Now that you understand the distinction between federal covered advisers and state-registered advisers, the next question is: what authority do states have over federal covered advisers operating within their borders?
Quick Answer
Federal covered advisers do not register with states; they notice file, a copy of SEC documents plus a fee, in each state where they do business (unless a de minimis exception applies). States cannot turn notice filing into a de facto registration, but they always keep antifraud authority over federal covered advisers.
What Is Notice Filing?
Notice filing is the process by which federal covered advisers inform states of their operations without undergoing full state registration. It is the state's only tool for maintaining awareness of SEC-registered advisers doing business in their jurisdiction.
- Federal covered advisers file a copy of their SEC documents (typically Form ADV) with the state
- States may require a consent to service of process: an irrevocable filing appointing the Administrator as the adviser's agent to receive legal process, giving the state jurisdiction to serve the adviser in an enforcement action
- States may require payment of a filing fee
- Notice filing allows states to collect fees and maintain records of federal covered advisers operating within their borders
Exam Tip: Gotchas
- Notice filing is NOT the same as registration. It is a simplified filing process. States cannot turn it into a full registration by adding substantive requirements.
What Can States Do, and What Can't They Do?
This is where the exam draws a clear line:
| States CAN | States CANNOT |
|---|---|
| Require notice filing | Impose additional substantive registration requirements |
| Charge filing fees | Require a separate state application |
| Maintain records of federal covered advisers | Add qualification exams beyond what the SEC requires |
| Bring antifraud enforcement actions | Mandate state-specific compliance procedures |
Exam Tip: Gotchas
- States retain antifraud authority over federal covered advisers. Notice filing limits the state's registration authority, not its enforcement authority. If the exam presents a scenario where a state takes action against a federal covered adviser for fraud, that is perfectly valid.
Which Way Does Notice Filing Run?
The relationship works in one direction:
- SEC-registered advisers → File notice with states where they do business (no full registration), unless the de minimis exception applies
- State-registered advisers → Full registration with the state securities administrator
States cannot elevate notice filing into a de facto registration process. If a state tries to impose substantive requirements beyond the filing and fee, those requirements are preempted by federal law.
Exam Tip: Gotchas
- A federal covered adviser operating in multiple states must notice file in each state where they do business. There is no single national notice filing; each state may have its own fee and filing requirements.
- A state does NOT require notice filing if the adviser has no place of business in that state AND has had no more than 5 non-institutional clients there in the preceding 12 months. This mirrors the de minimis exemption that also excuses state-registered advisers from registering in a state under the same no-office/5-client test.
What Should You Check on Exam Day?
- Can you explain why notice filing is not the same as registration?
- Do you know what a consent to service of process accomplishes for a state, and why it matters even without full registration?
- Can you list what states CAN require versus what they CANNOT require of a federal covered adviser?
- Do you know why states keep antifraud authority over federal covered advisers even though they lose registration authority?
- Can you explain why a multi-state federal covered adviser must notice file separately in each state, rather than once nationally?