A state-registered investment adviser (IA) firm manages assets for 75 clients. All clients are residents of State X, where the IA has its principal office. The firm's total assets under management (AUM) amount to $90 million. The IA is considering expanding its operations and wants to understand its federal registration obligations. Based on these facts, which of the following statements is TRUE?
- AThe IA is currently required to register with the SEC.
- BThe IA is exempt from SEC registration until its AUM reaches $110 million.
- CThe IA can choose to register with either the state or the SEC at its current AUM.
- DThe IA must register with the SEC once its AUM reaches $100 million.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA is exempt from SEC registration until its AUM reaches $110 million.
Investment advisers are generally required to register with the SEC if they have $110 million or more in AUM. Firms between $100 million and $110 million AUM typically have the option to register with either the state or the SEC (often referred to as 'mid-sized advisers'). Below $100 million, they are generally state-registered, unless an exemption applies. Therefore, at $90 million, the IA is exempt from SEC registration until it reaches $110 million.
Why the other options are wrong
- A. At $90 million AUM, the IA is below the typical SEC registration threshold.
- C. At $90 million AUM, the IA is below the mandatory SEC registration threshold and would typically be required to register only with the state.
- D. The threshold for mandatory SEC registration is generally $110 million, though firms between $100M and $110M may have an option.
IA Registration Thresholds (State vs. SEC)
The 'Dodd-Frank Act' generally requires investment advisers with $110 million or more in Assets Under Management (AUM) to register with the SEC, while those with less than $100 million AUM typically register with state authorities. Advisers between $100 million and $110 million AUM are often 'mid-sized advisers' with a choice.
- <$100M AUM: State registration required (unless exception).
- $100M - <$110M AUM: May choose state or SEC (mid-sized adviser).
- $110M+ AUM: SEC registration required.
Memory trick: Hundred million, choose your fate; one-ten, SEC is your state!