NASAA Series 63Regulation of Investment Advisers and IARsMedium
An advisory firm's only clients are two registered investment companies under the Investment Company Act of 1940, and the firm has $60 million in regulatory assets under management. Which statement correctly describes the firm's registration status?
- AThe firm is a federal covered adviser required to register with the SEC, regardless of its AUM level
- BThe firm must register with the state because its AUM is below the $100 million federal threshold
- CThe firm qualifies for the de minimis exemption and need not register anywhere
- DThe firm must register in every state where the investment companies' shareholders reside
Show answer & explanationAnswer & explanation
Correct answer: A. The firm is a federal covered adviser required to register with the SEC, regardless of its AUM level
Advisers to registered investment companies are federal covered advisers required to register with the SEC regardless of assets under management, because Investment Advisers Act Section 203A mandates SEC registration for such advisers. States cannot require registration of federal covered advisers, only notice filings.
Why the other options are wrong
- B. The $100 million threshold applies to typical advisers, not to advisers to registered investment companies, who register federally regardless of size.
- C. De minimis exemptions apply to advisers without a place of business who fall under certain client thresholds, not to fund advisers.
- D. Federal covered advisers are exempt from state registration; states may only require notice filing.
Registered Investment Company Adviser Rule
Any adviser to a registered investment company under the Investment Company Act of 1940 must register with the SEC as a federal covered adviser, regardless of AUM.
- Applies automatically, no AUM threshold needed
- States may require notice filing only
- Distinct from the general $100M+ federal covered threshold
Memory trick: Advise a fund, you're SEC-bound.