I own a registered investment advisor. I was talking to a friend who also owns an RIA about being backups for each other in case one of us is hit by the proverbial bus. As solo practitioners, we would like to reassure our clients that someone would be there if we were unavailable. What are the legal implications of this? Is the relationship something we must discuss in the ADVs (form required by the Securities and Exchange Commission—about a firm's officers and other matters)? Do we have to file anything with the regulators?

— N.L., via e-mail

If all you are doing is making an informal agreement with each other to step in, in case of a "disaster," then there's no need to involve the regulators or include anything in your ADV. You should, however, spell out the "plan" in your Policies and Procedures Manual as either a "Disaster Recovery Plan" or "Business Continuity Plan" (or both). I believe all the states now require that you have both a Disaster Recovery and Business Continuity Plan in place.

The difference between the two is that a Disaster Recovery Plan is envisioned as being temporary (if, for instance, a hurricane wipes out your office, how will clients get access to their money or make trades? And how is their information protected from loss?), while a Business Continuity Plan is the "hit by a bus" scenario (who services the client accounts if you die?). Having these plans in your Policies and Procedures Manual is a must and just good business practice. But there are, of course, legal ramifications in the event you (or your chosen backup) fails to comply with the plan. Much like selecting the guardian for your children, you want to select a backup who is willing and able to step in for you.

It's all very well if you have a trustworthy friend, but if he only services a handful of accounts while your firm handles hundreds, or if he only deals with individuals while you're managing pension plans for large corporations, then he may not be able to handle your business if you're "out of service."

My firm is currently an SEC-registered investment advisor. I have a question concerning the upcoming requirement that mid-size advisers register with the states rather than the SEC. We would like to remain with the SEC, but we don't think we'll meet the $100 million level in assets by the deadline. As a way of qualifying for an exemption, we thought that we could notice-file in the 16 states where we have clients, thereby qualifying for the exemption. In most of the states we have at least one client, but less than six. Would the exemption be available?

— H.K., Florida

Rule 203A-2(e) of the Investment Advisers Act of 1940 provides the so-called multi-state exemption that allows registered investment advisors to register with the SEC rather than the states; notwithstanding the inability to meet the assets under management threshold. Currently, the multi-state exemption is only available if you are "required" to be registered in 30 states.

But that number will decrease to 15 states beginning on January 1, 2012. To qualify for the exemption, you must be "required" to be registered in those states.

All states, except Texas and Louisiana, have a five-client de minimus exemption. In other words, you can have up to five clients in the state before you're required to register. In Texas and Louisiana, however, you need to register even if you have only one client.

So, for example, if you only have two clients in Georgia (and you're not actively advertising or "holding yourself out" as an RIA in that state), then you most likely would not be "required" to be registered there and would not be able to use that as one of the 15 states for the multi-state calculation.

But, if you have one client in Texas and six in Georgia, then you can claim that you would be "required" to be registered in those two states. Since you're also required to register in your home state, you would have a total of three states toward the 15 you need to qualify for the exemption.

Back when I was in college I was charged with a misdemeanor. I paid the fine, served probation and had the matter expunged. However, FINRA tells me I still have to disclose the matter on my CRD. Can you explain why?