Investment Adviser Registration Requirements

Once you've determined that a person meets the investment adviser (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.

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.

Exemption 1: 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
• 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.

Exemption 2: 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
• 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.

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

Application Disclosures

The application must disclose:

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

When Registration Becomes Effective

Registration becomes effective at noon on the 30th day after a complete application is filed, unless the Administrator acts sooner (grants earlier effectiveness or denies the application).

Exam Tip: Gotchas

Effectiveness is at noon on the 30th day, not on day 30, not at midnight, and not immediately. The Administrator can act sooner to grant or deny, but without action it is automatic at noon.

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.

Form ADV

Form ADV is the uniform application form for investment adviser registration, filed through the IARD (Investment Adviser Registration Depository) system.

• Part 2A ("the brochure") and Part 2B ("the brochure supplement") form the basis of the brochure rule disclosure requirement (covered in Unit 11)
• Federal covered advisers file Form ADV with the SEC through IARD
• State-registered IAs file with the state Administrator through IARD

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.

Annual Renewal and Expiration

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

Exam Tip: Gotchas

December 31 expiration applies universally: BDs, agents, IAs, and IARs all expire on the same date. There are no exceptions.

Successor Registration

• A registered IA may file for registration of a successor firm for the unexpired portion of the year
• No additional filing fee is required for successor registration
• Facilitates business continuity when an IA changes legal form (e.g., partnership to corporation) or is acquired

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.