NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A state-registered investment adviser (IA) is preparing to open for business. Which of the following is NOT a required element of their initial registration filing with the state Administrator?
- AA balance sheet, if the IA will have custody of client assets or requires prepayment of fees.
- BProof of professional liability insurance coverage for all investment adviser representatives.
- CA surety bond, if the IA will have custody or discretion over client funds.
- DA description of the IA's business model and services offered.
Show answer & explanationAnswer & explanation
Correct answer: B. Proof of professional liability insurance coverage for all investment adviser representatives.
While professional liability insurance is prudent, it is generally not a mandatory requirement for initial state IA registration under the Uniform Securities Act. Business descriptions, balance sheets (under certain conditions), and surety bonds (under certain conditions) are common requirements.
Why the other options are wrong
- A. Balance sheets are required for IAs with custody or who receive substantial prepayments of fees.
- C. Surety bonds are generally required if an IA has custody or discretion over client funds, unless net worth requirements are met.
- D. This is a standard requirement for Form ADV filings.
IA Initial State Registration Requirements
The essential filings and disclosures an investment adviser must submit to a state Administrator to legally operate, including Form ADV parts, financial statements, and sometimes surety bonds.
- Includes Form ADV Parts 1 and 2.
- Balance sheet required if custody or substantial prepayments.
- Surety bond or minimum net worth for custody/discretion.
- Professional liability insurance is not a universal mandate.
Memory trick: FORM a BOND with your BALANCE to START!