- A federal covered investment adviser with its principal office in State A provides investment advice to clients in State B. The adviser has 4 natural-person clients in State B and an office in State B. Under the Uniform Securities Act, which statement is true?
Answer: The adviser must file a notice filing in State B before doing business there.
Under the Investment Advisers Act of 1940 § 203A and the Uniform Securities Act, a federal covered adviser is not registered with a state; instead, a state may require a notice filing and a fee before the adviser does business there. Here the adviser has an office in State B and non-institutional clients in State B, so the State B notice filing is required. The fewer-than-six-client exemption from state IA/IAR registration does not exempt a federal covered adviser from this notice-filing obligation. The statements that the adviser must register as an investment adviser in State B are wrong because a federal covered adviser does not state-register. The statement that the adviser is exempt from notice filing because it has fewer than six clients is also wrong.
- An investment adviser has $75 million in regulatory assets under management, is registered with its home state, has offices in four other states, and is not eligible for any exemption from SEC registration. Under the Investment Advisers Act of 1940, which statement is true?
Answer: The adviser may not register with the SEC because it is below the $100 million threshold and must remain state-registered.
Under Investment Advisers Act § 203A, an adviser with $100 million or more in regulatory assets under management may register with the SEC, and SEC registration becomes mandatory once AUM reaches $110 million. An adviser in the mid-sized range — $25 million to $100 million — whose home state registers and examines advisers must register with the state rather than with the SEC unless it qualifies for an exemption. Because this adviser has $75 million in AUM, is registered in its home state, and is not eligible for an SEC-registration exemption, it may not register with the SEC. The statement that the 15-or-more-states condition makes SEC registration mandatory is wrong: the condition is an exemption that permits, but does not require, SEC registration, and the facts here do not show the adviser meets it. The statement that $75 million exceeds the $25 million statutory floor and therefore requires SEC registration confuses the floor below which SEC registration is generally prohibited with a threshold that triggers mandatory registration. The statement that the adviser may register because it is above the $100 million threshold is factually incorrect: $75 million is below that threshold, and mandatory registration begins at $110 million.
- Which of the following is exempt from registration as an investment adviser under the Uniform Securities Act?
Answer: An adviser that has 6 clients, 3 of whom are natural persons and 3 of whom are banks, during the preceding 12 months, and has no place of business in the state
Under Uniform Securities Act § 201(c), an adviser is exempt from state registration if it has no place of business in the state and either (a) its only clients are institutional clients, or (b) it has no more than five clients other than institutional clients during the preceding 12 months. The adviser with six clients, three of whom are banks, has no place of business in the state and six clients, three of whom are banks (institutional clients). That leaves only three non-institutional clients, which is within the five-client de minimis limit, so the adviser is exempt. The adviser with four natural-person clients fails because it has its only office in the state, so the no-place-of-business requirement is not met. The adviser with eight natural-person clients fails because that many clients exceed the five-client de minimis limit. The adviser with six natural-person clients fails because six such clients exceed that limit, and natural persons are not institutional clients.
A federal covered adviser has $250 million in assets under management and is about to open its first branch office in State X and begin serving retail clients there. Two advisers will work exclusively from that branch. Each adviser will have exactly 30 clients, all in State X; 12 of the 30 are natural persons, and none are qualified clients.
Which statement is correct regarding the obligations of the firm and its two advisers in State X? Answer: The firm must file a notice in State X before doing business, and the two advisers must register as IARs there.
Uniform Securities Act § 201 requires a federal covered adviser to file a notice and pay a fee before doing business in a state; it does not register as an investment adviser in the state. Because the firm will serve retail clients in State X, the institutional-clients-only notice exemption is unavailable. The advisers will work from an office in State X, and each will have 12 natural-person clients out of 30, none of whom are qualified clients, satisfying the more-than-five and more-than-10% natural-person client tests under SEC Rule 203A-3; the state may therefore require them to register as IARs. The statement that the firm must register as an investment adviser confuses notice filing with registration. The statement that no action is required ignores both the firm's notice obligation and the advisers' registration obligation. The statement that notification is the firm's only duty is wrong because the firm must notice-file, and for an IAR of a federal covered adviser the individual IAR, not the firm, notifies the Administrator when the association begins.
- Under NASAA minimum financial requirements, a state-registered investment adviser with custody of client assets must maintain a minimum net worth of $35,000. The adviser has $30,000 in net worth, and its custody is not limited to the authority to deduct advisory fees from client accounts. Which statement is true?
Answer: The adviser must notify the Administrator by the close of the next business day and file a financial report by the following business day.
Under NASAA minimum financial requirements, a state-registered investment adviser with custody of client assets must maintain at least $35,000 in net worth. At $30,000, the adviser is below the minimum, so it must notify the Administrator by the close of the next business day and file a financial report by the close of the following business day. The statement that $30,000 satisfies the $35,000 requirement is wrong because the adviser is $5,000 short. The statement that a $35,000 surety bond is required is wrong because bonding, when used, covers the deficiency rounded up to the nearest $5,000—here $5,000, not $35,000. The fee-deduction exemption does not apply because the facts state the adviser's custody is not limited to fee deduction; that exemption also requires the custody-rule safeguards.
A federal covered adviser with $300 million in assets under management has a branch office in State X. Priya, an associated person of the adviser, works from that office and regularly meets with clients there. Priya provides advice to 40 clients, all of whom are in State X: 30 institutional clients and 10 individuals, six of whom are qualified clients. She has no other clients.
Must Priya register as an investment adviser representative in State X? Answer: No, because qualified clients are excluded from the natural-person client count, leaving only four counted clients.
SEC Rule 203A-3 provides that an individual associated with a federal covered adviser is an investment adviser representative, whom a state may require to register, only if the individual has a place of business in the state and has more than five natural-person clients and more than 10% natural-person clients, in both cases not counting qualified clients. Priya has a place of business in State X, but excluding the six qualified clients leaves only four natural-person clients out of 40: four is not more than five, and 4/40 is exactly 10%, not more than 10%. Because she is not an IAR under the federal rule, the state cannot require her to register even though she works from an office there. Counting all ten individuals ignores the qualified-client exclusion, and the statement that a state can never regulate a person associated with a federal covered adviser is wrong because states do register IARs of federal covered advisers who meet the rule's tests.
An investment adviser registered with the SEC has its principal office in State A and no place of business in State B. During the preceding 12 months, it had seven clients in State B: three registered investment companies, two insurance companies, and two banks. It has no other clients in State B.
Under the Uniform Securities Act, which of the following statements is correct regarding State B? Answer: The adviser need not make a notice filing in State B because its only clients in the state are institutional clients.
Uniform Securities Act § 201(c) and the notice-filing provision for federal covered advisers. A federal covered adviser must make a notice filing before doing business in a state unless its only clients there are the listed institutions, which include investment companies, insurance companies and banks. All seven of the adviser's State B clients are such institutions, so no notice filing is required even though the count exceeds five. The statement that the adviser must register in State B applies state registration to a federal covered adviser, which notice-files instead. The statement that more than five clients requires a notice filing counts institutional clients that the exception excludes. The statement that an SEC-registered adviser without a place of business never files overstates the federal de minimis rule: under IAA § 222(d) the state may not require a filing only when the adviser has fewer than six clients resident in the state, and this adviser has seven, so it is the institutional-client exception that decides.
- An individual with a place of business in State X is associated with a federal covered investment adviser. Under SEC Rule 203A-3 and the Uniform Securities Act, which individual is an investment adviser representative who must register in State X?
Answer: An individual who has 6 clients, all natural persons, none of whom are qualified, and who regularly gives investment advice from an office in State X
Under SEC Rule 203A-3, an individual associated with a federal covered adviser is an IAR for state-registration purposes when the individual has a place of business in the state and, as a supervised person, has more than 5 natural-person clients and more than 10% natural-person clients, not counting qualified clients. The individual with 6 clients, all natural persons and none qualified, has 6 non-qualified natural-person clients, 100% natural-person clients, and regularly gives investment advice from an office in State X, so that individual must register. The individual with 3 clients, all qualified, has no non-qualified natural-person clients, so the more-than-5 test fails despite soliciting new clients. The individual with 8 clients, all natural, 4 qualified, has only 4 non-qualified natural-person clients, which is not more than 5. The individual with 10 clients, all natural, 9 qualified, has only 1 non-qualified natural-person client, which is not more than 5 and is exactly 10%, not more than 10%; supervising other advisers does not cure the count.
An investment adviser has $40 million in regulatory assets under management. It provides individualized portfolio recommendations exclusively through an interactive website. All 400 clients are natural persons located in 20 states, with at least six clients in each state; they all became clients through the website and receive advice only through it. None of the firm's employees meets with clients. The firm's home state registers and examines investment advisers.
Which statement is correct regarding the firm's registration status? Answer: The firm may register with the SEC even though it has less than $100 million in assets under management and would then notice-file in each state where it has clients.
Investment Advisers Act § 203A and SEC Rule 203A-2(e) permit a firm whose clients are all served through an interactive website to register with the SEC without regard to its assets under management; because the firm satisfies that internet-adviser condition, the $40 million AUM does not bar SEC registration. The statement that the firm may not register confuses the general $100 million threshold with the internet-adviser exemption. SEC registration under the exemption is permissive, so the statement that the firm must register because it serves clients in multiple states misstates the rule. The firm is an investment adviser because it gives individualized advice through the website; the lack of human consultation does not take it out of the definition. Once registered with the SEC, the firm is a federal covered adviser and, because its clients are natural persons with at least six clients in each of the 20 states, must notice-file in each state where it has clients.
- Under the Uniform Securities Act, which of the following is an investment adviser?
Answer: A publisher of a financial newsletter that includes model portfolios based on the subscriber's stated risk tolerance and investment objectives
Under the Uniform Securities Act § 401, an investment adviser is a person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in securities. A publisher of a bona fide publication is excluded from the definition only if the publication does not provide advice based on the specific situation of each client. Here, the newsletter provides model portfolios based on each subscriber's stated risk tolerance and objectives, so the publication is personalised advice and the publisher is an investment adviser. A bank is expressly excluded from the definition. A CPA whose advice is solely incidental to the practice of accounting is excluded, and explaining tax consequences of a proposed investment is incidental advice. A broker-dealer is excluded only when its advice is solely incidental to brokerage services AND it receives no special compensation for the advice; both conditions are met here.
An individual employed by a federal covered investment adviser maintains a place of business in State X. The individual advises all 12 of the adviser's clients, each a natural person residing in State X. Each client has $1.1 million under management with the adviser and, excluding a primary residence, a net worth of $1.5 million. For purposes of this question, an individual is a qualified client if the individual has at least $1.4 million under management with the adviser or a net worth above $2.7 million excluding the primary residence. The individual does not solicit clients.
Which of the following statements is correct? Answer: The state may require the individual to register as an IAR because the 12 clients are not qualified clients and the individual has a place of business in the state.
SEC Rule 203A-3 permits a state to require registration of an individual associated with a federal covered adviser if the individual has a place of business in the state and meets the IAR tests: more than five natural-person clients and more than 10% natural-person clients, excluding qualified clients. Here, the individual has a place of business in State X and 12 natural-person clients. None is a qualified client under the stated $1.4 million / $2.7 million thresholds, so all 12 count and both the client-count and percentage tests are met. The statement that non-qualified clients are excluded reverses the rule; qualified clients are the excluded group. The statement that more than five clients is enough regardless of natural-person or qualified-client status ignores those limits. The statement that solicitation is required is wrong because regularly giving investment advice is itself an IAR activity.
An investment adviser has been registered with the SEC since 2016, when its regulatory assets under management first exceeded $110 million. Its assets under management have since declined to $95 million. Its home state registers and examines investment advisers. The firm has more than five retail clients in each of eight states and offices in two of them.
Which statement is correct regarding the firm's registration and notice obligations? Answer: The firm may remain registered with the SEC, and it must file a notice in each of the eight states where it does business.
Investment Advisers Act § 203A and the SEC rules implementing it allow an adviser already registered with the SEC to remain registered until its assets under management fall below $90 million. At $95 million, the firm remains a federal covered adviser. A federal covered adviser does not register with states but must file a notice and pay a fee in each state where it has a place of business or more than five clients. The firm has offices in two states and more than five retail clients in each of the eight states, so the IAA § 222(d) de minimis (no place of business and fewer than six clients in a state) does not excuse it from notice filing anywhere; it must notice-file in all eight. The withdrawal options wrongly apply the $100 million and $110 million eligibility/registration thresholds as withdrawal thresholds, and the no-state-action option confuses notice filing with a complete exemption from state requirements.
- A state-registered investment adviser has $95 million in regulatory assets under management and is not registered with the SEC. Under the Investment Advisers Act of 1940, which statement is true regarding the adviser's ability to register with the SEC?
Answer: The adviser may register with the SEC if it is required to register in 15 or more states.
Under the Investment Advisers Act of 1940 § 203A and SEC rules, an adviser with $25 million to $100 million in regulatory assets under management is generally regulated by its home state and may not register with the SEC unless an exception applies. One exception is a multistate adviser required to register in 15 or more states. The $95 million adviser may therefore register with the SEC if it meets that 15-state requirement. The statement that exceeding the $25 million statutory floor is enough is wrong because that floor is not the current SEC registration threshold. The statement that the adviser may never register because AUM is below $100 million is wrong because exceptions such as the 15-state rule permit registration. The statement about a principal office in a non-registering state is wrong because it says "only if": the 15-state exception is a separate route to SEC registration, so a principal office in such a state is not the only way this adviser may register.
An investment adviser has its only office in State A and is not registered with the SEC. During the preceding 12 months, it has provided advice to five individuals who reside in State B and to one employee benefit plan maintained by an employer in State B. The plan has $600,000 in assets. The adviser has no other clients.
Under the Uniform Securities Act, must the adviser register as an investment adviser in State B? Answer: Yes, because the plan is not an institutional client, leaving six non-institutional clients during the period.
Uniform Securities Act § 201(c) exempts an adviser with no place of business in the state only if its clients during the preceding 12 months are exclusively institutions or it has no more than five clients other than institutions. An employee benefit plan is an institutional client only if it has at least $1,000,000 in assets, so the $600,000 plan here is not an institution and must be counted. The adviser therefore has six non-institutional clients (the five individuals plus the plan), the five-client exemption is unavailable, and registration in State B is required. The answer that counts only the five natural persons ignores the plan, the answer treating any employee benefit plan as institutional ignores the $1,000,000 threshold, and the answer that any retail client compels registration ignores the five-client exemption entirely.
A CPA has a full-time tax preparation practice and holds no investment advisory registration. During tax season, clients occasionally ask whether they should buy or sell specific securities, and she answers those questions as part of tax planning at her regular hourly rate. She now plans to offer, for a $2,500 annual fee, a written investment plan with ongoing portfolio monitoring, and to advertise this service to her tax clients.
Under the Uniform Securities Act, which statement is correct regarding whether the CPA is or would become an investment adviser? Answer: She is not an investment adviser while securities advice is incidental to tax work, but the separate planning service would make her one.
Uniform Securities Act § 401 excludes lawyers, accountants, engineers and teachers from the definition of investment adviser only while their advice is solely incidental to the practice of their profession. Answering securities questions during tax planning at the regular hourly rate is incidental to the CPA's accounting work, but a separately advertised, fee-based investment planning service is not incidental, and the Act expressly treats persons who hold themselves out as providing financial planning services as investment advisers. The answer that she is already an adviser ignores the professional exclusion, the answer requiring discretionary authority confuses giving advice with managing accounts, and the answer that accountants are categorically excluded drops the solely-incidental condition.
