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Question

Difficulty: MediumState Securities Regulators and Blue Sky Laws

An investment advisory firm manages $160 million in customer assets and is registered with the Securities and Exchange Commission (SEC). The firm opens a physical office in State X to provide investment advice to retail clients residing in that state. Which of the following requirements applies to the firm and its individual investment adviser representatives (IARs) under state Blue Sky laws?

  1. The firm is required to complete a notice filing and pay a fee to State X, while its individual investment adviser representatives with a place of business in State X must register with the state.Answer
  2. B
    The firm and its individual investment adviser representatives are completely exempt from all state-level filings, fees, and registrations because SEC registration preempts all state jurisdiction.
  3. C
    The firm must undergo full dual registration with both the SEC and State X, but its individual investment adviser representatives are automatically covered under the firm's SEC status without state registration.
  4. D
    The firm is exempt from notice filings in State X, but the State X securities Administrator has the legal authority to revoke the firm's federal SEC registration for statutory violations.

Answer

The firm is required to submit a notice filing and pay a state fee, while its investment adviser representatives operating in State X must register with the state Administrator.
Under the National Securities Markets Improvement Act (NSMIA) and state Blue Sky laws, an investment adviser managing over $110 million is a federal covered adviser registered with the SEC. States are preempted from requiring full registration of these firms; however, states maintain the right to collect notice filings and filing fees. Additionally, NSMIA explicitly preserves state authority over individual investment adviser representatives (IARs). Therefore, any IAR who maintains a place of business in the state must register with the state securities Administrator.

Step-by-Step Solution

1
Determine the registration status of the investment advisory firm based on assets under management (AUM).
With 160millioninAUM(exceedingthe160 million in AUM (exceeding the 110 million threshold), the firm is categorized as a Federal Covered Investment Adviser registered with the SEC.
Under the National Securities Markets Improvement Act (NSMIA), large advisers are regulated at the federal level by the SEC rather than at the state level.
2
Identify state jurisdiction rules under Blue Sky laws for Federal Covered Advisers.
The state cannot require full registration of the firm, but can require a notice filing (submitting documents filed with the SEC) and payment of filing fees.
Federal preemption prevents duplicate state registration requirements for federal covered advisers while preserving state revenue and notice mechanisms.
3
Determine registration requirements for individual Investment Adviser Representatives (IARs).
IARs with a place of business in State X must register at the state level.
NSMIA specifically retains state regulatory jurisdiction over individual investment adviser representatives who maintain a physical place of business within the state.

Key Concept

Federal Covered Investment Adviser Notice Filing and State Representative Registration
Estimated Time:1m 15s
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Topics

State Securities Regulators and Blue Sky Laws

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