NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A state-registered investment adviser (IA) has been experiencing rapid growth and now manages $120 million in assets under management (AUM). The IA's principal office is in State X, and it has clients in 10 different states. Which of the following statements best describes the IA's current registration status and future obligations?
- AThe IA must register with the SEC and maintain its state registration in all 10 states where it has clients.
- BThe IA is now considered a federal covered investment adviser and must register with the SEC.
- CThe IA has the option to register with either the state or the SEC, but not both.
- DThe IA must remain state-registered as its principal office is in State X.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA is now considered a federal covered investment adviser and must register with the SEC.
Under the Dodd-Frank Act, an investment adviser generally becomes a federal covered investment adviser (FCIA) and must register with the SEC once its assets under management (AUM) reach or exceed $110 million. The IA must then withdraw its state registration.
Why the other options are wrong
- A. Once federal covered, the IA generally withdraws state registration; it does not maintain both in all states (though notice filings may be required).
- C. At $120 million AUM, the IA is mandated to register with the SEC and cannot choose state registration.
- D. Once AUM reaches $110 million, state registration is no longer appropriate; federal registration is required.
IA Transition to Federal Covered
An investment adviser (IA) must transition from state registration to federal registration with the SEC once its Assets Under Management (AUM) reach or exceed $110 million, as per the Dodd-Frank Act.
- AUM threshold: $110 million.
- Mandatory SEC registration.
- Must withdraw state registration.
- AUM calculation occurs annually.
Memory trick: Hit 110M AUM, switch to the big leagues.