De Minimis Exemption

Under the de minimis exemption, an adviser with no place of business in a state need not register if it has, in 12 months, no more than:

1. A.1 clientOne client is too strict a reading of a rule meant to spare advisers from registering over incidental contacts. The de minimis threshold allows more than a single client, and cutting it to one would force registration on essentially any out-of-state activity.
2. B.5 non-institutional clientsCorrect - the 5-client de minimis threshold.
3. C.25 clientsTwenty-five is a figure that appears elsewhere in adviser regulation, which is why it reads as familiar, but it is not the de minimis client count. That count is far smaller, and it is measured over a rolling twelve-month period.
4. D.100 clientsA hundred clients in a state is a substantial business, not a trivial presence. An adviser at that level is exactly who the state expects to register, and the exemption is calibrated to a handful of clients instead.

Why: An adviser with no in-state office and five or fewer non-institutional clients in the state over 12 months qualifies for the de minimis exemption.

Ilya Vorontsov is an investment adviser representative whose only office is in State E. Twice a year he rents a hotel conference room in State F, advertises the dates in a local State F newspaper, and meets prospective and existing clients there. He has three clients who reside in State F. Under the NASAA model rule, the hotel arrangement:

1. A.Does not create a place of business, because he does not lease the conference space on a year-round basis.Incorrect. Continuous occupancy is not required; holding the location out to the public is what counts.
2. B.Creates a place of business only if he also begins answering client calls from a private residence in State F.Incorrect. The advertised, client-facing hotel sessions already establish the place of business on their own.
3. C.Does not create a place of business, so the de minimis exemption still covers him because he has only three State F clients.Incorrect. He does have a place of business, and that alone removes the de minimis exemption.
4. D.Creates a place of business in State F, because he holds the location out to the public as a place where he meets clients, so he must register there regardless of client count.Correct. Holding a location out to the public as a place to meet clients makes it a place of business, which defeats the de minimis exemption.

Why: A place of business is any location at which the representative regularly provides advisory services or solicits clients, and any other location HELD OUT to the public as a place where he does so. Advertising the hotel dates in a local paper and meeting clients there is exactly that holding out, so the twice-yearly sessions create a place of business in State F. Once a place of business exists in a state, the de minimis exemption is unavailable no matter how few clients live there, and the representative must register in State F.

An individual who effects securities transactions on behalf of a broker-dealer with retail clients in a state must...

1. A.Rely on the de minimis exemption for agentsThere is no general de minimis exemption for agents dealing with retail clients.
2. B.Register in the state as an agentCorrect — an agent transacting with the public in a state must register there.
3. C.Do nothing, because the broker-dealer registration covers the agentA firm registration does not register its individual agents; each must register.
4. D.Register only with the SECAgents register at the state level, not with the SEC.

Why: An agent transacting with the public in a state must register there. There is no general de minimis exemption for agents the way there can be for advisers.

An investment adviser representative generally must register in a state when the IAR...

1. A.Earns more than 100 million dollars in feesAUM and fee thresholds affect the firm SEC/state status, not the IAR place-of-business rule.
2. B.Only advises institutional clientsAdvising institutions does not remove the place-of-business registration trigger.
3. C.Never, because the firm registration covers the IARIARs register individually where they have a place of business.
4. D.Has a place of business in the stateCorrect — a place of business in a state triggers IAR registration there.

Why: An IAR registers in a state where it has a place of business, and generally where it does business beyond de minimis limits with retail clients.