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 regularly communicates with these State B clients via email and phone calls, providing ongoing investment advice. The IA does not have an office in State B and does not solicit new clients there. Under the Uniform Securities Act, what is the IA's registration obligation in State B?
- AThe IA is exempt from registration in State B because it does not maintain a physical office in State B.
- BThe IA must register in State B because it is communicating electronically with clients in that state.
- CThe IA must register in State B because it has clients residing there and provides ongoing advice.
- DThe IA is exempt from registration in State B under the de minimis exemption, as long as it has fewer than 6 clients in State B.
Show answer & explanationAnswer & explanation
Correct answer: D. The IA is exempt from registration in State B under the de minimis exemption, as long as it has fewer than 6 clients in State B.
The de minimis exemption allows an IA to avoid state registration if it has no place of business in the state and fewer than 6 clients who are residents of that state within a 12-month period. Providing ongoing advice to a small number of clients without a physical presence falls under this exemption.
Why the other options are wrong
- A. Not maintaining a physical office is a condition for the de minimis exemption, but the number of clients is also a crucial factor.
- B. Electronic communication alone does not trigger registration if the de minimis exemption applies.
- C. This statement is only true if the IA exceeds the de minimis client threshold.
De Minimis Exemption (IA State Registration)
An exemption from state investment adviser registration for firms that have no physical office in a state and serve a limited number of clients (typically fewer than 6) in that state within a 12-month period.
- Applies to state registration, not federal (SEC) registration.
- Requires no place of business in the state.
- Limits the number of clients (usually 5 or fewer) in the state.
- Client count is typically over a 12-month period.
Memory trick: No office, few friends, no need to register in their state.