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Difficulty: Very hardState Securities Regulators and Blue Sky Laws

An investment adviser firm registered with the SEC (a federal covered adviser) maintains its principal office in State A. The firm opens a new branch office in State B, where two of its investment adviser representatives (IARs) will solicit and manage accounts for retail clients residing in State B. Under the National Securities Markets Improvement Act (NSMIA) and the Uniform Securities Act, which of the following statements correctly describes the State B registration requirements for the firm and its representatives?

  1. The investment adviser firm is not required to register with State B but may be required to complete a notice filing, whereas the two investment adviser representatives must register in State B.Answer
  2. B
    Both the investment adviser firm and its investment adviser representatives are completely exempt from all registration, notice filing, and fee requirements in State B due to federal preemption.
  3. C
    By opening a physical branch office in State B, the investment adviser firm loses its federal covered status and must fully register as a state investment adviser with State B.
  4. D
    The investment adviser firm must register with State B, but the investment adviser representatives are exempt from state registration because they work for an SEC-registered firm.

Answer

The investment adviser firm is not required to register with State B but may be required to complete a notice filing, whereas the two investment adviser representatives must register in State B.
Under the National Securities Markets Improvement Act (NSMIA) of 1996 and state Blue Sky laws, SEC-registered investment advisers (federal covered advisers) are not required to register at the state level, although states may require them to submit notice filings and pay state fees. However, state securities regulators retain full authority over individual investment adviser representatives (IARs) who maintain a place of business within their state boundaries. Because the two representatives will work from a branch office located in State B, they maintain a place of business there and must register with State B's securities administrator.

Step-by-Step Solution

1
Analyze the firm-level registration authority under NSMIA.
The firm is an SEC-registered investment adviser (federal covered adviser). Under NSMIA, state securities administrators cannot require state registration of federal covered advisers, though they may require notice filings and fees.
Federal law preempts state jurisdiction over the registration of investment advisers that meet federal threshold criteria.
2
Analyze the representative-level registration authority under Blue Sky laws.
The two representatives maintain a physical place of business in State B (a branch office). Under the Uniform Securities Act, any IAR who maintains a place of business in a state must register with that state's securities administrator.
NSMIA specifically preserves state regulatory authority to register individual IARs who have a place of business within the state.
3
Synthesize the rules to identify the correct overall compliance requirement.
The firm notice-files in State B while the individual IARs submit state registration applications in State B.
This correctly delineates firm-level federal preemption from representative-level state jurisdiction.

Key Concept

Federal Covered Investment Advisers vs. State Registration of Investment Adviser Representatives
Estimated Time:1m 30s
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Topics

State Securities Regulators and Blue Sky Laws

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