NASAA Series 63Regulation of Investment Advisers and IARsHard
An individual provides investment advice solely to an employee benefit plan established under the Employee Retirement Income Security Act of 1974 (ERISA) and manages the plan's assets. The plan has assets of $200 million. Under the Uniform Securities Act, how would this individual typically be classified?
- AAs an Investment Adviser (IA) subject to state registration.
- BAs a federal covered adviser, exempt from state registration.
- CAs an Investment Adviser Representative (IAR) subject to state registration.
- DAs a person excluded from the definition of an investment adviser.
Show answer & explanationAnswer & explanation
Correct answer: B. As a federal covered adviser, exempt from state registration.
Advisers to employee benefit plans with at least $50 million in assets are generally considered federal covered advisers under the Investment Advisers Act of 1940. This is an exception to the standard AUM thresholds for federal covered status, meaning they register with the SEC and are exempt from state registration.
Why the other options are wrong
- A. The AUM of the ERISA plan triggers federal covered adviser status, preempting state IA registration.
- C. The individual would be an IA, not just an IAR, and the federal covered status would preempt state IAR registration unless a place of business exists.
- D. Providing investment advice for compensation to an ERISA plan clearly fits the definition of an investment adviser; no exclusion applies here.
Federal Covered Adviser - ERISA Plans
An adviser whose only clients are employee benefit plans, and who manages at least $50 million in assets for such plans, is generally considered a federal covered adviser.
- Specific threshold for ERISA plans ($50M AUM) differs from general AUM thresholds.
- Registration is with the SEC, not state Administrators.
- Exempt from state registration requirements (NSMIA preemption).
Memory trick: Federal Covered Advisers are like 'VIPs' of the SEC, with special tickets for big AUM or unique clients.