NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesHard
A newly registered investment adviser (IA) based in State A has 12 clients, all of whom are residents of State A. The IA also provides advice to an insurance company domiciled in State B and a registered investment company based in State C. The IA manages less than $100 million in assets. Under the Uniform Securities Act, which of the following statements is most accurate regarding this IA's registration requirements?
- AThe IA must register with the Administrator of State A because it has a place of business there and advises retail clients.
- BThe IA must register with the SEC because it advises an investment company.
- CThe IA is exempt from federal registration but must register in all states where its clients reside.
- DThe IA is exempt from both state and federal registration due to the low number of clients and AUM.
Show answer & explanationAnswer & explanation
Correct answer: B. The IA must register with the SEC because it advises an investment company.
Investment advisers to registered investment companies (such as mutual funds) are required to register with the SEC, regardless of their assets under management (AUM) or number of other clients. This is a specific provision within the Investment Advisers Act of 1940.
Why the other options are wrong
- A. While typically an IA with AUM under $100M and a place of business in a state would register with that state, the exception for advising investment companies takes precedence.
- C. The IA is not exempt from federal registration due to advising an investment company. State registration for the retail clients would still be required in State A, but the primary requirement here is federal.
- D. The IA is not exempt from both; advising a registered investment company mandates federal registration.
SEC Registration Triggers (IA)
Specific conditions that mandate an investment adviser's registration with the Securities and Exchange Commission (SEC), regardless of AUM thresholds.
- Advising a registered investment company.
- Managing $100 million or more in AUM.
- Advising a business development company.
- Operating in 15 or more states.
Memory trick: State or SEC, it's about the scope and size, you see.