The North American Securities Administrators Association (NASAA) recently released its 2024–25 Investment Advisor Section Annual Report. According to ThinkAdvisor, the report details examination findings, enforcement priorities, and potential regulatory shifts that could reshape the obligations of state-registered investment advisors.

State regulators currently oversee 16,575 investment advisers with assets under management (AUM) of $100 million or less, in addition to all investment adviser representatives who interact directly with retail investors. This oversight ensures compliance with fiduciary obligations and protects investors from misconduct.

Key Examination Findings

According to ThinkAdvisor, state securities regulators identified several recurring deficiencies during 2024 examinations, which also formed the basis for many enforcement actions:

• Failure to register as an investment advisor or investment advisor representative
• Improper fees
• Suitability violations
• Failure to maintain adequate compliance policies and procedures
• Failure to disclose conflicts of interest
• Fraud
• Violations of firms' existing policies and procedures
• Issues related to private placements, equities, and custody

NASAA's report also provides a detailed snapshot of state-registered advisors and their business models:

Firm Size

• Total firms (including out-of-state registrations): 27,7820–2 employees: 76.4%
• 3–10 employees: 22.1%
• 11–20 employees: 1%

Registration Types

• Total registration types: 48,775
• Investment advisor representative: 96.9%
• Insurance: 43.5%
• Broker-dealer registered representative: 23.7%
• Solicitors: 6.5%

Client Types

• Total clients: 1,346,186
• Retail investors: 76.6%
• High-net-worth investors: 20.4%
• Charitable organizations: 1.4%
• Business development companies: 0.6%
• Other investment advisors: 0.3%
• Sovereign wealth funds/foreign institutions: 0.2%
• State/municipal government organizations: 0.2%
• Other corporations/businesses: 0.1%

Compensation Structures

• Percentage of assets under management: 86.1%
• Fixed fees: 55%
• Hourly: 51.2%
• Other compensation: 14.3%
• Performance-based: 7%
• Commissions: 2.4%
• Subscription fees: 1.7%

Services Provided

• Portfolio management for individuals: 86%
• Financial planning: 68.3%
• Selection of other advisors: 30%
• Pension consulting: 20%
• Education/seminars: 17%

ThinkAdvisor reports that this year's NASAA report reinforces the need for investment advisers to maintain proactive compliance practices. With potential SEC registration threshold changes on the horizon, firms should anticipate greater interaction with state regulators and prepare for varying requirements across jurisdictions. ThinkAdvisor prudently recommends documented policies, disclosure practices, and thorough compliance oversight to mitigate risk and ensure alignment with fiduciary duties.

Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.