- Which of the following statements regarding the effectiveness and duration of a state-registered investment adviser's registration under the Uniform Securities Act is correct?
Answer: Registration becomes effective at noon on the 30th day after the application is filed unless a denial order is in effect or a proceeding is pending, and it expires at the end of the calendar year unless renewed.
Under the Uniform Securities Act registration provisions, an application becomes effective at noon of the 30th day after filing, or earlier if the Administrator so orders, unless a denial order is in effect or a proceeding is pending, and every registration expires at the end of the calendar year unless renewed. The certificate-of-approval version is wrong because effectiveness is by operation of law, not by issuance of a certificate, and renewal is on a calendar-year basis rather than on the anniversary of effectiveness. The 15-day version is wrong because the statutory waiting period is 30 days and the registration does not run for 12 months from the effective date. The filing-effective version is wrong because effectiveness is delayed and the registration does not continue indefinitely without annual renewal.
- Which of the following statements regarding an SEC-registered investment adviser's annual updating amendment to Form ADV is true?
Answer: It must be filed within 90 days after the end of the adviser's fiscal year.
SEC Rule 204-1 requires a registered adviser to file an annual updating amendment to Form ADV within 90 days after the end of its fiscal year. The statement that the filing deadline is 120 days after fiscal year end is wrong: 120 days is the deadline for annual brochure delivery under Rule 204-3, not for the Form ADV amendment. The statement that the amendment is due on the anniversary of initial registration is wrong: the deadline follows the adviser's fiscal year, not the registration anniversary. The statement that the amendment is required only after a $10 million change in regulatory assets under management is wrong: the annual amendment must be filed every year regardless of the amount of change.
- Which of the following individuals associated with a federal covered investment adviser is an investment adviser representative required to register in the state?
Answer: An individual with a place of business in the state who has 20 clients of their own, 8 of whom are natural persons, none of them qualified clients.
SEC Rule 203A-3 makes an individual associated with a federal covered adviser an investment adviser representative when the individual has more than 5 clients who are natural persons and more than 10% of the individual's own clients are natural persons, excluding natural persons who are qualified clients from both counts; a state may require registration only if the individual also has a place of business in the state. The individual with 8 non-qualified natural-person clients among 20 clients of their own has more than 5 such clients, and 8 of 20 is 40%, well above 10%, with a place of business in the state, so the state may require registration. The individual with 4 natural-person clients fails the more-than-5 test even though every one of the individual's clients is a natural person. The individual whose 12 natural-person clients are all qualified clients has no counted natural-person clients, because qualified clients are excluded. The individual with no place of business in the state meets both client tests but cannot be required to register there.
- Which of the following statements regarding a federal covered investment adviser with a place of business in the state is true?
Answer: It must make a notice filing with the Administrator before doing business in the state unless it serves only the statute's listed institutions.
Under IAA § 203A and the state notice-filing requirement adopted under the Uniform Securities Act, a federal covered adviser is not registered in the state; it files a notice filing (the SEC filings the state requires, plus a fee) before doing business there, unless its only clients are the institutional clients listed in the statute. Because the stem assumes a place of business in the state, the federal no-place-of-business/small-client-count exception does not apply. A state may not require it to register even if its principal office is in the state, so that statement is wrong. The IAR statement misstates who files: each IAR with a place of business in the state registers as an IAR rather than filing a personal notice filing, and the Administrator's acceptance of the adviser's notice filing is not conditioned on IAR filings. Finally, the Administrator retains full antifraud and investigative authority (USA §§ 101–102 and 407) over a federal covered adviser, so the investigation-bar statement is wrong.
An investment adviser has $60 million in regulatory assets under management. It does not advise a registered investment company. Because of its business model, it is required to register as an investment adviser in 17 states.
Under the Investment Advisers Act of 1940, which statement is correct? Answer: The adviser may register with the SEC because an adviser required to register in 15 or more states may do so even below $100 million.
Under the Investment Advisers Act of 1940, an adviser with $25 million to $100 million in AUM generally may not register with the SEC and instead registers with its home state. An exception permits an adviser required to register in 15 or more states to register with the SEC even if its AUM is below $100 million. Because this adviser is required to register in 17 states, it is eligible to register with the SEC at $60 million. The statements that the adviser may not register with the SEC until it reaches $100 million, or that it must register only in its home state, ignore this exception.
An investment adviser has been registered with the SEC for several years. Its fiscal year ends December 31. As of the most recent fiscal year end, its regulatory assets under management had fallen to $85 million, and it no longer qualifies for any SEC registration exemption. The adviser has its principal office and branch offices in three states, with retail clients in each, and its home state is one that requires state registration and examination of mid-sized investment advisers.
Under the Investment Advisers Act of 1940 and the Uniform Securities Act, which statement is correct? Answer: It must file Form ADV-W to withdraw its SEC registration within 180 days of its fiscal year end and satisfy state registration requirements in each state where it has an office.
Investment Advisers Act § 203A and the SEC transition rule: an SEC-registered adviser that is no longer eligible for SEC registration, has no applicable exemption, and has regulatory assets under management below the $90 million withdrawal threshold must withdraw from SEC registration. Withdrawal is made by filing Form ADV-W within 180 days after the adviser's fiscal year end. At $85 million, with no exemption and offices in three states, the adviser must file Form ADV-W and register as an investment adviser in each state where it has a place of business; the no-place-of-business exemption under Uniform Securities Act § 201 does not apply. The statement that it may remain SEC-registered until AUM falls below $25 million confuses the $25 million statutory floor with the $90 million withdrawal trigger. The statement that Form ADV-W is due in 90 days uses the annual updating-amendment deadline for the withdrawal deadline; the ADV-W deadline is 180 days. The statement that SEC eligibility is tested only at initial registration is wrong because SEC registration eligibility is an ongoing requirement.
- Which of the following statements regarding the delivery of the Form ADV Part 2 brochure by a state-registered investment adviser under NASAA rules is true?
Answer: The brochure must be delivered at least 48 hours before the advisory contract is signed, or at signing if the client may terminate without penalty within 5 business days.
The NASAA brochure rule for state-registered advisers requires delivery at least 48 hours before contracting, or at contracting with a right to terminate without penalty within 5 business days, plus an annual delivery or a written offer that is mailed within 7 days of a request. A 30-day pre-contract period is not part of the rule. The under-$200 exemption is misstated: it waives only the annual offer for impersonal contracts, not the initial brochure delivery. The summary-of-material-changes format with a 120-day window is the SEC's approach for federal covered advisers, not the NASAA regime for state registrants.
A federal covered investment adviser with a calendar-year fiscal year changes its fee schedule on July 15. This is a material change to its Form ADV Part 2A brochure. The adviser has already delivered the previous year's brochure to all clients.
Which statement correctly describes the adviser's Form ADV and brochure obligations? Answer: It must file its annual updating amendment no later than March 31 and deliver a summary of material changes, with an offer to provide the full brochure, within 120 days after December 31.
Investment Advisers Act Rule 204-1 and the Form ADV brochure rule (Rule 204-3). An adviser must file its annual updating amendment within 90 days after the end of its fiscal year; for a calendar-year adviser, that is March 31. When the brochure becomes materially inaccurate during the year, the adviser must also promptly amend Part 2A, but for a non-disciplinary change such as a new fee schedule it need not deliver the amended brochure to existing clients at that time. Instead, the material change reaches clients through the annual delivery of an updated brochure or a summary of material changes, with an offer to provide the full brochure, within 120 days after fiscal year end. The statement requiring delivery of the revised brochure to each client by August 15 is wrong because interim delivery is required only for a change in disciplinary information, not a fee change; its fixed 30-day filing period is also not the standard, which is prompt amendment. The statement requiring delivery by July 31 imposes the same interim delivery, and the statement setting an April 30 filing date and measuring the 120 days from July 15 uses the wrong deadlines and measures from the date of the change instead of from fiscal year end.
A state-registered investment adviser meets with a prospective client on Monday and the client signs an advisory contract. At the signing, the adviser hands the client its current Form ADV Part 2A brochure. The contract states that the client may terminate the agreement without penalty within five business days of signing. No other brochure was provided earlier.
Under NASAA rules, which statement is correct? Answer: The adviser satisfied the brochure delivery requirement because delivery at contracting is permitted when the client has a five-business-day right to terminate without penalty.
Under the NASAA model rule on advisory brochures, a state-registered adviser must deliver the brochure at least 48 hours before contracting or, if it delivers at contracting, the contract must give the client the right to terminate without penalty within five business days. Because the adviser delivered the brochure at signing and the contract contains that termination right, the delivery was timely. The other answers incorrectly state that 48 hours is always required, attach the termination right to performance fees, or make the annual delivery offer a condition of initial compliance.
An investment adviser files a complete application for state registration, together with the required fee, on October 1. The Administrator has not issued a denial order and no administrative proceeding is pending. On October 10, the Administrator begins a non-public investigation of the adviser's recordkeeping practices.
Under the Uniform Securities Act, assuming the Administrator does not set an earlier effective date, when does the registration become effective? Answer: At noon on October 31, because the 30-day waiting period has run and no denial order or pending proceeding delays it.
Under Uniform Securities Act § 202, a completed registration becomes effective at noon on the 30th day after filing unless a denial order is in effect or a proceeding is pending; the Administrator may set an earlier date. An investigation is not an administrative proceeding, so it does not delay the waiting period. The registration therefore becomes effective at noon on October 31. Immediate effectiveness would ignore the 30-day waiting period; the 10-day period is a coordination-registration minimum, not the general effective date for an adviser's registration; and requiring affirmative approval mischaracterizes the investigation as a pending proceeding.
- Under the Uniform Securities Act, which of the following investment advisers is exempt from state registration?
Answer: An adviser with no place of business in the state that advised 4 institutional clients and 2 individual clients resident in this state during the preceding 12 months.
Uniform Securities Act § 201(c) exempts an investment adviser with no place of business in the state from state registration if its only clients in the state are institutional clients or if it has had no more than five non-institutional clients resident in the state during the preceding 12 months. The adviser with 4 institutional clients and 2 individual clients resident in the state has only 2 non-institutional clients in the state, so the de minimis exemption applies; the institutional clients are not counted against the five-client limit. An adviser with 6 individual clients resident in the state is not exempt, and an adviser with 6 resident individual clients among 8 total individual clients is likewise not exempt; $25 million of assets under management does not change the state-law de minimis test. An adviser with its principal office in the state must register even though its clients are institutional, because the exemption is limited to advisers with no place of business in the state.
A federal covered investment adviser has been registered with the SEC for several years. Its regulatory assets under management decline from $125 million to $95 million, and the adviser expects assets to remain near that level for the foreseeable future. The adviser is not eligible for any special SEC-registration exemption.
Under federal law, which statement is correct? Answer: The adviser may remain registered with the SEC because it need not withdraw until its AUM falls below $90 million.
Under the Investment Advisers Act of 1940, an adviser already registered with the SEC need not withdraw until its regulatory assets under management fall below $90 million, even though the threshold for new SEC registration is $100 million and SEC registration is mandatory at $110 million. At $95 million, the adviser may remain SEC-registered. The $100 million figure is not a continuing condition for an already-registered adviser above the $90 million floor. Form ADV-W is the withdrawal form; an adviser required to switch from SEC to state registration files it within 180 days after its fiscal year end, but this adviser is not required to switch.
An investment adviser is registered with the SEC and has no office in State M. During the past 12 months, it has provided advice to five natural-person clients resident in State M and to three employee benefit plans maintained in State M, each with more than $1 million in assets. The adviser has no other clients in State M.
Under the Uniform Securities Act, which statement is correct? Answer: The adviser must make a notice filing in State M because its State M clients are not limited to the institutional clients described in the exemption.
Under the Uniform Securities Act § 201 and the Investment Advisers Act of 1940, a federal covered adviser does not register with the state but must make a notice filing before doing business in the state unless an exemption applies. The institutional-client-only exemption does not apply because the adviser has five natural-person clients in State M. The federal de minimis also does not apply: under IAA § 222(d), an SEC-registered adviser with no place of business in the state is exempt only if it has fewer than six clients resident in the state, and all clients count. The three employee benefit plans maintained in State M are State M clients, so the adviser has eight State M clients, not fewer than six. The claim that it is exempt because it has fewer than six retail clients misstates the exemption by ignoring the institutional clients. Registering as a state adviser is wrong because federal covered advisers are not state-registered (and the adviser has exactly five non-institutional clients, not more than five). The claim that no filing is required is wrong because the notice-filing obligation is separate from SEC registration.
- Which of the following statements regarding SEC registration of an investment adviser under the Investment Advisers Act of 1940 is true?
Answer: An adviser with $105 million in regulatory assets under management may register with the SEC and need not withdraw its registration unless its assets under management fall below $90 million.
Investment Advisers Act § 203A sets a $110 million must-register threshold and a $100 million may-register threshold, with a $90 million floor below which an adviser need not withdraw. The $105 million adviser therefore qualifies to register with the SEC and may remain registered while its AUM stays above $90 million. The $95 million adviser is mid-sized ($25–100 million) and, under the general rule, must register with its home state rather than the SEC. The $60 million adviser is also mid-sized: it cannot elect between regulators on the basis of fees and must use the home-state route unless an exemption (such as the 15-or-more-state multistate test) applies. An adviser to a registered investment company, as in the $20 million case, may register with the SEC at any size despite the $25 million statutory floor.
An individual works for a federal covered investment adviser and maintains an office in State R. The individual provides investment advice to six natural-person clients in State R, and each of those clients has $1.6 million under management with the adviser and a net worth above $2.7 million excluding a primary residence. The individual also services 40 institutional clients in State R and does not supervise other employees.
Under federal rules governing state registration of investment adviser representatives, which statement is correct? Answer: The state may not require the individual to register because all of the individual's natural-person clients are qualified clients and are excluded from the natural-person client count.
Under SEC Rule 203A-3, an individual associated with a federal covered adviser may be required to register as an IAR in a state only if the individual has a place of business there and is a supervised person with more than 5 natural-person clients and more than 10% natural-person clients, in each case not counting qualified clients. All six natural-person clients here are qualified clients, so they are excluded from the count; the individual has no counted natural-person clients. A place of business alone is not enough, and counting the six qualified clients for the five-client or 10% tests is the error behind the contrary answers. The claim that institutional clients are not counted for any part of the test is also wrong because institutions are counted in the client base for the percentage test.
