A “hybrid RIA” maintains an affiliation with both a broker-dealer and a registered investment advisory firm. One of the most common hybrid advisor setups is for an advisor to affiliate with an “independent broker-dealer” and then establish a separate, non-affiliated RIA firm that is fully owned and controlled by the individual advisor. Many independent broker-dealers allow for this arrangement which allows the advisor to have greater independence, control, and financial reward on the advisory side of his or her practice. While a hybrid setup allows an advisor to offer both brokerage and advisory services, it should be noted that this arrangement is generally under greater regulatory scrutiny given the potential conflicts of interest.
It is very important that if you are considering joining an independent broker-dealer that you first confirm that the broker-dealer allows you to have your own independent RIA firm. After this has been confirmed, it may make sense to begin the RIA registration process. The investment advisor registration process is administered at either the state or SEC jurisdiction level. FINRA regulates broker-dealers, but it does not have any regulatory authority over registered investment advisors.
While there are some exceptions, in general, investment advisors who start an RIA firm with $100 million or greater in assets under management (AUM) must register with the SEC as Registered Investment Advisor (RIA). For a list of some of the common exceptions which allow an investment advisor with less than $100 million in AUM to register with the SEC, check out the SEC Investment Advisor Registration Overview.
Exceptions aside, prospective RIA firms who start an RIA with less than $100 million in AUM must generally register with the relevant state(s). In general, an RIA subject to state registration must register in any state in which it has a physical location, a representative physically located there, has 5 or more clients (or a single client in the states of Texas and Louisiana), or is physically soliciting in that state. Do keep in mind that there are some exceptions to these general guidelines. Each state’s registration process is also unique to the individual state. For a directory of each state’s RIA registration requirements, check out the Investment Advisor State Registration Directory.
As part of the RIA registration process, it will be important to disclose your outside business activity as a registered representative with the broker-dealer. This is a very important step of the process as it’s crucial that any potential conflicts of interest be fully disclosed.
Investment Advisor Representative (IAR) Registration Requirements (administered at the state level):
General Firm Registration Requirements
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Note: RIA in a Box LLC is not a law firm, investment advisory firm, or a 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 as this information should not be relied upon as currently accurate. This information is provided for educational purposes only and is not an exhaustive list of regulatory requirements.