A federal covered investment adviser (FCIA) with its principal office in State A frequently conducts business with clients residing in State B. The FCIA has no physical office in State B, but it provides investment advice to 10 retail clients in State B. Under the Uniform Securities Act (USA), what is the FCIA's obligation regarding State B?
- AThe FCIA must apply for a de minimis exemption in State B.
- BThe FCIA must file a notice filing with the Administrator of State B.
- CThe FCIA has no obligations in State B because it is federally covered.
- DThe FCIA must register in State B due to the number of clients.
Show answer & explanationAnswer & explanation
Correct answer: B. The FCIA must file a notice filing with the Administrator of State B.
Federal covered investment advisers (FCIAs) are generally exempt from state registration. However, if an FCIA has a place of business in a state or has more than a certain number of clients (typically 5 or 6, depending on state law, but often aligned with the de minimis rule for state-registered IAs) in a state where they don't have an office, they are usually required to make a notice filing with the State Administrator. This allows the state to collect fees and enforce anti-fraud provisions.
Why the other options are wrong
- A. The de minimis exemption applies to state-registered IAs to avoid registration. FCIAs are already exempt from state registration; they make notice filings instead.
- C. While federally covered, FCIAs still have obligations to states, primarily through notice filings.
- D. FCIAs are exempt from state registration, they are not required to register.
FCIA State Notice Filing
A federal covered investment adviser (FCIA) is generally exempt from state registration. However, states typically require an FCIA to make a 'notice filing' if the FCIA has a place of business in that state or has more than a specified number of non-institutional clients (usually 5 or 6) in that state. This filing allows the state to collect fees and enforce anti-fraud statutes.
- Applies to Federal Covered Investment Advisers (FCIAs).
- Required if FCIA has a place of business in the state.
- Required if FCIA has more than 5 (or 6) non-institutional clients in the state (where no office exists).
- It is a filing, not a registration.
Memory trick: Federal Covered, but States Still Need a Notice.