NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesEasy
An investment adviser (IA) registered in State A has 30 clients, 25 of whom reside in State A. The remaining 5 clients reside in State B. The IA has no place of business in State B and does not advertise or solicit clients in State B. Is the IA required to register in State B?
- AYes, because the IA has more than 3 clients in State B.
- BYes, because the IA has clients in State B, regardless of the number.
- CNo, because the IA's principal place of business is in State A.
- DNo, because the IA falls under the de minimis exemption for State B.
Show answer & explanationAnswer & explanation
Correct answer: D. No, because the IA falls under the de minimis exemption for State B.
Under the Uniform Securities Act (USA), an investment adviser is exempt from registration in a state if they have no place of business in that state and direct communications to no more than 5 non-institutional clients in that state during any 12-month period. This is known as the de minimis exemption.
Why the other options are wrong
- A. The threshold for the de minimis exemption is 5 or fewer clients, not 3.
- B. The number of clients is relevant due to the de minimis exemption.
- C. While the principal place of business is in State A, the IA still needs to consider registration requirements in other states where clients reside, unless an exemption applies.
IA De Minimis Exemption (USA)
An exemption from state registration for an Investment Adviser (IA) if they have no place of business in that state and direct communications to no more than 5 non-institutional clients in that state during any 12-month period.
- No physical office in the state.
- No more than 5 non-institutional clients in the state.
- Applies to state-registered IAs.
Memory trick: No home, five friends, no need to register.