A client, Ms. Evelyn, has been receiving advice from her investment adviser representative (IAR) in State A for the past three years. Ms. Evelyn recently sold her home and moved permanently to State B. The IAR's firm is state-registered in State A and has no physical presence in State B. The IAR continues to provide investment advice to Ms. Evelyn via phone and email. What action, if any, is required concerning the IAR's registration status?
- AThe IAR does not need to register in State B as long as they do not establish a place of business there.
- BThe IAR is exempt from registration in State B due to the de minimis exemption, provided Ms. Evelyn is their only client in that state.
- CThe IAR's firm must become federally registered as it now has clients in multiple states.
- DThe IAR must register in State B because Ms. Evelyn is now a resident of State B.
Show answer & explanationAnswer & explanation
Correct answer: D. The IAR must register in State B because Ms. Evelyn is now a resident of State B.
An IAR must be registered in any state where they have a place of business OR where they advise more than a de minimis number of clients (typically 5 or fewer non-institutional clients). Since Ms. Evelyn moved to State B and the IAR continues to advise her, the IAR is now transacting business with a client in State B, triggering registration requirements for the IAR in State B, unless a specific exemption applies (the de minimis exemption applies to the IA, not typically the IAR in this context if they are advising a single client from out of state without a de minimis exemption for the IAR's direct activity). However, the IAR does not have a de minimis exemption for themselves in State B if they are actively advising even one client from an out-of-state firm.
Why the other options are wrong
- A. This statement is incorrect; an IAR's registration is tied to where their clients reside and where they transact business, not solely their place of business.
- B. The de minimis exemption applies to the IA firm (5 clients or less, no office). An IAR advising even one resident client in a state where they are not registered and their firm is not registered or exempt, typically requires IAR registration.
- C. Multiple clients in multiple states does not automatically trigger federal registration for the firm unless its AUM reaches $110 million.
IAR State Registration Trigger
An Investment Adviser Representative (IAR) must register in any state where they have a place of business or where they solicit, offer, or negotiate for the sale of investment advisory services, or supervise individuals who do so, to a resident of that state.
- Registration required if IAR has a place of business in the state.
- Registration required if IAR advises a resident client in the state.
- No de minimis exemption for IARs for advising a single client from an out-of-state firm.
- The firm's registration status (state or federal) impacts IAR registration rules.
Memory trick: Place, people, or persuasion means you register.