A state-registered investment adviser (IA) has its principal office in State A and provides investment advice to 10 clients in State A, 4 clients in State B, and 3 clients in State C. The IA has no physical presence in State B or State C. According to the Uniform Securities Act, which of the following statements is TRUE regarding the IA's registration requirements?
- AThe IA must register in State A and State B, but not State C.
- BThe IA must register in State A, State B, and State C.
- CThe IA must register in State A and notice file in State B and State C.
- DThe IA must register in State A only.
Show answer & explanationAnswer & explanation
Correct answer: D. The IA must register in State A only.
Under the Uniform Securities Act, a state-registered investment adviser is required to register in any state where it has a place of business or if it has more than five retail clients in that state. Since the IA has no place of business in State B or State C and has fewer than six clients in each of those states (4 in B, 3 in C), it is not required to register or notice file in those states.
Why the other options are wrong
- A. This is incorrect. The de minimis exemption applies to both State B and State C.
- B. This is incorrect. The de minimis exemption applies to States B and C.
- C. This is incorrect. Notice filing is typically for federal covered advisers, and the de minimis exemption would apply here, negating registration or notice filing requirements for States B and C.
IA De Minimis Exemption (State)
A state-registered investment adviser is exempt from registration in a state if it has no place of business in that state AND has fewer than six clients who are residents of that state during the preceding 12-month period.
- Applies to state-registered IAs only.
- Must have no place of business in the new state.
- Must have fewer than 6 clients in the new state.
- Exemption applies to both individuals and institutions.
Memory trick: Six clients or a physical spot, that's where you must be caught!