RIA Compliance and Practice Management Blog

Does FINRA Regulate Registered Investment Adviser (RIA) Firms?

Posted by RIA in a Box

Jun 14, 2014 10:30:00 AM

One of the most common investment adviser compliance questions related to the registered investment adviser (RIA) registration process is what role does FINRA play in the regulation of RIA firms? FINRA, the acronym for the Financial Industry Regulatory Authority, is a private entity that acts as a self regulatory organization (SRO) for broker-dealer firms. Before FINRA, there were a number of similar private regulatory organizations including the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE). The Securities and Exchange Commission (SEC) approved the merger of the previous self-regulatory organizations into FINRA in July of 2007. FINRA is appointed by the SEC to oversee broker-dealer regulation but the SEC still holds the ultimate regulatory authority. 

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Presently, FINRA does not regulate investment adviser firms as all registered investment adviser firms are currently regulated by the SEC or relevant state(s). Over the last few years, FINRA has expressed a desire to become a self regulatory organization for RIA firms. However, earlier this year, FINRA publicly backed off from attempting to regulate investment advisers. While FINRA does not regulate RIAs, it does administer the online application and filing system for the registration of investment advisory firms and individual investment adviser representatives. This system is commonly referred to as the Investment Adviser Registration Depository (IARD) and handles all Form ADV and other related filings. The vast majority of states, excluding New York and Wyoming, also utilize the Form U4 and Form U5 individual adviser filing system which is part of the IARD platform and also administered by FINRA.

While there are a number of notable exceptions, RIA firms with $100 million or greater in assets under management (AUM) will generally register with the SEC. On the other hand, investment adviser firms with less than $100 million in AUM will generally register with the relevant state(s).

A hybrid RIA firm may find itself regulated by both FINRA and the SEC (or relevant states) given that individuals at the firm may be serving as investment adviser representatives of the advisory firm while simultaneously serving as a registered representative of a broker dealer firm. This means that the firm's investment advisory business will be overseen by the SEC (or relevant states) while the firm's or individual representative's brokerage business will be regulated by FINRA.

As RIA compliance consultants, we strongly recommend that any prospective or current registered investment advisory firm review all the relevant individual and firm registration requirement to ensure proper regulatory compliance.

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Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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