NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A federal covered investment adviser (FCIA) with its principal office in State A frequently conducts business with clients residing in State B. The FCIA has no physical office in State B but regularly communicates with 15 clients in State B via phone and email. Under the Uniform Securities Act (USA), what, if any, action must the FCIA take regarding State B?
- AThe FCIA is exempt from any filing or registration requirements in State B due to its federal covered status.
- BThe FCIA must register in State B because they have more than five clients there.
- CThe FCIA must register in State B if it holds any client assets there.
- DThe FCIA must file a notice with the Administrator of State B.
Show answer & explanationAnswer & explanation
Correct answer: D. The FCIA must file a notice with the Administrator of State B.
Federal covered investment advisers are generally regulated by the SEC. However, under the Uniform Securities Act, they are typically required to make a 'notice filing' in any state where they have a place of business or where they have more than five clients, even if they do not have a physical office there. This allows the state Administrator to be aware of their activities.
Why the other options are wrong
- A. Federal covered status exempts them from state registration, but not from state notice filings.
- B. FCIAs do not 'register' at the state level; they 'notice file'.
- C. Holding client assets is a factor for custody, but the client count or place of business rule triggers notice filing regardless.
FCIA State Notice Filing
Federal Covered Investment Advisers (FCIAs) are exempt from state registration but must 'notice file' in any state where they have a place of business or more than five clients.
- Notice filing informs state Administrators of the FCIA's presence.
- It applies if the FCIA has a place of business in the state.
- It also applies if the FCIA has more than five clients in the state (de minimis rule for state registration, but notice filing for FCIAs).
Memory trick: Federal oversight, but state still wants a 'heads-up' notice.