State Regulation of Investment Advisors

At one time all U.S.-based investment adviser firms were required to register with the federal Securities and Exchange Commission (SEC). The National Securities Markets Improvement Act has since turned over much of this regulatory authority to the states. Individual states now have primary regulatory responsibility for investment adviser firms with less than $25 million in assets under management. This includes the majority of investment advisors and financial planners. Although many of these smaller advisors and planners are competent and trustworthy, some take advantage of investors, despite the best efforts of state agencies.

State regulatory agencies typically review applicant records history and financial stability prior to allowing investment advisors to conduct business. They also generally require investment advisors to pass an examination, undergo background checks, renew their registration annually, and report changes in their businesses or addresses promptly.

Most investors interact with brokerage firms through an investment adviser representative or salesperson. Although the SEC does not require licensing of these people, many states do. Some agencies also conduct unannounced examinations of small investment advisors at their offices.

Despite the best efforts of overworked regulatory personnel, investors are sometimes defrauded. If you have been defrauded or cheated, do not count on the regulatory agencies to recover your money. They usually have other things on their agenda, such as shutting down the bad brokerage firms. To get your money back, take legal action against brokers and contact a competent securities attorney.

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