Place Of Business

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.

Kingsbarrow Securities has no office, telephone listing or advertising in State L. During the past year its only State L business consisted of transactions with two commercial banks, one insurance company, a corporate pension trust, and one individual resident who has $40 million of net worth and who sought the firm out. Regarding registration in State L, Kingsbarrow:

1. A.Must register, because the exclusion requires that its clients in the state be exclusively institutional and one is a natural personCorrect. The exclusion is all-or-nothing; a single individual client takes the firm outside it.
2. B.Need not register, because the individual approached the firm rather than being solicitedUnsolicited orders can make a transaction exempt from securities registration. They do not change whether the firm itself must be registered.
3. C.Need not register, because it has no place of business in State LNo place of business is only the first of two conditions. The clientele test must be satisfied as well.
4. D.Need not register, because the individual qualifies as an institutional buyer by virtue of his $40 million net worthNet worth can make an individual an accredited investor for offering purposes, but it does not convert a natural person into an institutional buyer under the state exclusion.

Why: The broker-dealer exclusion for a firm with no place of business in a state depends on the state clientele being exclusively of the listed kinds - issuers, other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, pension or profit-sharing trusts and similar institutional buyers. The word is exclusively. A single natural person breaks it, however wealthy. Personal wealth is not a category in the list, and it makes no difference that the individual initiated the contact.

Delphine Marchetti is registered as an investment adviser representative in State H, where her firm's main office sits. On June 1 her firm opens a branch office in State J and assigns Delphine to work from that branch three days a week meeting State J clients. The firm is already registered as an investment adviser in State J. Under the Uniform Securities Act, Delphine must:

1. A.Transfer her registration from State H to State J, since a representative may be registered in only one state.Incorrect. A representative may be registered in as many states as required.
2. B.Register as an investment adviser representative in State J as well as State H.Correct. Registration is required in each state where the representative has a place of business.
3. C.Do nothing, because the firm is already registered as an investment adviser in State J.Incorrect. Firm registration does not cover the individual.
4. D.Do nothing, provided she advises no more than five State J clients.Incorrect. The de minimis concept is unavailable once there is a place of business in the state.

Why: An investment adviser representative must register in each state in which he or she has a place of business. Working regularly from the State J branch gives Delphine a place of business there, so she must register in State J in addition to State H. The firm's registration in State J does not carry her.

Vantage Institutional Advisors maintains its only office in State C. Its four clients located in State H are all insurance companies, and Vantage has never had a place of business in State H. Under the Uniform Securities Act, Vantage in State H:

1. A.Must register, because it has clients located in State HHaving clients in a state is the general trigger, but this exemption is the recognized exception to it.
2. B.Must file a notice filing as a federal covered adviserNotice filing applies to advisers registered with the SEC. Nothing in the facts establishes federal covered status.
3. C.Is exempt only until it has more than five State H clients in a twelve-month periodThe de minimis count applies to non-institutional clients. Institutional clients are not counted.
4. D.Is exempt from registration, because it has no place of business there and its only clients are institutionalCorrect. Both conditions of the institutional-client exemption are satisfied.

Why: An investment adviser with no place of business in a state is exempt from registration there if its only clients in the state are other investment advisers, broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, employee benefit plans, governmental agencies, and other institutional investors. Both conditions are met, so Vantage need not register in State H. Institutional clients are not counted at all, so the de minimis client limit is never reached.