NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser (IA) firm manages assets for 200 clients, all residents of State X. The firm has $100 million in assets under management (AUM) and is registered with the state Administrator. If the IA's AUM grows to $120 million, what action, if any, is required regarding its registration status?
- AThe IA must file for SEC registration within 90 days and withdraw its state registration.
- BThe IA has the option to register with either the state or the SEC, but not both.
- CThe IA must notify the state Administrator of its increased AUM but can remain state-registered.
- DThe IA must remain state-registered as its AUM is below the SEC registration threshold.
Show answer & explanationAnswer & explanation
Correct answer: A. The IA must file for SEC registration within 90 days and withdraw its state registration.
An investment adviser with $110 million or more in AUM is generally required to register with the SEC. Since the IA's AUM has grown to $120 million, it crosses this threshold and must transition to SEC registration within 90 days, simultaneously withdrawing its state registration.
Why the other options are wrong
- B. This is incorrect; once AUM hits $110 million, SEC registration is generally mandatory, not optional.
- C. Notifying the state is part of the process, but the primary requirement is to register with the SEC and withdraw state registration.
- D. This is incorrect; $120 million AUM exceeds the state registration maximum.
IA Registration Thresholds (State vs. SEC)
Investment advisers are generally registered with either state securities authorities or the SEC, based primarily on their Assets Under Management (AUM). The threshold for mandatory SEC registration is $110 million AUM.
- Below $100M AUM: State registration (unless specific exemptions apply).
- Between $100M and $110M AUM: Option to register with either state or SEC (mid-sized adviser).
- At or above $110M AUM: Mandatory SEC registration (large adviser).
- A grace period of 90 days applies when crossing thresholds.
Memory trick: AUM's Climb: State Below 100, Mid-Range is a Choice, Over 110 SEC's Voice!