NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesEasy
An investment adviser (IA) firm, registered only in State A, has several clients who are residents of State B. The IA provides investment advice via email and phone calls to these State B clients. Under the Uniform Securities Act, what registration requirement does the IA have in State B?
- AThe IA must register in State B because it has clients there, regardless of the number.
- BThe IA is exempt from registration in State B if it has no place of business there and fewer than 6 clients in State B.
- CThe IA must register in State B only if it has a physical office location within State B's borders.
- DThe IA is excluded from the definition of an investment adviser in State B if all advice is provided electronically.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA is exempt from registration in State B if it has no place of business there and fewer than 6 clients in State B.
The de minimis exemption allows an investment adviser to avoid registration in a state if it has no place of business in that state and fewer than six clients who are residents of that state within any 12-month period.
Why the other options are wrong
- A. This statement is incorrect as the de minimis exemption provides relief from registration based on client count.
- C. A physical office is a factor, but the client count under the de minimis rule is also crucial for registration requirements.
- D. Providing advice electronically does not automatically exclude an IA from the definition; the de minimis rule still applies.
De Minimis Exemption (IA State Registration)
An exemption from state investment adviser registration for firms that have no place of business in that state and fewer than six clients who are residents of that state within any 12-month period.
- Applies to state-registered IAs.
- Requires no place of business in the new state.
- Limits client count to fewer than 6 residents in 12 months.
Memory trick: Don't Minimize Your State Client Count!