NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A federal covered investment adviser (FCIA) based in New York manages portfolios for clients across multiple states. One of its senior investment adviser representatives (IARs) regularly conducts business with clients residing in State X, where the FCIA has no physical office. The IAR also has no physical office in State X. What is the registration requirement for this IAR in State X?
- AThe IAR must notice file in State X, but full registration is not required.
- BThe IAR must register in State X because they are regularly conducting business there, regardless of physical presence.
- CThe IAR is exempt from registration in State X under the de minimis exemption if they have fewer than 6 clients in State X.
- DThe IAR is exempt from registration in State X because their firm is a federal covered investment adviser.
Show answer & explanationAnswer & explanation
Correct answer: C. The IAR is exempt from registration in State X under the de minimis exemption if they have fewer than 6 clients in State X.
IARs of federal covered investment advisers are required to register in any state where they have a place of business or if they have more than 5 clients (exceeding the de minimis exemption). Since the IAR has no place of business, the de minimis rule applies.
Why the other options are wrong
- A. Notice filing is for federal covered IAs, not for IARs.
- B. Regularly conducting business does not automatically trigger registration for IARs of federal covered IAs if the de minimis exemption applies.
- D. The federal covered status of the firm does NOT exempt the IAR from state registration; IARs register at the state level.
IAR Registration (FCIA)
Investment Adviser Representatives (IARs) of federal covered investment advisers must register in a state if they have a place of business in that state or if they exceed the de minimis exemption (more than 5 clients) in that state.
- FCIA status does not exempt IARs from state registration.
- De minimis exemption: no registration required if no place of business and 5 or fewer clients.
- 'Place of business' is a key factor for IAR registration.
Memory trick: Even federal IAs' reps need state passes if they set up shop or have too many local friends.