Is Your Investment Manager Regulated? How To Check

Regulation is an important aspect of the financial industry, protecting consumers and investors from risk and fraud. In the case of investment managers, there are several ways to check if they are regulated. Firstly, it is important to understand the regulatory bodies involved, such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) in the US, or the Financial Conduct Authority (FCA) in the UK. These bodies maintain registers of firms and individuals that are authorised or licensed to provide investment services. Checking these registers is a simple way to verify if your investment manager is regulated. Additionally, checking disciplinary histories, news sources, and investor alerts can provide further insights into an investment manager's reputation and regulatory standing. Being an informed investor is a crucial defence against investment fraud, so it is always worth conducting thorough research before committing to any investment opportunities.

Check registration status

It is important to check the registration status of an investment manager to ensure they are qualified and to protect yourself from fraud. Here are the steps you can take to verify an investment manager's registration:

Firstly, understand the regulatory bodies and their jurisdictions. In the US, the primary regulator of investment companies and investment advisors is the Securities and Exchange Commission (SEC), which was established in 1934 by the Securities Exchange Act. The SEC regulates investment advisors with over $110 million in assets under management (AUM). Investment advisors with assets below this threshold are required to register with their respective states.

The Financial Industry Regulatory Authority (FINRA) operates under the scope of the SEC and enforces its rules and regulations. FINRA oversees brokerage firms, individual brokers, and anyone selling securities to the public as a stockbroker or broker-dealer.

Other regulatory bodies in the US include the Federal Reserve, the US Treasury Department, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

In Canada, investment professionals are required to register with the securities regulator in each province or territory where they do business. You can use the National Registration Search tool to check if an individual or firm is registered in Canada.

Once you understand the regulatory landscape, follow these steps to verify an investment manager's registration:

• Check the relevant regulatory body's website for a registration database or search tool. For example, the SEC provides an Investment Company Registration and Regulation Package, which contains general information about investment companies.
• Contact the regulatory body directly if you have questions or require assistance. For instance, the SEC provides a telephone number and email address for inquiries.
• Understand the registration requirements and criteria. For instance, to qualify as a regulated investment company in the US, a company must register as an investment company with the SEC under the Investment Company Act of 1940 and meet certain criteria, such as earning at least 90% of its income from specific sources.
• Be aware of potential red flags or discrepancies. If an investment manager or firm is not registered or is offering something they don't seem permitted to, contact the relevant regulatory body for guidance.
• Consult with legal and financial professionals. Regulatory packages, such as the one provided by the SEC, are not a substitute for legal or financial advice. If you intend to start an investment company or have specific questions, consult an attorney or a certified public accountant with experience in federal securities laws.

Remember, registration does not imply an endorsement of the investment manager or their investment opportunities. It is crucial to do your due diligence, understand your financial goals, and assess the qualifications and disciplinary history of the individual or firm you are considering working with.

Check disciplinary history

Checking an investment manager's disciplinary history is a crucial step in ensuring you are dealing with a reputable and qualified professional. Here are some detailed instructions on how to do this:

Firstly, utilise online tools such as the National Registration Search in Canada or the free search tool on Investor.gov in the US. These tools allow you to verify if an individual or firm is registered with the relevant securities regulator. While registration does not guarantee an investment manager's quality, it does indicate that they have met certain qualifications and standards set by the regulatory body.

Next, check disciplinary records and databases. In Canada, you can refer to the CSA Disciplined List and Cease Trade Orders Database on SEDAR+. In the US, disciplinary records for financial advisors are available through state or federal-level securities regulators. The SEC's Investment Adviser Public Disclosure (IAPD) website provides information on SEC or state-registered investment advisors, including their disciplinary history. FINRA's BrokerCheck is another useful resource for checking the disciplinary history of brokers and brokerage firms.

Additionally, conduct an online search to read third-party reviews and check for any regulatory actions, lawsuits, bankruptcies, or shady practices associated with the investment manager. News outlets and court cases can also provide valuable information about unhappy clients, legal issues, or rumours that warrant further investigation.

Remember, checking disciplinary history is just one aspect of due diligence when selecting an investment manager. It is also essential to consider their qualifications, investment strategies, track record, and whether they align with your financial goals and risk tolerance.

Check news and online for information

Being an informed investor is one of your best defences against investment fraud. Although most investment advisors are honest and work in your best interest, you still need to carefully choose who you deal with. Before investing, it is important to check the news and search the internet for information about an individual or firm. The news can often tell you about unhappy customers, court cases, and even rumours that you may want to further investigate.

In the US, the primary regulator of investment companies and investment advisors is the Securities and Exchange Commission (SEC). The SEC regulates investment advisors with over $110 million in assets under management. The SEC has broad regulatory powers relating to US securities markets, including the oversight of exchanges and the enforcement of regulations. The SEC asserts that registration is not an endorsement of any given investment manager or adviser. Instead, it means that the advisor agrees to adhere to the agency's rules and is subject to unscheduled audits.

In the UK, the Financial Conduct Authority (FCA) is the regulatory body for mainstream investment business. The FCA only allows certain activities to be undertaken by specifically qualified individuals. For non-mainstream investment business, the firm needs to be licensed by the ICAEW.

In Canada, securities industry professionals are required to register with the securities regulator in each province or territory where they do business. You can use the National Registration Search to check if an individual or firm is registered.

Check for required qualifications

When it comes to investment managers, qualifications are a key indicator of their ability to handle your finances and investments. Here are some essential qualifications to look for:

• Undergraduate degree: Investment managers typically hold a bachelor's degree in a related field, such as finance, economics, or a similar area. This provides a solid foundation of knowledge in financial principles and investing.
• Practical experience: Beyond their academic qualifications, investment managers should have hands-on experience in the field. This could include internships, entry-level positions, or mentorships where they've gained practical skills in financial analysis, investment strategy, and client management.
• Postgraduate programmes: Some investment managers may pursue postgraduate degrees, such as a master's in a specific field like investment management. This demonstrates a higher level of expertise and specialisation.
• Certifications: In addition to academic qualifications, investment managers may hold certifications such as the Investment Management Certificate (IMC). This certification is widely recognised by firms and serves as a stamp of excellence. It covers essential investment knowledge and its practical application.
• Licences: Depending on the jurisdiction, investment managers may be required to hold specific licences. For example, in the UK, firms conducting 'mainstream' investment business need authorisation from the Financial Conduct Authority (FCA), while those conducting 'non-mainstream' investment business require a licence from ICAEW.
• Competencies and skills: While not exactly qualifications, the competencies and skills possessed by an investment manager are crucial. Look for strategic and analytical thinking skills, leadership and communication abilities, and an in-depth understanding of investment management techniques and financial products.

Remember, a qualified investment manager should be able to provide evidence of their qualifications and be transparent about their expertise. Don't hesitate to ask for clarification or additional information if needed.

Check if regulated by the SEC or FINRA

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are two of the most important regulatory bodies in the U.S. financial system. The SEC is a government organisation, while FINRA is a not-for-profit entity and the largest self-regulatory organisation (SRO) in the U.S. securities industry.

The SEC has a broad scope, overseeing all aspects of the financial and business environment, while FINRA has a more limited scope, focusing on regulating brokers. The SEC oversees FINRA and acts as the first level of appeal for actions brought by FINRA.

Any firm that gives investment advice in securities, including firms that manage client portfolios, is considered an investment advisor and must be registered with the SEC if they manage assets over $110 million. Advisors who manage assets below this level are required to register with their state.

FINRA enforces SEC rules and regulations among its members and oversees brokerage firms, individual brokers, and U.S. member broker-dealer firms and their personnel. All broker-dealers selling securities to the public in the U.S. must be registered with the SEC and be members of a registered securities association, currently FINRA.

To check if an investment manager is regulated by the SEC, you can:

• Use the SEC Action Lookup tool to search for formal actions brought against individuals by the SEC.
• Check the SEC's Investment Adviser Public Disclosure (IAPD) website.
• Contact your state securities regulator.

To check if an investment manager is regulated by FINRA, you can:

• Visit the FINRA BrokerCheck website or call FINRA at (800) 289-9999.
• Contact your state securities regulator.

Frequently asked questions