Financial advisor is a term used to describe investment adviser representatives (IARs) and sole proprietors of investment advisor (IA) firms. The following is a step-by-step explanation of how to become an investment adviser representative (IAR) or establish an investment adviser (IA) firm in Alabama registered at the state level with the Alabama Securities Commission or at the federal level with the Securities & Exchange Commission (SEC).
Step 1. Get Your Education
Becoming a financial advisor should start with getting the best education possible through one of the many available degree programs. Your educational background will be easily accessible to potential clients through a national registry and they’ll be comparing your information to other advisers. Almost all financial planning and advisory services are provided by individuals that have a bachelor’s or master’s degree, and it is increasingly common to see them holding highly specialized degrees.
Degrees that adequately prepare financial advisors:
- BA or BS -Accounting
- BA-Consumer and Family Financial Services
- MS-Accounting, Personal Financial Planning, or Finance
- MBA-Accounting and Finance or simply Finance
- PhD-Accounting or Finance
Your education should provide you with the knowledge needed to deliver the best information to clients. Relevant courses include:
- Business communications
- Business ethics
- Behavior of organizations, persons and groups
- Business law
- Marketing
- Management
- Accounting
- Taxation
- Economics
- Finance
- Computer information systems
- Statistics
- Quantitative applications in business
Specialized professional certification helps highlight the skills that you have as an adviser; however, this is totally elective and not a requirement for state or federal IAR registration. If you choose to pursue specialty certification you’ll need to meet eligibility requirements that will include either a certain amount of industry experience or a certain level of formal education; usually a bachelor’s degree at minimum. Specialized certification specific to financial advisors:
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
- Chartered Investment Counselor (CIC)
- Certified Financial Planner (CFP)
- Personal Financial Specialist (PFS)
Step 2: Register Your Firm in Alabama
(This is only applicable to those interested in establishing their own IA firm. If you intend to work for an established firm, skip to Step 3.)
To operate an independent practice, you will need to complete the registration process for an Investment Adviser (IA) firm through the FINRA administered Investment Adviser Registration Depository (IARD). This process will register your firm with the Alabama Securities Commission if total assets under management are less than $100 million or with the SEC if total assets under management are in excess of $100 million.
- Initiate the FINRA Entitlement Process to set up an IARD User Account by completing Entitlement Forms specific to the New Investment Adviser Firm (Section 3). The entitlement process gives authorized access to FINRA’s Web-based systems. Through this process, your firm will designate a Super Accountant Administrator (SAA). After approval of Entitlement, the SAA may access the FINRA Firm Gateway and complete the following steps.
- Fund your IARD User Account to pay the registration fees, state filing fees, IAR registration and testing fees:
- Initial IARD set up fees for state registrants are currently being waived
- $225 initial filing fee for SEC registrants with more than $100 million in assets under management
- $250 initial state firm filing fee charged by the Alabama Securities Commission
- $60 initial state IAR filing fee charged by the Alabama Securities Commission for each IAR employed by the firm
- Exam fees for each IAR in the firm
- Complete Form ADV, which is an SEC form detailing the firm’s investment philosophy, fee structure, background of investment advisers, and other important information potential clients will need. An electronic version of the form is available in the IARD. Registration with the state of Alabama is completed by selecting Alabama as the state the firm will do business in.
- Submit a form U-4 Uniform Application for Securities Registration or Transfer for each investment adviser representative (IAR) in the firm. If you are a sole proprietor or establishing an LLC in Alabama, you will be considered a representative of your own firm and will submit a form for yourself. See step 3 for IAR requirements.
- Mail required documents to the Alabama Securities Commission at, P.O. Box 304700, Montgomery, AL 36130-4700. Required documents are:
- A recent balance sheet (prepared no more than 90 days prior to filing the application) that reflects applicant’s knowledge of GAAP. All investment advisers are to maintain a minimum net capital of $10,000.00 or post a surety bond of $50,000.00.
- The balance sheet must include an oath by an authorized officer of the firm attesting to the truthfulness and accuracy of the statement
- A statement specifying whether the firm maintains custody and/or discretionary authority over client funds
- A surety bond in the amount of $50,000.00 on Form U-SB, payable to the State of Alabama if:
- The investment adviser maintains custody and/or discretionary authority over client funds or securities
- The investments adviser does not maintain the minimum net capital of $10,000.00.
- Copies of any brochures clients will receive in addition to the Form ADV
- An affidavit attesting to the number and type of clients in Alabama
Requirements to Transact Business in Other States
By being registered in Alabama, your firm will be able to conduct a minimal amount of business in other states without registering in that state. This means no more than four clients. After gaining a fifth client in any other state, you will need to register with that state through the IARD system, and pay any required fees.
RIAs that are registered in any other state can conduct business in Alabama under this De Minimis Exemption, and register only when they add their fifth client. They will need to send a statement known as an undertaking or affidavit as to whether the applicant has branch offices or representatives residing in Alabama and a certificate to do business as a foreign if there is a branch office or representative residing in Alabama. This certificate is available through the Alabama Secretary of State’s office, which can be reached directly at (334) 242-5324.
Step 3: Get Your Registered Investment Adviser License in Alabama by Taking the Required Exam
You’ll be operating under the Rules of the Alabama Securities Commission if offering your services only to local clients living in Alabama and managing assets that total less than $100 million. If you will be managing assets that total more than $100 million, you will be under the regulation of the Securities and Exchange Commission (SEC). If you start out managing assets at that level, the SEC then waives exam requirements only for applicants that have the following professional designations:
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
- Chartered Investment Counselor (CIC)
- Certified Financial Planner (CFP)
- Personal Financial Specialist (PFS)
- Register for the required exams. Alabama requires IAR candidates to take the following:
OR
- The Series 7, General Securities Representative Examination, which requires sponsorship through a FINRA-member firm, in combination with the Series 66, Uniform Combined State Law Examination
Register for the exams:
- Form U-4 Uniform Application for Securities Industry Registration or Transfer can be prepared and submitted through the IARD. Form U-4 functions as both the IAR’s exam application and registration application.
- Schedule the exam(s) through one of the Prometric or Pearson Professional Center testing locations in Alabama. You will be required to schedule within 120 days of registration
- Plan on arriving at the testing center at least an hour before your examination time on examination day.
- You’ll receive your test score immediately after completion of the exam.
Step 4: Ongoing Renewal and Update Requirements in Alabama
Investment Advisor Firm:
- IA firm and IAR license renewals are done completely through the IARD
- License renewal must be completed by December 31st each year
- Alabama’s renewal fees are $250 for the firm and $60 for each IAR within the firm
- Renewal fees need to be paid for all states in which the IAR is registered
- Additional IARD renewal fees are $100 total
- Annual updates to the ADV are required
Investment Adviser Representatives:
There are no ongoing continuing education requirements for IARs that have passed the Series 65.
IARs are expected to keep their Form U-4 current. As a sole proprietor you will make these updates yourself. As an employee you must alert the SAA of amendments, which must be made within 30 days of any changes to the following:
- Residential address
- Education
- Certification
- Disciplinary action
- Customer complaints
- Jurisdiction changes
- Name change (marriage)
- Additional business activities
- Criminal record
- Civil judgments