State vs. Federal Registration

Now that you understand state registration requirements, you need to know the dividing line between state and federal (SEC) regulation. The key factor is the investment adviser's AUM.

What Is the Dividing Line for Assets Under Management?

The Investment Advisers Act of 1940 establishes the AUM-based dividing line between state and SEC oversight:

Mid-Sized Advisers ($25M-$100M)

Mid-sized advisers are generally barred from SEC registration. Two exceptions let them register with the SEC instead of the states:

• They advise a registered investment company, or a company that has elected to be a business development company and has not withdrawn that election, OR
• They would otherwise be required to register in 15 or more states (the "multi-state" exemption)

The $110 Million Buffer

To prevent constant switching near the $100 million threshold:

• An investment adviser (IA) must have at least $110 million in AUM before it is required to register with the SEC
• Once SEC-registered, an IA does not need to switch back to state registration until AUM drops below $90 million

This $90M-$110M buffer zone prevents advisers from bouncing back and forth between state and SEC registration as their AUM fluctuates around the threshold.

How Does an Adviser Actually Switch?

• A state-registered adviser that becomes eligible for SEC registration must apply to the SEC within 90 days of filing the annual Form ADV amendment reporting that eligibility
• An SEC-registered adviser that becomes ineligible for SEC registration must file Form ADV-W to withdraw its SEC registration within 180 days of its fiscal year end
• During that withdrawal window, the adviser is registered with both the SEC and one or more states, and both the Investment Advisers Act and the applicable state law apply to its advisory activities

Exam Tip: Gotchas

• Under $25M = state; $100M-$110M = SEC optional; $110M+ = SEC required; $25M-$100M = generally state unless multi-state (15+ states) or adviser to a registered investment company or business development company
• The buffer zone is $90M-$110M, not $95M-$105M
• Switching is not instant: 90 days to apply to the SEC after becoming eligible, 180 days to file Form ADV-W after becoming ineligible, and both regimes apply during that overlap

What Is a Federal Covered Adviser?

A federal covered adviser is a person registered with the SEC under the Investment Advisers Act. Federal covered advisers are:

• Excluded from the state IA definition; they do NOT register with the state as an IA
• Still subject to significant state oversight (see table below)

States may NOT impose registration, licensing, or qualification requirements on federal covered advisers themselves; this is federal preemption under the Investment Advisers Act.

Exam Tip: Gotchas

A federal covered adviser is excluded from the STATE definition of IA and does NOT register with the state. But the state can still require notice filings, collect fees, regulate the adviser's IARs, and bring antifraud enforcement actions. Federal preemption blocks state registration, not ALL state oversight.

What Are the Notice Filing Requirements?

Before acting as a federal covered adviser in a state, the adviser must file with the Administrator such documents as have been filed with the SEC. This typically means:

• Filing a copy of Form ADV (or relevant portions) with the state
• Paying applicable notice filing fees
• The Administrator may specify by rule or order which SEC-filed documents must be filed

Exception: Federal covered advisers whose only clients in the state are institutional investors (the same institutional categories that the USA exempts from IA registration) need NOT make notice filings.

Exam Tip: Gotchas

• Notice filing exception: if a federal covered adviser's only clients in a state are institutional investors, no notice filing is required in that state

Summary: State vs. Federal Registration

What Should You Check on Exam Day?

• Split the $100M-$110M range from the $110M-plus range: SEC registration is optional below $110M and mandatory at $110M. Do not treat $100M as the hard SEC line.
• The downward buffer is separate: an SEC-registered adviser does not have to switch back to the states until AUM drops below $90M.
• Federal preemption blocks state registration of a federal covered adviser, not state notice filings, fees, antifraud enforcement, or IAR regulation.
• Watch for the institutional-only exception: a federal covered adviser with only institutional clients in a state owes no notice filing there.