An investment adviser (IA) registered in State A manages money for 12 clients, all of whom reside in State A. The IA decides to open a small, unmanned satellite office in State B, solely for administrative purposes, with no client contact or solicitation occurring there. The IA does not have any clients in State B. Under the Uniform Securities Act, what is the IA's registration obligation in State B?
- AThe IA is exempt from registration in State B because it has no clients there and no solicitation occurs.
- BThe IA must register in State B because it has established a place of business there.
- CThe IA must file a notice filing in State B, but full registration is not required.
- DThe IA must register in State B only if it intends to solicit clients there within the next 12 months.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA must register in State B because it has established a place of business there.
Under the Uniform Securities Act, an investment adviser must register in any state where it has a 'place of business.' The definition of a place of business is broad and includes any office where the IA regularly conducts business, even if it's solely for administrative purposes and no client contact occurs there. The de minimis exemption (fewer than 6 clients) applies only if the IA does NOT have a place of business in the state.
Why the other options are wrong
- A. The exemption based on no clients and no solicitation only applies if there is no 'place of business.' Having an office, even administrative, constitutes a place of business.
- C. Notice filing is for federal covered investment advisers, not state-registered IAs establishing a place of business in a new state.
- D. Registration is triggered by the establishment of a place of business, not future intent to solicit, when no other exemption applies.
IA Place of Business (USA)
Under the Uniform Securities Act, an Investment Adviser (IA) must register in any state where it has a 'place of business,' which includes any office where the IA regularly conducts business, regardless of client contact or solicitation.
- A physical office, even for administrative tasks, is a 'place of business'.
- The de minimis exemption (fewer than 6 clients) does NOT apply if an IA has a place of business in the state.
- Registration is required even if no clients are in that state.
Memory trick: If an IA plants a flag (office) in a state, it needs that state's permission slip.