NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A state-registered investment adviser (IA) firm manages assets for 75 clients. All clients reside in the state where the IA is registered. The firm's total assets under management (AUM) are $115 million. Based on these figures, which of the following statements is TRUE regarding the IA's registration requirements?
- AThe IA must register with the SEC because its AUM exceeds $100 million.
- BThe IA must remain registered with the state Administrator because its AUM is below $110 million.
- CThe IA has the option to register with either the state Administrator or the SEC.
- DThe IA is required to register with both the state Administrator and the SEC.
Show answer & explanationAnswer & explanation
Correct answer: A. The IA must register with the SEC because its AUM exceeds $100 million.
Under the Dodd-Frank Act, investment advisers with $100 million or more in AUM are generally required to register with the SEC, unless an exemption applies. The $110 million threshold is for *transitioning* from state to SEC registration.
Why the other options are wrong
- B. This is incorrect. The $110 million threshold is for remaining state-registered if AUM grows above $100 million, but initial registration at $100M+ is SEC.
- C. The option to choose only exists for AUM between $100M and $110M if they were already state-registered. At $115M, SEC registration is mandatory.
- D. Dual registration is generally avoided; an IA registers with either the state or the SEC, not both, unless a specific exemption applies (e.g., notice filing).
IA Registration Thresholds (State vs. SEC)
Investment Advisers generally register with the state if AUM is less than $100 million, and with the SEC if AUM is $100 million or more. There are specific thresholds for transitioning between state and SEC registration.
- Under $100M AUM: State registration.
- $100M+ AUM: SEC registration (federal).
- Grace period to switch: $90M (state to SEC) and $110M (SEC to state).
- Dodd-Frank Act raised the SEC threshold from $25M to $100M.
Memory trick: One Hundred Million, SEC's call, not state's!