How to Become A California Registered Investment Adviser

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

HOW TO BECOME A

CALIFORNIA REGISTERED

INVESTMENT ADVISER

California Department of Financial Protection and Innovation

2101 Arena Boulevard

Sacramento, CA 95834

Phone: 916-576-3638 | Fax: 916-928-7928 | Email: [email protected]

(Updated 09/13/2021)

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

Steps to Register

 Step 1: IARD System

 Step 2: Funding the Daily Account

 Step 3: Complete the Form ADV

 Step 4: Submission of Form ADV

 Step 5: Investment Adviser Representatives

 Step 6: Submit Complete Application

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

Step 1

Investment Adviser Registration Depository

 Obtain access to the Investment Adviser Registration Depository (IARD) system by

submitting a State Registrant Entitlement Packet to FINRA via the IARD website at

www.iard.com.

 Form ADV is the Uniform Application for Investment Adviser Registration and must be

completed by the applicant and filed electronically with the IARD.

What is the IARD system?

 The Investment Adviser Registration Depository (IARD) is an electronic filing system

for Investment Advisers. The IARD system collects and maintains the registration,

reporting and disclosure information for Investment Advisers and their associated

persons.

 The IARD system supports electronic filing of the revised Forms ADV and ADV-W,

centralized fee and form processing, regulatory review, annual renewal process and

public disclosure of Investment Adviser information.

Why do I need to request entitlement to the IARD system?

 By completing the Entitlement Forms and returning the forms to IARD, you are

requesting FINRA to entitle you to access the IARD System for electronic filing. Once

FINRA receives the Entitlement Forms, they will establish your IARD User Account, and

you will be able to access and use the IARD system to make your filings.

Does FINRA regulate investment advisers?

 FINRA does not have regulatory authority over investment advisers; however, it was

chosen to develop, operate, and maintain the IARD system because of its regulatory

business and technical expertise and the success of its Web-based licensing and

regulation system, Web CRD

, deployed in 1999.

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

Step 2

Funding of the Daily Account

 The fee for filing an application is $125.

 Investment adviser applicants are required to pay their filing fees for applications,

renewals, etc. through the IARD system.

 Fund your firm's Flex-Funding Account (CRD/IARD Daily Account) through the IARD

system.

 Your firm must have sufficient funds in order to submit filings through the system.

 Insufficient funds will result in a deficient filing.

 Fees are not refundable except as provided in Government Code Sections 13140-13144.

Step 3

Complete the Form ADV

Form ADV, Part 1A-1B

 Requires information about the investment adviser’s business, ownership, clients,

employees, etc.

 Organized in a check-the-box, fill-in-the-blank format.

 State will review the information from this part of the form to process registrations and

manage its regulatory and examination programs.

 Investment adviser filings of Part 1 are available to the public on the SEC’s Investment

Adviser Public Disclosure (IAPD) website at www.adviserinfo.sec.gov.

Form ADV, Part 2A-2B

 Part 2A (Firm brochures) and Part 2B (Brochure supplements) are narrative brochures

written in plain English that contain information such as:

 Advisory services offered

 Fee schedules

 Disciplinary information

 Conflicts of interest, and

 Educational and business background of management and key advisory personnel

of the adviser.

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

 Brochures should be prepared in accordance with the Part 2A and 2B instructions found

at the NASAA website.

 Brochures are the primary disclosure documents that investment advisers provide to their

clients.

 When filed, the brochures are available to the public on the IAPD website.

How should I answer the questions in the ADV?

 Some of the questions are asked in the anticipatory form.

 For example, Item 5.G of Part 1 asks, “What type(s) of advisory services do you

provide?” A newly formed applicant should not have any advisory services;

however, this question is intended to be answered in the future tense. An

investment adviser applicant should answer according to how it plans to operate

in the first 90 days.

How should I answer a question if I intend to provide a certain advisory service

but have not finalized?

 Form ADV should include information related to services the investment adviser intends

to provide within 90 days of registration.

 Form ADV is a fluid document and can always be amended to include a future service

that the investment adviser has added to their advisory services.

 Amendments should be completed within 30 days of the change.

Step 4

Submission of the Form ADV

 Electronically submit the completed Form ADV, 1A-1B to the appropriate jurisdiction in

which the applicant wants to register.

 You may register in numerous jurisdictions at the same time.

 The IARD system will conduct a completeness check to capture any incomplete

responses.

 After the completeness check and submission, the Form ADV is delivered to the state(s)

electronically along with the appropriate filing fees.

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

Step 5

Investment Adviser Representatives

 Investment Adviser Representative (IAR) is defined in Corporations Code Section

25009.5(a) as “any partner, officer, director of (or a person occupying a similar status or

performing similar functions) or other individual, except clerical or ministerial personnel,

who is employed by or associated with, or subject to the supervision and control of, an

investment adviser that has obtained a certificate or that is required to obtain a certificate

under this law, and who (i) makes any recommendations or otherwise renders advice

regarding securities, (ii) manages accounts or portfolios of clients (iii) determines which

recommendations or advice regarding securities should be given, (iv) solicits, offers, or

negotiates for the sale or sells investment advisory services, or (v) supervises employees

who perform any of the foregoing.

Note: Each officer, director or partner exercising executive responsibility (or persons occupying

a similar status or performing similar functions) or each person who owns 25% or more is

presumed to be acting as an IAR.

 Each IAR rendering investment advisory services on behalf of a registered investment

adviser must first be registered in the state.

 If an investment adviser is a sole proprietorship, a Form U4 is required to be filed for the

sole proprietor. Note that if you are filing a Form U-4 for a sole proprietor, the $25

registration and renewal fee are waived.

 Submit the Form U-4 and payment of the appropriate filing fees electronically via

FINRA’s Web CRD system.

 Form U-4 is the Uniform Application for Securities Industry Registration or Transfer.

Representatives of broker-dealers, investment advisers, or issuers of securities must use

this form to become registered in the appropriate jurisdictions.

Does California require fingerprint cards for individuals filing Form U-4?

 California does not require submission of a fingerprint card for investment adviser

representatives. Some state regulators may require that a fingerprint card be submitted as

part of their registration process.

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

What exam(s) are required to register as an investment adviser representative?

 The applicant and each investment adviser representative/associated person (“IAR”) (as

defined in Section 25009.5(a)) must qualify by passing, within two years prior to the date

of filing the application for an investment adviser certificate or becoming engaged as an

investment adviser representative,

 (1) the Series 65/Uniform Investment Adviser Law Examination in effect on January 1,

2000 ("2000 Series 65 Examination"),

 or (2) the Series 7/General Securities Representative Examination (“Series 7

Examination”) and the Series 66/Uniform Combined State Law Examination ("2000

Series 66 Examination").

Note: Applicants that must satisfy the qualification requirements set forth under California Code

of Regulations (CCR) § 260.236 can enroll for an exam on FINRA website.

Are there any exam waivers?

 The requirements of CCR § 260.236(a) do not apply to any investment adviser or

investment adviser representative or associated person who has been actively and

continuously engaged in the securities business as a broker-dealer, an agent of a broker-

dealer, an investment adviser, or an investment adviser representative or associated

person without substantial interruption (two or more years) since passing the (a) Series 2

Examination (SECO/NASD Nonmember General Securities Examination) or Series 7

Examination before January 1, 1998, or (b) the Series 65 Examination or Series 66

Examination before January 1, 2000 and the Series 7 Examination.

Are there any exemptions from the exam requirements?

Exemptions – CCR § 260.236(a) does not apply to the following:

 (1) Any individual who has been registered as an investment adviser or employed or

engaged as an investment adviser representative or associated person in any state for two

consecutive years immediately before the date of filing an application or notice in this

state. This provision does not apply to an individual using the exemption in CCR §

260.236(c)(2).

 (2) Any investment adviser representative or associated person employed by or engaged

by an investment adviser only to offer or negotiate for the sale of investment advisory

services of the investment adviser.

 (3) Any individual who currently holds in good standing one of the following

designations: Chartered Financial Analyst ("CFA") granted by the Association for

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

Investment Management and Research; Chartered Financial Consultant ("ChFC")

awarded by The American College, Bryn Mawr, Pennsylvania; Certified Financial

Planner ("CFP") issued by the Certified Financial Planner Board of Standards, Inc.;

Chartered Investment Counselor ("CIC") granted by the Investment Counsel Association

of America; or Personal Financial Specialist ("PFS") administered by the American

Institute of Certified Public Accountants.

 An individual who has not been registered in any state for a period of two years is

required to comply with the examination requirements unless the individual is using the

exemption in CCR § 260.236(c)(2) or (c)(3).

When does the Department require the filing of a Form U4 (paper/PDF

version)?

 Generally, the Department will require submission of a paper/PDF version of Form U4 if

it is determined that an individual owner and/or an executive officer does not meet the

definition of an investment adviser representative (“IAR”) as stated in California

Corporations Code Section 25009.5.

 On this form you only need to complete Item 1 and Items 9 through 15B.

 If the individual’s Form U-4 is on file with CRD and the information reported on

Form U-4 is current, please make representation to that fact in your cover letter

accompanying any documents filed directly with the Commissioner; it will not be

necessary to file a paper version of Form U-4 directly with the Commissioner.

Step 6

Submit Complete Application

 A complete application filing through the IARD system consists of the following:

 Form ADV, Part 1A-1B and Part 2A-2B filed electronically

 Form U-4 filed electronically

 Filing fees submitted electronically through IARD

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

The following documentation should be filed directly with the California Commissioner of

the Department of Financial Protection and Innovation (Commissioner). You may find

references to applicable law and regulation under California Corporations Code (Code)

and California Code of Regulations (CCR).

Conflict of Interest Disclosure (CCR Section 260.238(k)). Any material conflict of interest

relating to you or your representatives and employees that could be reasonably expected to impair

the rendering of unbiased or objective advice should be disclosed. Conflicts of interest may

include but are not limited to: (a) compensation arrangements connected with advisory services

which are in addition to the advisory fees; (b) other financial industry activities or affiliations; and

contract or in Part 2A of Form ADV.

Financial Planning Conflict of Interest Statement (CCR Section 260.235.2). If you provide

financial planning services and receive compensation (e.g. commissions, fees) from the sale of

securities, insurance, real estate or other products or services recommended in a financial plan, a

copy of the conflict of interest statement should be filed directly with the Commissioner. This

statement should include, at a minimum, that: (a) a conflict exists between your interests and the

interests of your client; (b) your client is under no obligation to act upon your recommendation;

and (c) if the client elects to act on any of the recommendations, the client is under no obligation

to effect the transaction through you. Please include the statement in your advisory contract and

in Part 2A of Form ADV.

Performance Fees Disclosure Statement. If you receive, or will receive, compensation based on

capital gains or capital appreciation (performance fee), you must comply with the provisions of

CCR Section 260.234. Disclosure should be made in the advisory contract and in Part 2A of Form

ADV that the performance fee will only be charged in accordance with the provisions of CCR

Section 260.234.

Advisory Fee (CCR Section 260.238(j)). An advisory fee charged to your client(s) should be

reasonable in light of the type of services to be provided, your experience and expertise, the

sophistication and bargaining power of the client, and whether you have disclosed that lower fees

for comparable services may be available from other sources. Disclosures should be made in the

advisory contract and in Part 2A of Form ADV showing that the advisory fee is reasonable in light

of the above.

Statement of Citizenship, Alienage, and Immigration Status. If you are filing as a sole

proprietor, a Statement of Citizenship, Alienage, and Immigration Status (Form 250.61) is to be

completed. This form does not need to be filed with the Commissioner but should be maintained,

along with any documents establishing proof thereof, as part of your books and records.

California Corporation Securities Filing. If you are a California – formed corporation as

disclosed on Part 1A, Item 3.C of Form ADV, the offer and sale of securities in your corporation

Please contact an Examiner in the Broker-Dealer Investment Adviser Division with any

questions related to the application process.

must be qualified, unless exempt, pursuant to California Corporations Code (“Code”) Section

25110. The definition of “security” is found in Code Section 25019. If exempt, the firm should file

an appropriate limited offering exemption notice (“LOEN”) pursuant to either Code Section

25102(f).

Note: If the authority to offer and sell the securities is exempt, please file LOEN and pay the

applicable fee electronically via DFPI Self-Service Portal DocQNet.

Should you have general filing questions, please contact our Customer Services Office at our toll-

free number (1-866-275-2677). Note that the Department’s legal counsels are not allowed to

provide legal advice or determine the applicability of any aforementioned laws or regulations.

Please consult your private legal counsel regarding such matters.

Please be advised that any issuer that fails to file the notice as provided by the rule of the

Commissioner shall, within 15 business days after discovery of the failure to file the notice or after

demand by the Commissioner, whichever occurs first, file the notice and pay to the Commissioner

a fee equal to the fee payable had the transaction been qualified under Section 25110. Such fee

will equal two hundred dollars ($200) plus one-fifth of one percent of the aggregate value of

securities sought to be sold in California up to a maximum fee of two thousand five hundred dollars

($2,500) per Code Section 25608.

California Limited Liability Company (“LLC”) Securities Filing. If you are a California-

formed limited liability company as disclosed on Part 1A, Item 3.C of Form ADV, with at least

one passive/non-managing member, the offer and sale of securities in your limited liability

company must be qualified, unless exempt, pursuant to California Corporations Code (“Code”)

Section 25110. The definition of “security” is found in Code Section 25019. If exempt, the firm

should file an appropriate limited offering exemption notice (“LOEN”) pursuant to either Code

Section 25102(f).