In just over eight months, independent advisors with $100 million in assets under management or less will have to switch from registration with the Securities and Exchange Commission to the states where they practice.

The change affects about 4,000 practices, some of which are probably celebrating liberation from the specter of SEC inspections, should they ever become the target of one. Not so fast, say compliance consultants. Getting there is the tough part. 

“Advisors are filing more documents,” said Scott Gottlieb, president and chief executive officer of Greenwich, Conn.-based U.S. Compliance Consultants. “The state regulators are much more involved in the process. With the SEC, advisors can be approved never have an interaction with a regulator.”

Currently, compliance consultants and asset custodians like are helping professionals get ready to for the process. And it is a much more time consuming one than SEC registration, Gottlieb said.

In some cases, registering with state securities regulators can take up to 90 days, because of the litany of forms that need to be filled out. Also, state regulators are much more involved with the registration process, Gottlieb said.

Advisors want to know if the $100 million is an absolutely firm number. The $100 million minimum is a bright line standard right now, Gottlieb said. But some professionals with practices that have AUMs close to that are asking for clarification. If their practices have AUMs that are within striking distance of that number and are expanding, they do not want to have to complete a state registration, only to have to switch back if they move past $100 million in AUM after July. State registration fees can run as high as $4,000, making it a potentially costly waste.

“By the end of the calendar year, the SEC is supposed to be coming out with more guidance on this,” Skip Schweiss, managing director of advisor advocacy at TD Ameritrade Institutional said in an interview Thursday. TDAmeritrade recently hosted an internal Web cast for its advisor clients on the issue.

The industry also expects the SEC and state regulators to offer clarification on whether the later will accept the revised Form ADV Part II, as well as electronic filings, Schweiss said.

State regulators also require a litany of forms, far more than the SEC, according to Gottlieb. That, and document inspection by a state regulator means the process lasts between 60 and 90 days, typically. A smooth transfer takes about 45 days. At the SEC, the process is a lot shorter. He recently completed a registration in just four days.

There are two required sets of documents—primary and supplemental, Gottlieb said. Primary documents include the ADV Part 1A, which provides basic information about the practice. Part 1B gives details about the firm’s net capital requirements, fee deduction, custody arrangements and additional disclosure.

Most states also require the advisors to submit a description of the advisory agreement, which establishes the parameters of the advisor’s relationship with his or her clients. It describes what the advisors’ responsibilities. It discloses the practice’s fees, and describes other legal requirements.

Supplemental registration documents include a tax certification, a workers compensation coverage affidavit, fingerprint cards for the advisors and corporate formation documents. The State of California requires a statement of citizenship and immigration. The firm has to also submit copies of its marketing and advertising material, its compliance manual and code of ethics. 

“State regulators examine all of these documents,” Gottlieb said. “If an advisor makes a mistake, is not consistent or doesn’t have what the regulator requires, the application gets sent back and that sets off a whole new round of corrections.”

And all of it needs to be done before the advisory firm deregisters from the SEC, because a firm cannot operate with out any form of registration at all, according to Gottlieb.

The SEC instituted these changes to lighten its inspection and enforcement workload. But the Dodd-Frank financial industry regulatory reform law also requires that hedge funds register with the SEC. That leaves industry professionals wondering how everything will shake out in the end. For now, however, custodians and compliance consultants continue preparing advisors impacted by the change for the slog ahead.

“The difficulty is in the registration process,” Gottlieb said. “Once you are registered, the oversight is less.”