Investment advisers are regulated by the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940 (Advisers Act) and by the states under their respective statutes. Prior to 1996, most Investment Advisers were required to register with the SEC and in each state in which they were doing business. The federal and state regulatory approaches were quite similar. The principal difference was the states also register Investment Adviser representatives, or, individuals who give investment advice on behalf of the Investment Adviser.
In 1996, Congress enacted the National Securities Market Improvement Act. Title III of the legislation, The Investment Advisers Supervision Coordination Act (Coordination Act), amended the Advisers Act to divide regulatory responsibilities between the SEC and the state securities administrators for the approximately 23,000 Investment Advisers registered with the SEC at the time. Under the Coordination Act, generally the SEC regulates larger Investment Advisers, while the states regulate smaller Investment Advisers. Currently, there are approximately 8,100 SEC-registered Investment Advisers and approximately 15,000 Investment Advisers registered in one or more states. Also, under the Coordination Act, the states continue to register representatives of state-registered Investment Advisers as well as certain representatives of SEC-registered Investment Advisers. SEC-registered Investment Advisers must also file, with each state in which they are doing business, a copy of any and all filings made with the SEC strictly for notice purposes. Hence, these are called "Notice Filings."
The Coordination Act also authorized the SEC to participate in an electronic system for registration of Investment Advisers by permitting the SEC to require SEC-registered Investment Advisers to: (a) file forms through any entity designated by the SEC, and (b) pay reasonable costs associated with these filings. The system created to facilitate the electronic filing process is the Investment Adviser Registration Depository (IARD), which is operated by NASD Regulation, Inc. NASD Regulation was officially designated by the SEC, in July 2000, as the system operator under the Coordination Act. It is sponsored by both the SEC and the North American Securities Administrators Association (NASAA). In addition, the SEC approved the fees IARD will assess filers using the system.
