Part-time Practice Part 1
I received a note in my email recently asking about my financial planning practice and how I work part time. It said:
I'm wondering if you would mind sharing your thoughts on being a part-time financial planner. I'm interested in making financial planning a part-time pursuit but I'm somewhat put-off by all of the regulation and licencing requirements. How have you dealt with that aspect? Did you get E&O insurance? Have you selected a Financial Planning application?
I'll answer the points one at a time as best I can in this small space. It will probably take a few posts to do so.
Part 1:
I'm somewhat put-off by all of the regulation and licencing requirements.
Me too, that's why I don't register. Luckily this is legal - and here's why:
First of all, the rules state that investment advisors with under $25M in assets do not have to register with the SEC and should register on the state level. So, you have to check your state's requirements unless you plan to be a big time money manager. I don't manager any money, so that's good.
[Revision 4/11 10:30AM] I should have been more clear here - when I said "you have to check your state's requirements" I meant that I have done that and I'm exempt because NJ has the rule (page 6 here), "A federally registered investment adviser (a notice filing is required) or a person excluded from the definition of investment adviser under Federal law." is exempt. Because, as I site below, I am exempt under federal rules, I am therefore exempt under NJ rules. Your state might not be that way, so definitely check.
Even if I did, the Investment Company Act of 1940 gives exceptions to the rules for registration:
80b3(a) of the US Code says, "Except as provided in subsection (b) of this section and section 80b3a of this title, it shall be unlawful for any investment adviser, unless registered under this section, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser."
80b3(b)(3) of the US Code says, " Investment advisers who need not be registered... any investment adviser who during the course of the preceding twelve months has had fewer than fifteen clients and who neither holds himself out generally to the public as an investment adviser nor acts as an investment adviser to any investment company registered under subchapter I of this chapter..." (bold added).
In other words, I stay small and I work with just a few clients. Therefore I am under the threshold of the requirements. You can read the full text of Investment Advisers Act of 1940 here.
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While you may be exempt under ICA of 1940, have you checked the requirements of your state's securities division? They may not have the same exemptions.
Bill - yes, I have. I'm revising the post to make that more clear. Look back in a few. Thanks for keeping me on my toes.
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