Federal Covered Advisor

What Is a Federal Covered Advisor?

A federal covered advisor is an investment advisor in the United States that is registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940.

A federal covered advisor is also referred to as a federal covered investment advisor, a federal covered adviser, or an SEC-registered investment adviser.

Understanding Federal Covered Advisors

Federal covered advisors are investment advisors who are registered with the SEC. An investment advisor is any person or firm that, in exchange for compensation, is engaged in the business of providing advice to others about securities. Regulation of investment advisors generally falls to the state in which the advisor has its principal office and place of business. However, the advisor may register with the SEC, or may be required to register with the SEC, if certain asset thresholds are met.

Small Advisors. A small advisor is one with less than $25 million in assets under management (AUM). Under current rules, small advisors are prohibited from registering with the SEC. Instead, they must register in the state in which they have their principal place of business. The exception is investment advisors based in Wyoming, which has not enacted statues regulating advisors. Wyoming-based small advisors must register with the SEC.

Mid-sized Advisors. A mid-sized advisor has between $25 million and $100 million in AUM. A mid-sized advisor is prohibited from registering with the SEC if the state in which they operate requires them to register in-state. If a mid-sized advisor is not required to register in-state, then the advisor must register with the SEC (unless an exemption applies).

Additionally, mid-sized advisors based in New York or Wyoming are required to register with the SEC (unless an exemption applies).

Large Advisors. Any advisor with more than $110 million in AUM must register with the SEC, unless an exemption is available. Advisors that reach at least $100 million in AUM may register with the SEC if they choose to do so. An advisor is not required to withdraw its SEC registration and register with the state unless its AUM drops below $90 million.

Special Considerations

Investment advisors are prohibited from registering with the SEC if they fail to meet the assets under management test. However, there are several exceptions: