Registration Requirements

Once you've determined that a person meets the IA definition and no exclusion applies, the next question is whether they must register. The Uniform Securities Act (USA) makes registration mandatory, with two narrow exemptions for out-of-state advisers.

What Is the Registration Requirement?

It is unlawful for any person to transact business in a state as an investment adviser unless registered under the Act. Registration must be obtained in each state where the IA conducts advisory business.

There are two exemptions to this registration requirement, both requiring the IA to have no place of business in the state.

What Is the Institutional Client Exemption?

An IA with no place of business in the state is exempt from registration if its only clients in the state are institutional investors. Qualifying institutional investors include:

• Investment companies (as defined in the Investment Company Act of 1940)
• Other investment advisers
• Federal covered advisers
• Broker-dealers
• Banks, trust companies, savings and loan associations
• Insurance companies
• Employee benefit plans with assets of not less than $1,000,000
• Governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control
• Other institutional investors designated by the Administrator

BOTH conditions must be met: (1) no place of business in the state AND (2) only institutional clients.

What Is the De Minimis Exemption?

An IA with no place of business in the state is exempt from registration if, during the preceding 12-month period, it has had no more than 5 clients in the state (other than institutional clients).

Key details:

• The 5-client count does NOT include institutional clients (those are unlimited under either exemption)
• Requires no place of business in the state
• The count applies whether or not the IA or the clients receiving communications are physically present in the state at the time
• Even IAs relying on the de minimis exemption remain subject to state antifraud provisions

Both exemptions require no place of business in the state:

• Institutional client exemption: only institutional clients in the state (unlimited in number)
• De minimis exemption: no more than 5 non-institutional clients in the preceding 12 months

Exam Tip: Gotchas

Both exemptions require that the IA have NO place of business in the state. An IA with ANY office in the state must register regardless of client type or number. The de minimis exemption counts only NON-institutional clients; institutional clients are unlimited.

What Is the Registration Procedure?

An IA registers by filing with the Administrator:

1. An application (Form ADV) containing required information
2. A consent to service of process (a one-time, irrevocable filing)
3. Payment of applicable registration fees

The application must disclose:

• Form and place of organization
• Proposed method of doing business
• Qualifications and business history of the applicant, and of any partner, officer, director, or controlling person
• Any injunction, administrative order, conviction of a misdemeanor involving a security or any aspect of the securities business, or any felony
• Financial condition and history
• Information to be furnished or disseminated to clients or prospective clients

The Administrator may also, by rule or order, require an applicant to publish an announcement of the application in one or more specified in-state newspapers.

When Registration Becomes Effective

Registration becomes effective at noon on the 30th day after a complete application is filed, provided no denial order is in effect and no proceeding is pending against the applicant, unless the Administrator acts sooner (grants earlier effectiveness or denies the application). If the applicant later files an amendment, the Administrator may defer effectiveness until noon on the 30th day after the amendment is filed.

Exam Tip: Gotchas

Effectiveness is at noon on the 30th day, not on day 30, not at midnight, and not immediately. That automatic clock only runs if no denial order is in effect and no proceeding is pending; a pending proceeding or amendment can push the effective date out further.

Automatic IAR Registration

Registration of an IA automatically constitutes registration of any investment adviser representative (IAR) who is a partner, officer, director, or person occupying a similar status or performing similar functions.

What Is Form ADV?

Form ADV is the uniform application used for IA registration. It is filed through the Investment Adviser Registration Depository (IARD) system, whether the IA is filing with a state Administrator or with the SEC.

Parts 2A and 2B together form the basis of the brochure rule delivery requirement, covered in more depth later in this course.

Exam Tip: Gotchas

Part 1 is filed for the Administrator's use; Parts 2A and 2B are what actually reach the client. If a question asks what document a client receives before or at the start of an advisory relationship, the answer is the brochure (Part 2A) and, if applicable, the brochure supplement (Part 2B), not Part 1.

What Is the Consent to Service of Process?

The consent to service of process is a unique filing requirement:

• Filed once during initial registration; never requires renewal
• Appoints the state Administrator as the IA's agent for receiving service of legal process (lawsuits, subpoenas)
• Remains effective even after registration terminates; the Administrator can still receive legal documents on behalf of a former registrant
• Irrevocable; cannot be withdrawn or cancelled

Exam Tip: Gotchas

Three facts test-writers love: filed ONCE (no renewal), IRREVOCABLE (cannot be cancelled), and survives termination of registration. A former IA still has an active consent on file.

When Does Registration Expire, and What Happens on a Successor Filing?

• Every registration or notice filing expires December 31 of each year unless renewed
• Renewal requires filing a renewal application (or renewal notice filing, for a federal covered adviser) and paying applicable fees
• The December 31 expiration applies to ALL registrations and notice filings: broker-dealers (BDs), agents, IAs, IARs, and federal covered advisers

Exam Tip: Gotchas

December 31 expiration applies universally: BDs, agents, IAs, IARs, and federal covered advisers (via their notice filing) all expire on the same date. There are no exceptions.

A registered IA or a federal covered adviser may also file an application for registration of a successor firm, whether or not the successor is then in existence, for the unexpired portion of the year, when the business changes legal form (such as converting from a partnership to a corporation) or is acquired. No additional filing fee applies to a successor registration.

Decision Framework

Think of it this way: Work through registration questions in order: Does the person meet the IA definition? If yes, does an exclusion apply? If no exclusion, does an exemption apply (institutional clients only, or 5 or fewer non-institutional clients with no in-state office)? If no exemption, registration is required: Form ADV + consent to service of process + fees.

What Should You Check on Exam Day?

• Confirm the exemption path first: no place of business is a condition of BOTH exemptions, and the client-type test (institutional-only versus 5-or-fewer non-institutional) determines which one applies.
• Lock in the exact effectiveness clock: noon on the 30th day, not day 30 generally, unless the Administrator acts sooner.
• Remember the consent to service of process is filed once, is irrevocable, and outlives a terminated registration.
• Do not confuse a successor registration (no new fee, unexpired portion of the year) with a fresh initial registration.