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 to these clients exclusively through electronic means, such as email and video conferencing, and maintains no physical office or agents in State B. According to the Uniform Securities Act, under which condition is the IA exempt from registration in State B?
- AThe IA has fewer than 10 clients in State B.
- BThe IA charges a flat fee for its services, rather than a percentage of AUM.
- CThe IA's total assets under management are less than $110 million.
- DThe IA has no physical presence or agents in State B.
Show answer & explanationAnswer & explanation
Correct answer: A. The IA has fewer than 10 clients in State B.
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 if it does not direct business communications to more than a specified number of retail clients, typically fewer than six, within a 12-month period. Fewer than 10 clients would meet this condition.
Why the other options are wrong
- B. The fee structure of the IA does not impact its registration requirements under the de minimis exemption.
- C. The AUM threshold is relevant for SEC vs. state registration, not for the de minimis exemption between states.
- D. While relevant, no physical presence alone is insufficient; the number of clients is the key factor for the de minimis exemption.
De Minimis Exemption (IA State Registration)
An exemption from state investment adviser registration for firms that do not have a place of business in the state and do not direct business communications to more than a specified small number of retail clients (typically fewer than 6) within a 12-month period.
- Applies to state-registered IAs only.
- Requires no physical office in the state.
- Client count threshold is critical (e.g., fewer than 6 retail clients).
Memory trick: No office, few clients, no registration fuss!