A client, Ms. Evelyn, has been receiving advice from her investment adviser representative (IAR) for five years. Recently, Ms. Evelyn moved from State X to State Y, where the IAR's firm (a state-registered IA) is not registered, and the IAR is also not registered. The IAR continues to service Ms. Evelyn's account remotely from State X. Under the Uniform Securities Act (USA), what action is required for the IAR to continue servicing Ms. Evelyn's account legally?
- AThe IAR can continue to service the account for 30 days while the firm applies for registration in State Y.
- BNo action is required if Ms. Evelyn initiates all contact and transactions from State Y.
- CThe IAR's firm must register as an IA in State Y, and the IAR must register as an IAR in State Y.
- DThe IAR must cease servicing Ms. Evelyn's account immediately, as she is no longer a resident of State X.
Show answer & explanationAnswer & explanation
Correct answer: C. The IAR's firm must register as an IA in State Y, and the IAR must register as an IAR in State Y.
Under the Uniform Securities Act (USA), an investment adviser (IA) and its investment adviser representatives (IARs) must be registered in any state where they have a place of business OR where they have more than a de minimis number of clients (typically 5). Since Ms. Evelyn has moved to State Y, the IA firm now has a client in State Y, and the IAR is providing advice to a resident of State Y. Therefore, both the IA firm and the IAR must register in State Y, unless an exemption applies (which is not the case here for a single client when the firm is not federal covered).
Why the other options are wrong
- A. There is no general 30-day grace period under the USA for IAs or IARs to continue servicing clients in a new state without proper registration, unless specific temporary registration provisions apply, which are not indicated here.
- B. Client-initiated contact does not negate the registration requirement for an IA or IAR who is providing advice to a resident of a state where they are not registered and no other exemption applies.
- D. Ceasing service is one option, but registration is another, allowing continued service.
IA/IAR State Registration upon Client Relocation
If an investment adviser (IA) or investment adviser representative (IAR) continues to provide advisory services to a client who moves to a new state where the IA/IAR is not registered, the IA/IAR generally must register in that new state.
- Registration required if providing advice to a resident of a state.
- De minimis exemption (fewer than 6 clients) may apply to the IA, but generally not to IAR directly.
- Client's new state becomes a state where business is conducted.
Memory trick: New Home, New Reg, Keep It Legal.