DOB: Instructions for Investment Adviser Registration in Connecticut

Connecticut Application for
Investment Adviser Registration


WHO MUST REGISTER

Generally, any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing or selling securities must register as an "investment adviser" with the Connecticut Department of Banking if the person has less than $100 million ($25 million prior to July 21, 2011) in assets under management.

Persons who, as a part of a regular business, issue or promulgate analyses or reports concerning securities must also register as investment advisers with the state.

Investment advisers having $100 million ($25 million prior to July 21, 2011) or more in assets under management must register with the federal Securities and Exchange Commission (the "SEC") rather than the state. State registration is triggered when a Connecticut investment adviser services Connecticut clients or clients located in another jurisdiction. State registration also is required where a non-Connecticut state-regulated investment adviser services clients located in Connecticut.

Investment advisers who have no place of business in this state and who, during the preceding twelve months, have had no more than five clients who are residents of this state are exempt from registration in Connecticut.

WHAT TO FILE
 
1.   Form ADV (file electronically)

New applicants for investment adviser registration in Connecticut, and Connecticut registrants amending Form ADV, must file an initial or amended Part 1 of Form ADV (Uniform Application for Investment Adviser Registration) electronically through the Investment Adviser Registration Depository ("IARD").  For more information on the IARD and electronic filing, visit the SEC and the IARD on-line.

In addition, Part 2 of Form ADV must be filed electronically through the IARD system. On July 28, 2010, the SEC revised Part 2 of Form ADV to require a narrative format in plain English.  Connecticut adopted the new Part 2 effective October 12, 2010.  See our Part 2 Pointers page for more information on the transition.
       
2.    Fee (remit through IARD)

Remit fees through the IARD system.  The initial registration fee for investment advisory firms is $315 and is nonrefundable.  The initial nonrefundable registration fee for each investment adviser agent is $100.
   
3. Form U-4 (file electronically) For Each Investment Adviser Agent

Electronically file (through the IARD system) a Form U-4 for each investment adviser agent you are registering.  Generally, investment adviser agents must pass the Series 65 examination. See the Question and Answer sheet for more information on testing, including exceptions to this requirement.  For more on investment adviser agent registration, see the separate instructions.
       
4.    Connecticut Supplement (file in paper format with the Division)
       
5.    Financial Statements Plus a Completed Registrant's Certificate (this item only applies to Connecticut-based investment advisers) (file in paper format with the Division)
        
6.    Investment Advisory Contract (file in paper format with the Division)

File a sample copy of your investment advisory contract or agreement directly with the department. Every investment advisory contract or agreement must be in writing. An investment advisory contract is a very important document that legally defines your relationship with your client. If you have questions about drafting your contract, please direct them to your attorney.  See our specifics list regarding what you must include in your contract.

   
7. Advertising and Sales Literature (file in paper format with the Division)

File one copy of any prospectus, pamphlet, circular, form letter, advertisement, other sales literature or advertising communication addressed or intended for distribution to investors, including clients or prospective clients
     
8. Other Items (as applicable)

(a)   Form DBA-1 (Trade or Assumed Name Notice)
   
(b)   Any disclosure document furnished to clients in lieu of Part 2 of Form ADV
     
(c)    Employer consent letters (for multiple registration of investment adviser agents)

PROCESSING TIME

If we request additional information after you file, be sure to respond promptly. If we do not hear from you within 60 days, your application may be considered abandoned. Double check your filing before you submit it to speed up processing time.

Under the Connecticut Uniform Securities Act, your investment adviser registration is not effective until the registrant's name has been entered on the Register of Investment Advisers. We will notify you in writing of that fact. Unless it is suspended or revoked, your registration will expire on December 31st of each year.

RENEWING YOUR REGISTRATION

Your renewal will be processed electronically through the IARD.  Paying the applicable fees constitutes renewal in Connecticut.  The renewal fee for investment advisers is $190, and the renewal fee for each investment adviser agent is $100.  Although you do not have to file a new Form ADV to renew your registration, you must amend your Form ADV online if there have been any material changes in the information you previously submitted to us.

AMENDMENTS

Amend Part 1 and Part 2 of Form ADV electronically via the IARD.  The filing of paper amendments directly with the Division is not acceptable.

DETAILS ON CERTAIN REQUIRED ITEMS
 
1.   Financial Statements

 (a)    Advisers With a Connecticut Principal Place of Business 

Each investment adviser must have tangible assets in excess of liabilities less satisfactory subordination agreements to the extent of at least $1,000. File a statement of financial condition as of a date within 60 days of the date on which your investment adviser application is filed. The financial statement must disclose the nature and amount of the investment adviser's assets, liabilities and capital. If the adviser is a sole proprietorship, include personal (as well as business) assets and liabilities. By law, filed statements of financial condition are not open to the public.

Net Tangible Assets: Although you should direct questions about calculating net tangible assets to your accountant rather than to the Department of Banking, here are some pointers: a) Allowable assets are total assets less intangible assets. Allowable assets less liabilities equal net tangible assets. b) Intangible assets are determined by generally accepted accounting principles. Here are just a few examples: goodwill; organization costs; patents, copyrights and trademarks; leases, leaseholds and leasehold improvements; exploration rights and costs of development of natural resources; formulas, processes and designs (e.g., software); licenses, franchises, memberships and customer lists; prepaid expenses (e.g., rent, insurance); and deferred charges. The Division may consider other items if you provide accounting authority demonstrating why the item should not be deducted from an investment advisory financial statement.

Audit Requirements: The financial statement does not have to be audited (i.e. examined in accordance with generally accepted auditing standards and reported upon with an opinion expressed by an independent certified public accountant or independent public accountant) unless you have been in business for one year or more, and you will either 1) have custody or possession of client funds or securities or 2) require the prepayment of advisory fees six months or more in advance and in excess of $500 per client. Even if you would normally have to obtain audited financial statements no more than 60 days old, the Commissioner has granted an exemption if: 1) you submit your most recent audited statement of financial condition; and 2) that financial statement includes an unaudited statement of financial condition as of a date within 60 days preceding the date your investment adviser application is filed.

Investment Advisory Registrant's Certificate

Staple a completed Investment Advisory Registrant's Certificate to the front of the financial statement to which it relates. Make sure that the date to which the Registrant's Certificate refers corresponds to the date of the financial statement.  File a separate Investment Advisory Registrant's Certificate for each financial statement (make extra copies as needed).

Note: After you are registered, the Connecticut Regulations require you to file a report of your financial condition within 90 days after your fiscal or calendar year ends. This report must reflect your financial condition as of the end of your fiscal year. You must include an Investment Advisory Registrant's Certificate with this report of financial condition.

       
(b) Advisers With No Connecticut Principal Place of Business

An adviser with no Connecticut principal place of business must fill out the Foreign Compliance Certification section of the Connecticut Supplement if the Adviser is licensed in its Home State.  No separate financial statements are required.

NOTE: If the adviser has an out-of-state principal place of business but is not registered or licensed as an investment adviser there, this instruction does not apply. Instead, file the financial statements (including a Registrant's Certificate) required of an adviser with its principal place of business in Connecticut.
   
2.    Investment Advisory Contract Required Provisions

(a)   Services you will provide to your clients 
      
(b)    Term of the contract (how long it lasts) 
   
(c) Fee Arrangement between the adviser and its clients
   
(d) Formula for Computing the Advisory Fee
   
(e) (If applicable) Designation of Custodian or an acknowledgment (if applicable) that the adviser will have custody over client funds and/or securities
   
(f)
Amount and manner of calculating the amount of the Prepaid Fee to be returned to the client if the contract terminates or a party to the contract does not perform
   
(g) Space for the Client's Signature and the Date
   
(h) A statement that the investment adviser will not be compensated on the basis of a share of Capital Gains upon or Capital Appreciation of client funds (or any portion of client funds). However, the contract can state that the fee is based on total or net asset value or a flat fee. It is also permissible for compensation to be based upon total or net asset value of a fund averaged over a definite period or as of definite dates or taken as of a definite date. Performance fees that would be permitted and determined for federally regulated advisers in accordance with Section 205 of the federal Investment Advisers Act of 1940 and any rules or regulations adopted in accordance with that statute are also allowable
   
(i) A statement that the investment adviser Cannot Assign the Contract without the other party's consent. (An assignment includes any direct or indirect transfer or hypothecation of the contract by the assignor or of the beneficial ownership of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor.)
   
(j) For partnerships only: The contract must state that the adviser will notify the other party to the contract of any change in the partnership's membership within a reasonable time after the change
   
(k) An Acknowledgment that the client received a copy of the adviser's Disclosure Statement (Part 2 of Form ADV or a disclosure containing the information in Part 2 of Form ADV) not less than 48 hours before entering into the contract. Note: If the contract gives the client the right to terminate the agreement without penalty within 5 business days after entering into the contract, you can provide the disclosure statement at the time the contract is signed
   
(l) (If applicable) Written Authorization from the client permitting the adviser to place orders to buy or sell securities on the client's behalf
   
(m) (If applicable) Written Authorization from the client permitting the adviser to place orders to buy or sell securities on the client's behalf on the Instruction of a Third Party
       
(n) (If applicable) Written Authorization from the client permitting the adviser to exercise any Discretionary Power in placing an order for the purchase or sale of securities
   
Special Note on Hedge Clauses

A hedge clause is a contract provision seeking to limit or entirely avoid an investment adviser's civil liability for various types of conduct or omissions arising from the advisory relationship. In May 1991, the department issued a policy statement discouraging the use of certain hedge clauses. An adviser may violate the Connecticut Uniform Securities Act's antifraud provisions if the advisory contract leads a client to believe that the client has waived a right of action the client may have under state or federal securities law or common law, or if the contract otherwise misleads the client as to the nature of those rights
   
3. Delivering Your Disclosure Document (or "Brochure") to Clients

Advisers must deliver a written disclosure statement or "brochure" to their clients and prospective clients. Your brochure can be either a copy of Part 2 of Form ADV or a document that contains at least the information that Part 2 of Form ADV requires. You must deliver the brochure either 1) at least 48 hours before you enter into a contract with the client; or 2) at the time you actually enter into the contract with the client. If you deliver the brochure when you enter into the contract, the contract must let the client terminate the agreement without penalty within 5 business days after the client signs the contract
     
4. Advisory Experience Requirements

Every person listed on Schedule A, B or C of Form ADV who is involved in managerial or supervisory responsibilities must meet the experience requirements under Section 36b-31-7b of the Connecticut Uniform Securities Act Regulations. If you are a partnership, at least 2 of your active partners (or if there is only one active partner, then that one) must meet the experience requirements. If you are a corporation, at least 2 of your active officers (or if there is only one active officer, then that one) must have sufficient experience.

Advisers with personnel lacking managerial or supervisory responsibilities or not being active as officers or partners should provide a dated written statement, signed by an officer or other authorized person of similar rank, supporting their claim that these individuals should receive a waiver from the experience requirements and the reason for the waiver request.

What Experience Qualifies?

(a)   The individual has been engaged in the securities business as a broker-dealer, agent, investment adviser or investment adviser agent, spending a major portion of his or her working time in the securities business for at least 3 years within the 7 calendar years preceding the date of the application or
   
(b)   The individual is otherwise qualified by knowledge and experience as the agency determines. Applicants must provide adequate supporting documentation. The Regulations permit the agency to substitute a qualifying examination for the experience requirements; or
   
(c) The individual is an attorney with at least 3 years of substantial experience in securities law; or
         
(d)    The individual is an accountant with at least 3 years of substantial experience in the sale of securities or the rendering of securities-related advice.

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