A state-registered investment adviser (IA) is providing services to a client who recently moved from State A to State B. The IA is currently registered in State A and has no physical office in State B. The client is the IA's only client in State B. Under the Uniform Securities Act, how should the IA address its registration requirements in State B?
- AThe IA must register in State B if it has more than 5 clients in that state.
- BThe IA is exempt from registration in State B because it has no physical office there.
- CThe IA is excluded from registration in State B due to the 'de minimis' exemption.
- DThe IA must register in State B immediately, as it has a client residing there.
Show answer & explanationAnswer & explanation
Correct answer: A. The IA must register in State B if it has more than 5 clients in that state.
Under the Uniform Securities Act (USA), an investment adviser is generally required to register in a state if it has a place of business in that state OR if it has more than 5 non-institutional clients residing in that state within a 12-month period. Since the IA only has one client in State B and no office, it qualifies for the 'de minimis' exemption and does not need to register unless it exceeds 5 clients.
Why the other options are wrong
- B. Having no physical office is a factor, but the client count still applies. No physical office doesn't automatically grant exemption if the client threshold is met.
- C. This is incorrect; while it applies now, the 'de minimis' exemption specifically allows for up to 5 individual clients, not an outright exclusion.
- D. This is incorrect; the 'de minimis' exemption allows for a certain number of clients without registration.
IA State Registration - De Minimis Exemption
Under the Uniform Securities Act (USA), a state-registered investment adviser is exempt from registration in another state if it has no place of business in that state AND has fewer than 6 non-institutional clients in that state during any 12-month period.
- Applies to state-registered IAs.
- Requires no physical office in the new state.
- Allows up to 5 non-institutional clients without registration.
- Institutional clients (e.g., banks, other IAs) do not count towards the limit.
Memory trick: De Minimis: No Office, Under Six Clients, No Registration Fights!