TL;DR
- A first hire almost always triggers changes to your Form ADV, especially Item 5 and your disclosure brochure.
- Written supervisory procedures and a code of ethics need to exist and be followed before, not after, someone starts work.
- State or SEC registration for the new person may be required before they can talk to clients or place trades.
- Errors and omissions insurance, cybersecurity policies, and recordkeeping rules all extend to employees, not just owners.
- Background checks and licensing verification belong at the start of the hiring process, not after an offer is signed.
What compliance basics does an RIA need before hiring the first employee?
An RIA owner needs an updated Form ADV, written supervisory procedures, a code of ethics, proof of the new hire's registration status, and an insurance policy that covers the added headcount. These are not optional paperwork items to get to later. Regulators expect them in place at or before the person's start date, and most state examiners will ask for them in the first routine exam after a firm grows past one person.
Solo advisors often run lean on compliance because a one-person shop has fewer moving parts. The moment a second person joins, whether as an advisor, a paraplanner, or an operations hire, the firm takes on supervisory obligations it did not have before. That shift is worth planning for early. For a broader look at what changes operationally, see The One-Person RIA's First Hire: What Really Changes.
Does your Form ADV need to change before you hire?
Yes, in most cases. Form ADV Part 1 asks for information about the number of employees and their functions, and Part 2 (the brochure) needs to reflect who at the firm gives advice, manages money, or has supervisory authority. If the new hire will have any client contact or discretion over accounts, the brochure supplement (Part 2B) needs to be prepared for that person specifically, listing their education, business background, and disciplinary history.
Filing an amendment is not instantaneous. Owners should build in time to update the ADV before the person's start date, not after they have already met with clients. Waiting until after the hire starts is a common misstep and one that examiners notice.
What supervisory procedures do you need in writing?
Every RIA is required to have written supervisory procedures, often called WSPs, and they need to describe how the firm will actually supervise a new employee's activities, not just state that supervision happens. This includes who reviews the new hire's client communications, how trading activity gets checked, and what the escalation path looks like if something goes wrong.
A one-owner WSP document usually assumes the owner does everything. Once there is a second person, the document needs specific language: who approves marketing materials, who signs off on new account paperwork, how often communications get sampled and reviewed. Vague or outdated WSPs are one of the most common findings in state and SEC exams of small, growing RIAs.
- Update the WSP to name the new employee's role and supervisor.
- Add a review cadence for emails, texts, and social media if the hire will use them for business.
- Document how trade errors, complaints, and outside business activity get reported and handled.
Does the new hire need to be registered before starting?
If the person will give investment advice, manage accounts, or solicit clients, they typically need to be registered as an investment adviser representative in the states where they will do business, or with the SEC if the firm is federally registered. Registration usually requires passing the appropriate exam (commonly the Series 65, or Series 66 combined with a Series 7) and filing paperwork through the Investment Adviser Registration Depository.
Processing times vary by state, and some states have a waiting period even after the filing is submitted and approved. An owner who wants a new advisor client-facing on day one needs to start this process weeks in advance, not the week before the start date. Support staff without advisory duties, such as a client service associate who does not give advice or solicit business, generally do not need this registration, but the line between "support" and "advisory" activity is one worth getting a compliance consultant's opinion on rather than guessing.
How does E&O insurance change with a first hire?
Most errors and omissions policies are written around a specific number of covered individuals, and adding an employee without updating the policy can leave that person's work uninsured. Owners should call their E&O carrier before the hire starts, not after, to confirm the new person is added and to see whether the premium or coverage limits need to change.
The same applies to cybersecurity and data breach coverage if the firm carries it separately. A new employee often means a new device, a new set of login credentials, and a new person with access to client data. Insurers want to know that access exists and that the firm has a policy for managing it.
What background check and licensing steps come first?
Verifying licenses, checking regulatory disciplinary history, and running a background check should happen before an offer is finalized, not after. FINRA's BrokerCheck and the SEC's Investment Adviser Public Disclosure database are free starting points, but they do not catch everything, and many firms pair them with a third-party background check that looks at credit history, criminal records, and past employment claims.
This step matters more than it might seem for a small firm. A compliance problem inherited from a new hire's past, whether it is an unresolved customer complaint or a lapsed license, becomes the hiring firm's problem the day that person starts work. A closer look at what a thorough check should cover is available in Advisor Background Checks: Beyond the License Lookup.
Do you need an employee handbook or written policies?
A basic employee handbook is not a securities regulation requirement in the way a code of ethics is, but it protects the firm on the employment law side, which matters just as much once payroll starts. At minimum, an RIA making its first hire should have written policies on:
- Outside business activities and how they get disclosed and approved.
- Personal trading and the code of ethics requirements, including any pre-clearance rules.
- Use of email, texting, and social media for business communications, since these are subject to recordkeeping rules.
- Confidentiality of client information and data security expectations.
- Basic employment terms: compensation, benefits, time off, and at-will status where applicable.
Firms sometimes treat the handbook as an afterthought because it feels like HR paperwork rather than compliance work. In practice, the two overlap heavily for a small RIA, since the same document that sets expectations for behavior also documents that the firm attempted to supervise it, which examiners care about.
How does adding staff change your books and records obligations?
Recordkeeping rules under the Investment Advisers Act require firms to retain business communications, trade records, and advertising materials for a set number of years, and adding an employee multiplies the volume and sources of records the firm has to capture. If the new hire will use their own email, phone, or social media accounts for business, the firm needs a system to archive that communication, not just a policy saying it should happen.
This is also a good moment to confirm the firm's technology setup actually supports supervision. A compliance archiving tool that only monitors the owner's inbox does nothing once a second person starts emailing clients. Getting this connected before the start date avoids a gap in records that is hard to fill retroactively.
Does the order of hiring change the compliance workload?
Yes, somewhat. An operations or client service hire generally creates a lighter compliance lift than an advisor hire, since the ops person usually does not need investment adviser representative registration or a brochure supplement. That does not mean no compliance work is needed, since supervision, confidentiality, and data access policies still apply, but the registration and disclosure steps that come with an advisor hire are the heaviest part of the process.
Owners weighing whether to bring on operations support or another advisor first often find the compliance question is one more factor pointing toward a particular order. For more on that decision, see When to Hire Ops Staff Before Your Next Advisor and The Right Order to Hire Roles as an RIA Scales.
What should an owner do in the weeks before a start date?
Work backward from the start date with a short checklist rather than trying to remember every requirement at once. A practical sequence looks like this:
- Six to eight weeks out: confirm registration requirements in relevant states and begin any exam or filing process the hire still needs.
- Four to six weeks out: run background and license checks, and call the E&O carrier to confirm coverage terms.
- Two to four weeks out: update the WSP, prepare the Form ADV amendment and brochure supplement, and set up communication archiving.
- One to two weeks out: finalize the employee handbook, walk through the code of ethics and personal trading policy with the new hire, and confirm technology access is ready.
Firms that treat this as a project with deadlines, rather than a list of things to handle "at some point," tend to avoid the scramble that happens when a new hire's start date arrives and the paperwork isn't finished. Owners making this hire for the first time with no internal compliance staff may also want to read First Outside Advisor Hire: A Guide With No Playbook for a broader view of what changes beyond compliance alone.
Frequently Asked Questions
Can a new advisor hire start seeing clients before their registration is approved?
No, not in a supervisory or client-facing advisory capacity. Until state or SEC registration is approved, the person generally cannot give investment advice, solicit clients, or have discretion over accounts. Firms sometimes bring the person on in a support capacity during the waiting period, but that arrangement needs to be genuine and documented, not a workaround.
Does a solo RIA need a compliance consultant to make its first hire?
It is not legally required, but many owners find it worthwhile. A compliance consultant or outsourced Chief Compliance Officer service can update the WSP, prepare the ADV amendment, and confirm registration steps faster and with fewer mistakes than an owner doing it alone for the first time while also running the firm.
What happens if an RIA skips these steps and hires anyway?
The firm risks exam findings, fines, or in serious cases enforcement action, along with gaps in insurance coverage if a claim arises involving the uninsured employee. Regulators generally do not treat "we were still updating our paperwork" as a defense once a new employee has started interacting with clients.
Do part-time or intern hires trigger the same compliance requirements?
It depends on what the person actually does, not their job title or hours. A part-time employee who touches client accounts or communications is subject to the same registration and supervision rules as a full-time one. An intern doing purely administrative work with no client contact and no access to advice or trading generally has a lighter compliance footprint, but the firm should confirm that scope in writing before the internship starts.
How often does the WSP need to be updated after the first hire?
Most firms review and update WSPs at least annually, but any material change, including a new hire, a new supervisory structure, or a new service offering, should trigger an off-cycle update rather than waiting for the annual review. Regulators expect the WSP to reflect how the firm actually operates at the time of an exam, not how it operated a year earlier.