The North American Securities Administrators Association’s newly released 2024-25 investment advisor section annual report highlights the work done by the NASAA Investment Advisor Section and its project groups to provide tools for state and provincial securities regulators, along with important resources to help investment advisors better serve retail investors.
The report notes that state securities regulators have oversight responsibility for 16,575 investment advisors registered in their home states with assets under management of $100 million or less. States also have oversight of all investment advisor representatives, the financial professionals who work directly with retail investors, whether the advisor is registered with a state or with the Securities and Exchange Commission.
State securities regulators help ensure that the individuals who work with retail investors, regardless of their employer, have the background and credentials necessary to comply with the fiduciary standards owed to advisory clients.
“This annual report reflects NASAA’s continued commitment to supporting state-registered investment advisors and protecting retail investors through effective regulation, outreach, and enforcement, Stephen Brey, Investment Advisor Section chair, said in a statement. “As the advisory landscape evolves, NASAA and its members remain focused on providing resources that promote compliance, transparency, and investor confidence.”
During 2024 examinations, state securities regulators continued to resolve major deficiencies and violations of securities laws and rules they uncovered. These were the most common causes of enforcement actions, whether litigated or settled short of hearing:
— Failure to register as an investment advisor
— Failure to register as an investment advisor representative
— Fees (not subscription)
— Suitability violations
— Failure to maintain adequate compliance policies and procedures
— Failure to disclose conflicts of interest
— Fraud
— Violating advisor’s existing policies and procedures
— Private placements
— Equities and custody
In the coming months, state regulators’ jobs may become more complicated. A movement is afoot at the SEC to raise the threshold for registration from its current $100 million in assets under management. If this goes forward, it is early days to say by how much the threshold will be raised, but the implications of the move could be disruptive for both states and advisory firms on several counts.
Smaller firms transitioning back to registration in their home states could swamp local regulators unprepared to handle the surge.
Firms below the threshold could face rules and regulations different from those of identical peers based on whether they are SEC- or state-registered.
For example, as ThinkAdvisor previously reported, in some states, firms seeking registration would be required to resubmit client advisory agreements if any revisions or updates had been made to the standard form version, even if they are not undergoing an exam. The SEC simply requests such agreement versions during the course of an exam.
In addition, some states disallow testimonials, a marketing rule that the SEC permits.
See the accompanying gallery for a profile of state-registered investment advisors for 2024.
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