ALP: You have been helping family members with their investments and now friends and co-workers are asking for your advice. You think this is an interesting opportunity, but your cousin says you must register with the SEC. Is your cousin correct?

May, 2004
Business Courier

Maybe. Under the SEC rules, you will be an investment adviser if you engage in the business of advising others about investing in securities and receive compensation for your advice. Generally a person is engaged in this business if she represents herself to the public as an investment adviser, regularly provides investment advice to others, and receives compensation for her advice.

You won’t have to worry about registration if you continue to provide advice free of charge. If you charge for your services, you must consider both federal and state registration requirements. As a general rule, an adviser managing less than $25 million in assets is not permitted to register with the SEC and must register with the state where her business is located. You will probably have to register with your home state until your business grows, then you will switch your registration to the SEC.

Of course, investment advisers are subject to many rules such as those related to advisory fees, performance calculations, advertisements, and proxy voting. In addition, an investment adviser is a fiduciary who must always put her client’s interest first. It’s a complicated business and you should make sure that you understand the rules before you embark on this endeavor.

Practices

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