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What is a Federally Covered Advisor?

The Investment Advisers Supervision Coordination Act of 1996 sought to delegate the responsibility of monitoring investment advisors between the states and the federal government.

It amended the Investment Advisors Act of 1940, which required all advisors to register with the SEC. The Dodd-Frank Act further amended the IAA, such that only advisors with assets under management exceeding $100 million had to register with the SEC. The IASC was part of the NSMIA legislation passed in 1996. Up until that point, all advisors were regulated and monitored by the SEC.

After the new law, advisers with assets under management (AUM) of under $25 million would be monitored and regulated by their state agencies, while advisors with AUM over $25 million would still be regulated by the SEC, or “Federally covered”.

The Investment Advisor Registration Depository (IARD) was created to facilitate the electronic notice filings of the SEC-regulated advisors, and the IARD is operated by FINRA. Advisors use this system to file Form ADV if they are required to report to the SEC.

The Dodd-Frank Act of 2010 took more of the burden off of the SEC’s shoulders by preventing advisors with under $100 million AUM from filing an ADV with the SEC.

The term Federally Covered Advisor is not used as much since the limit was raised and it applies to much fewer advisors than it used to.

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What is Due Diligence?

Keywords: Securities and Exchange Commission (SEC), regulations, FINRA, Dodd-Frank Act, Investment Advisers Act of 1940, IARD, Assets Under Management (AUM), state vs federal registration, Form ADV,