A state-registered investment adviser (IA) has been experiencing rapid growth and now manages $120 million in assets. The IA's principal office is in State A, and it has clients in 10 other states. Under the Investment Advisers Act of 1940 and the Uniform Securities Act (USA), what is the most appropriate next step for this IA regarding its registration?
- ARegister with the SEC and maintain state registration only in State A.
- BWithdraw state registration and register solely with the SEC as a federal covered investment adviser.
- CRegister with the SEC and file a notice filing in all 11 states where it has clients.
- DMaintain state registration in all 11 states where it has clients.
Show answer & explanationAnswer & explanation
Correct answer: B. Withdraw state registration and register solely with the SEC as a federal covered investment adviser.
Under the Investment Advisers Act of 1940, an investment adviser managing $110 million or more in assets is generally required to register with the SEC as a federal covered investment adviser. Once registered with the SEC, such an IA is typically exempt from state registration. Therefore, the IA should withdraw its state registration and register with the SEC.
Why the other options are wrong
- A. Once an IA registers with the SEC, it typically withdraws all state registrations. Only a notice filing (not full registration) is required in states where it has a place of business or a certain number of clients.
- C. While a federal covered IA must make notice filings in states where it has a place of business or a certain number of clients, it does not *register* with those states. The primary action is withdrawing state registration and registering with the SEC.
- D. Maintaining multiple state registrations once eligible for SEC registration is not necessary and often prohibited, as federal covered IAs are generally exempt from state registration.
IA Transition to Federal Covered Status
An investment adviser (IA) with $110 million or more in assets under management (AUM) is generally required to register with the SEC as a federal covered investment adviser and typically must withdraw its state registrations.
- AUM of $110 million or more requires SEC registration.
- Federal covered IAs are exempt from state registration (may need notice filing).
- Must withdraw existing state registrations.
Memory trick: Millions Mean Move to Main Office.