A client, Ms. Evelyn, has been receiving advice from her Investment Adviser Representative (IAR) in State A. Ms. Evelyn recently moved and established residency in State B. The IAR's firm is registered in State A, but not in State B, and the IAR is also only registered in State A. The IAR has 3 clients, including Ms. Evelyn, who reside in State B. What is the immediate consequence for the IAR and their firm regarding Ms. Evelyn's account?
- AThe firm must register as an Investment Adviser in State B, but the IAR can continue to practice under the firm's new registration.
- BThe IAR must cease providing advice to Ms. Evelyn until the IAR and/or firm are properly registered in State B.
- CThe IAR must transfer Ms. Evelyn's account to an IAR registered in State B.
- DThe IAR can continue to service Ms. Evelyn's account under the de minimis exemption for IARs.
Show answer & explanationAnswer & explanation
Correct answer: B. The IAR must cease providing advice to Ms. Evelyn until the IAR and/or firm are properly registered in State B.
If a client moves to a new state where the IAR and/or their firm are not registered, and no de minimis exemption applies (which it doesn't here, as the IAR is 'transacting business' by continuing to advise), the IAR must cease providing advice until proper registration or notice filing (for the firm) is completed in the new state. The IAR's de minimis exemption typically applies to a temporary presence, not ongoing client relationships.
Why the other options are wrong
- A. The firm would need to register or notice file, but the IAR also needs to be registered in that state to represent the IA.
- C. While transferring the account is an option, the immediate consequence for the IAR is that they must stop providing advice until registered in State B, or the account is transferred.
- D. The IAR de minimis exemption typically applies to a temporary presence in a state (e.g., 30 days) and does not cover ongoing client relationships when the client has moved permanently and the IAR is transacting business.
IAR Registration upon Client Relocation
When a client moves to a new state, the Investment Adviser Representative (IAR) and their firm may need to register or make a notice filing in that new state to continue servicing the client. The IAR de minimis exemption (often 30 days) typically applies to temporary presence, not ongoing client relationships with a new resident. If not properly registered, the IAR must cease advising the client.
- Registration is required in states where 'transacting business' occurs.
- Client moving to a new state may trigger new registration/notice filing requirements.
- IAR de minimis (e.g., 30 days) is for temporary presence, not ongoing client relationships.
- Failure to register means IAR must stop advising the client.
Memory trick: Client Moves, Check Registration, Stop if Not.