Series 65: 8.7.4. Federal Vs. State Registration For IAs

8.7.4. Federal vs. State Registration for IAs

While investment advisers are always subject to both the laws of their state and federal securities laws, the jurisdiction (state versus federal) in which they must register ultimately depends on the size and nature of their advisory practice. In short, the bigger an adviser’s practice and the broader its geographical reach, the more likely it is that the firm will be required to register at the federal level. Advisers that register at the federal level are called federal covered advisers. The law that separated the registration process into federal and state registration is called the National Securities Markets Improvement Act (NSMIA) of 1996.

The jurisdiction in which an adviser needs to register is determined by how much money it has under management. According to the Dodd-Frank Act, if an adviser has less than $100 million in client assets under management, the adviser must register at the state level. If the firm’s AUM are over $110 million, then it must register with the SEC. If its assets fall between $100 and $110 million, an adviser can choose to register on either the federal or state level.

Additional factors that result in required federal registration include:

• Serving as an adviser to registered investment companies (such as mutual funds)

• Acting as