Anti-Money Laundering (AML)
Know who the customer is, watch for suspicious activity, and report it.
What is Anti-Money Laundering (AML)?
Money laundering moves through placement (getting cash into the system), layering (obscuring its origin), and integration (reentering the economy as apparently clean money). Broker-dealers must verify customer identity, file Currency Transaction Reports for cash over $10,000, and file Suspicious Activity Reports for suspicious transactions of $5,000 or more. Breaking deposits into smaller amounts to avoid reporting is structuring, itself a crime. FinCEN's AML rule for SEC-registered advisers has been postponed to January 1, 2028.
Anti-Money Laundering (AML): a worked example
A customer making nine cash deposits of $9,500 over two weeks is a classic structuring red flag.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.