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In an investment advisory context, the de minimis exemption generally refers to rules that allow certain advisors to avoid state registration when their in-state client activity remains below a specified threshold. It’s important for advisors to be aware of this rule, so they can ensure compliance with regulations, assess which transactions or activities they’ll have to report and avoid penalties.
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What Is the De Minimis Exemption for Advisors?
De minimis stems from “de minimis non curat lex” in Latin, which means “the law does not concern itself with trifles.” And as the name implies, the exemption recognizes that the potential risk posed by small-scale operations to clients and the financial system is minimal.
Under the de minimis rule, advisors can avoid state registration if they:
- Have no place of business in the state
- Maintain 5 or fewer retail clients in a 12-month period
By reducing the administrative and financial burden of full compliance, the exemption allows smaller advisors to avoid requirements to register in states where they have a limited number of clients. Ordinarily, failing to register at the state level when required can lead to enforcement actions, including fines and cease-and-desist orders. The de minimis exemption enables advisors to operate within a specific state without jumping through additional registration hoops.
Without this exemption, it could become burdensome to take on a client or two in a state where you do not have an established place of business. The de minimis rule aims to encourage smaller advisors to take on clients without fear of penalties.
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Registration Requirements for Financial Advisors
The Investment Advisers Act of 1940 outlines the duties of an investment advisor and lays the groundwork for regulatory oversight. The Securities and Exchange Commission (SEC) plays a central role in this system. Moreover, state securities regulators also supervise advisors within their jurisdictions, which frequently requires additional registration.
When does an advisor have to register with the SEC vs. state authorities? The answer lies in the firm’s assets under management.
| If AUM Is… | Registration Occurs… |
|---|---|
| <$100 million | At the state level |
| >$100 million but <$110 million | State regulators OR the SEC (advisor’s choice) |
| >$110 million | With the SEC |
Firms that choose to register with the SEC must create an IARD account, pay the registration fee and submit Form ADV. This form includes key details about the firm’s clientele, services, fee structure and operations. All the investment advisor representatives (IARs) of a registered investment advisor (RIA) firm must also complete Form U4 (Uniform Application for Securities Industry Registration or Transfer). State registration requires the same paperwork, and you’ll also pay a registration fee. The de minimis rule allows you to bypass additional registrations if you meet the requirements listed earlier.
Does the De Minimis Exemption Apply to Broker-Dealers?
Broker-dealers, who are entities that buy and sell securities for themselves and on behalf of clients, cannot avoid registration in a state with the de minimis exemption, even if they have only a single client in a given state.
Why? Because broker-dealers pose a bigger risk for the improper use of investor funds. Since broker-dealers complete transactions, process payments and hold client accounts, they’re held to a higher registration standard compared to smaller RIAs.
Recent Changes to the De Minimis Exemption for Internet Advisors
In March 2024, the SEC finalized amendments to the internet advisor exemption rule, significantly changing how online or digital investment advisors register with the Commission. One of the most impactful updates was the removal of the de minimis exemption for internet advisors. Previously, firms could register with the SEC even if they had a small number of clients not served through digital channels. That’s no longer the case.
Under the revised rule, firms must now serve all clients exclusively through a fully interactive website to qualify for SEC registration under the internet advisor exemption. This means that any advisors who continue to work with non-internet clients, even in small numbers, must now register in each applicable state unless they qualify for another exemption.
The SEC’s move to eliminate this exception reflects its broader effort to modernize the regulatory framework around digital advice and enhance investor protections in the online space.
Compliance and Registration Deadlines for Digital Advisors
Alongside the substantive changes to eligibility, the SEC also required affected advisors to update their compliance and registration documentation. These changes required advisors relying on the internet advisor exemption to amend Form ADV to represent that they remained eligible for SEC registration under that exemption. Updated forms were due by March 31, 2025, and advisors who did not qualify for the de minimis exemption were required to withdraw registration by June 29, 2025, and register in the relevant states where they do business.
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Tips for Registering Your RIA
The process for registering an RIA will require you to submit Form ADV, which comprises two parts: the first for regulatory bodies and the second serving as a brochure for potential clients. Fees associated with registration can vary by state, but they are generally not prohibitive.
You will want to avoid common mistakes, including inaccuracies in Form ADV filings, confusion over state versus federal requirements and underestimating how much time you will need for the registration process. Reviewing all documents before submitting them can help prevent errors.
It’s advisable to give yourself sufficient time to complete the registration process. You may want to meet with an RIA compliance consultant to discuss registration requirements specific to your firm. A registration expert can guide you through each stage of the process to help your filing go as smoothly as possible.
Bottom Line
The de minimis exemption can allow certain advisors to avoid state registration in states where they have no place of business and only a limited number of clients. Taking note of this rule can help you comply with regulations, report necessary transactions or activities and avoid penalties.
Tips for Growing Your Firm
- You might also consider partnering with an advisor marketing platform. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- When people need a financial advisor, they typically go to one of two places: friends and family or an online search engine. An important step for you is to follow top digital marketing strategies to make sure you can be found by prospective clients.
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