NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser (IA) registered in State A provides investment advice to 40 clients, 35 of whom reside in State A and 5 in State B. The IA's only office is in State A. Under the Uniform Securities Act (USA), which of the following statements is true regarding this IA's registration requirements in State B?
- AThe IA must register in State B because it has clients residing there.
- BThe IA must register in State B because it exceeds the federal de minimis threshold.
- CThe IA is exempt from registration in State B because its principal office is in State A.
- DThe IA is exempt from registration in State B due to the de minimis exemption.
Show answer & explanationAnswer & explanation
Correct answer: D. The IA is exempt from registration in State B due to the de minimis exemption.
The de minimis exemption under the Uniform Securities Act allows an investment adviser to avoid registration in a state where it has no place of business and fewer than 6 clients. In this scenario, the IA has 5 clients in State B, which falls under this threshold.
Why the other options are wrong
- A. Registration is not required if the IA meets the de minimis exemption criteria.
- B. The federal de minimis threshold is for federal covered investment advisers, not state-registered IAs, and is irrelevant here.
- C. Having a principal office in State A does not automatically exempt an IA from registration in other states where it conducts business, unless a specific exemption applies.
IA State De Minimis Exemption
An investment adviser (IA) is exempt from state registration in a state where it does not have a place of business and directs communications to no more than 5 non-institutional clients during any 12-consecutive-month period.
- Applies to state-registered IAs only.
- No place of business in the new state.
- Limit of 5 non-institutional clients in the new state.
Memory trick: No office, few friends, no need to register.