available based on specific criteria.
Special Considerations in Advisor Registration
While AUM serves as a primary determinant for SEC registration, there are exceptions:
Advisors to Investment Companies: Advisors serving investment companies registered under the Investment Company Act of 1940 are obligated to register with the SEC.
Pension Consultants: Consultants advising employee benefits plans with significant AUM may register with the SEC, regardless of their own AUM.
Multi-state and Internet Advisors: Advisors operating in multiple states or exclusively through online platforms may qualify for SEC registration under certain conditions.