Federalism, Regulatory Assets Under Management ("RAUM"), and Voluntary Registration with the SEC as an Investment Adviser - Part One

As a matter of Federalism, Congress cannot require the several states to adopt laws regulating investment advisers, but it can prohibit “small” investment advisers from registering with the SEC unless they have a sufficient amount of RAUM. For the last two decades, Congress has been slowly but continuously removing “small” investment advisers from the SEC’s jurisdiction. Section 203A was added to the Investment Advisers Act of 1940 by the National Securities Markets Improvement Act of 1996 (“NSMIA”), and it  allocated to states the responsibility for registration and oversight of investment advisers with less than $25 million of assets under management. As a result, the SEC has long been alert to situations where investment advisers sought to register with the SEC even though they are not eligible to register. Some types of investment advisers can face serious challenges in attempting to achieve eligibility for registration with the SEC.

This white paper discusses the implications of RAUM and voluntary registration with the SEC and what that means for investment advisors.