Changes to ADV Part 1 – Item 2

Item 2 is the section of Form ADV Part 1 that determines whether an adviser is eligible to register (or remain registered) with the SEC.

To implement the new prohibition on registration for mid-sized advisers (e.g., those advisers with between $25 million and $100 million in regulatory AUM), Item 2.A. has been amended to reflect the new statutory threshold for SEC registration. Item 2.A. now requires each adviser registered with the SEC (and each applicant for registration) to identify whether it is eligible to register with the SEC because it:

1. is a large adviser that has $100 million or more of regulatory AUM (or $90 million or more if an adviser is filing its most recent annual updating amendment and is already registered with the SEC);
2. is a mid-sized adviser that does not meet the criteria for state registration or is not subject to examination (e.g., New York);
3. has its principal office and place of business in Wyoming (which does not regulate advisers) or outside the United States;
4. meets the requirements for one or more of the revised exemptive rules under section 203A (such as the pension consultant and multi-state adviser exemptions);
5. is an adviser (or sub-adviser) to a registered investment company;
6. is an adviser to a business development company and has at least $25 million of regulatory assets under management; or
7. received an order permitting the adviser to register with the SEC.

Each adviser must check at least one of these item, or indicate that it is no longer eligible to remain registered with the SEC.  The IARD will prevent an applicant from registering with the SEC (or an adviser from remaining registered with the SEC), unless it represents on Form ADV that it meets at least one of the specific eligibility criteria set forth in the Advisers Act or SEC rules.

The next post will discuss how the Instructions to Item 2 will help you determine your eligibility for SEC registration.