Hundreds of medium-size RIAs are procrastinating and face the specter of de-registration by the SEC if they do not file for state registration by Thursday’s deadline.

Starting this year, states will begin to regulate RIAs with $25 million to $90 million in AUM, as required by Dodd-Frank. Next year that number will jump to $100 million.

“A lot of these advisors have their heads in the sand and don’t even know this is happening,” says compliance consultant Cindi Hill of Hill Compliance Advisors in San Diego, Calif. “They just don’t look at that stuff.”

Hill, who has about 70 RIA clients, said that in April she called up a client with a tax-centric practice to tell him about the deadline.

“I can’t even talk to you about this until April 15,” Hill said the advisor told her. “I said, ‘Fine, I just need to tell you that I can’t promise that the state is going to approve your documents” if they are filed late. After more foot-dragging, Hill finally helped that client get his state registration application filed on Friday, less than a week before it was due.

RIAs in this size category have been peppered with notifications by both the SEC and their state regulatory bodies alerting them to the deadline, Hill and others say.

Roughly 2,400 to 2,600 RIAs are expected to go through the process of moving to state oversight this year, according to Joey Brady, general counsel for the North American Securities Administrators Association. Nailing down a firm number is impossible, Brady says, because many RIAs have merged with other firms or decided to wait until the last minute after their AUM crested $90 million, in order to remain registered with the SEC. Three of Hill’s clients used the latter strategy, she said.

“It is unfortunate,” Brady says, “that a significant number of people in the advisor community have waited to begin the process. It’s not reasonable to think that you can file a few days before deadline” and expect a prompt execution.

State regulators will end up asking RIA applicants to clear “deficiencies” by asking for additional or different information than they provided in their initial applications, in most cases.

“The process is fairly arduous,” Brady says.

In the worst-case scenario, firms that are de-registered by the SEC will have to register with their state bodies. During the period of time when they are not registered with either that state or the federal government, they will not be permitted to collect fees from clients, Hill says. If they do collect fees from clients in that time, those monies will have to be returned, she adds.

While not registered, advisors cannot provide any investment advice, Hill and Brady say.

Some states with a large number of advisors filing applications are taking steps to ease the transition. Texas is providing conditional approvals to advisors who haven’t yet completed their state registration process, according to Brady.

Given that California has not experienced a backlog, it has not offered condition approvals, according to Mark Leyes, the spokesman for the California Department of Corporations. As of last week, California had either approved or begun the registration process for 465 midsize advisors while another 60 are expected to file shortly, according to Leyes.

“At the end of the day almost all applications will have some deficiencies,” Leyes said. “So we were trying to illuminate the fact that the sooner they register the better because the more likely it would be (that they would be) able to complete the registration.”

For those cases in which the SEC de-registers RIAs, Leyes says, he believes there may be a process for appealing or contesting those decisions. By press time, no one from the SEC was able to confirm this.

Another complicating factor for many RIAS is the fact that they must register for every state where their clients reside. In other words, an advisor with clients who reside in four different states will need to file for state oversight in each state, according to Brady. The rules of the state in which the RIA itself is headquartered will prevail for the entire company. RIAs with clients in 15 or more states will continue to be regulated by the SEC, Brady says.

Once mid-sized RIAs have migrated to state oversight, Brady predicts this will ensure that this group is more effectively regulated than ever before “We believe they will be examined more,” he says, “and they will be.”