NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser (IA) based in State A has 20 clients, 18 of whom reside in State A and 2 in State B. The IA's assets under management (AUM) are $90 million. The IA has no physical office in State B and does not actively solicit clients there. What is the IA's registration requirement in State B?
- AThe IA must file a notice filing in State B, but full registration is not required.
- BThe IA is exempt from registration in State B under the de minimis exemption.
- CThe IA must register in State B because it has clients there.
- DThe IA must register with the SEC because it has clients in multiple states.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA is exempt from registration in State B under the de minimis exemption.
Under the Uniform Securities Act, an investment adviser is exempt from state registration if it has no place of business in the state and directs communications to 5 or fewer retail clients in that state during a 12-month period. With 2 clients and no place of business, the IA qualifies for the de minimis exemption in State B.
Why the other options are wrong
- A. Notice filing is for federal covered investment advisers, which this IA is not ($90M AUM).
- C. Having clients in a state does not automatically require registration if the de minimis exemption applies.
- D. An IA registers with the SEC if AUM is $110 million or more, or if it meets other specific federal criteria; $90 million means it's a state-registered IA.
IA De Minimis Exemption
An Investment Adviser (IA) is exempt from state registration in a state if it has no place of business in that state AND has fewer than 6 clients (5 or fewer) who are residents of that state during any 12-month period.
- No physical office in the state.
- Must have 5 or fewer retail clients in the state.
- Applies to state-registered IAs, not federal covered IAs (who notice file).
Memory trick: If an IA keeps its footprint small (no office, few clients), the state gives it a pass.