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De Minimis Exemptions By State


State-registered registered investment advisors can be exempt from having to register in every state where they have clients if they don’t maintain a place of business in the state and serve no more than five clients in the state. This is known as the de minimis exemption. However, not all states follow this standard, and some require registration or notice if an advisor has a single client in the state. States may also have different definitions of what it means to have a place of business in the state. Inconsistent rules can make it challenging for investment advisors to know if state registration is required if, for instance, a client moves to a new state. Let’s review some of the de minimis exemptions by state.

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De Minimis Exemption National Standard

All registered investment advisors (RIAs) have to register with either the Securities and Exchange Commission (SEC) or state regulatory authorities. SEC registration is required if the RIA has $100 million or more in assets under management or is registered in more than 15 states. Otherwise, the financial advisor must register with one or more state regulatory agencies.

SEC-registered RIAs are required to follow rules set by the Investment Advisers Act of 1940. Individual states set their own rules, which vary. One of the ways state rules differ is in how they address the question of when an RIA has to register with the state. The 1940 Act set a national de minimis standard that says RIAs are exempt from state registration unless they have a place of business in the state and also have at least six clients in the state. The language of the standard is as follows:

“No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser –

  • does not have a place of business located within the State; and
  • during the preceding 12-month period, has had fewer than 6 clients who are residents of that State.”

De Minimis Exemptions By State

Financial advisor ensuring they meet their state's de minimis exemptions.

Most states follow a similar national de minimis standard proposed in the Uniform Securities Act of 2002. However, a handful vary from the national standard. Here are the states with regulations that differ the most from the de minimis standard:

  • Louisiana. Louisiana has no de minimis exemption. An RIA providing advisory services to even one Louisiana client must fully register with the state. It doesn’t matter whether the advisor has a place of business in the state.
  • Texas. The national de minimis standard for exemption is recognized in Texas with regard to registration. However, an RIA must still file a notice with the Texas State Securities Board before taking on their first client in Texas. This involves submitting forms requesting registration along with a letter claiming the exemption from registration under the de minimis regulation. After filing the notice, an RIA can have up to five Texas clients. Before taking on the sixth, they must fully register.

Additional De Minimis Considerations

Several other states have less significant differences from the de minimis standards. For instance, in Nebraska and New Hampshire, SEC-registered RIAs must file notice before taking on their first state residents as clients.

Another way the de minimis exemption may vary by state is in the way the state counts the number of clients an RIA has in that state. The national standard counts as a single client any individual person and their minor child, spouse or relative living at the same address, as well as any trusts benefiting those persons. A corporation or other business entity or legal organization is also a single client.

All 50 states as well as territories regulate RIAs in their own ways, however, and these regulations change frequently. As a result, any RIA is advised to consult an attorney specializing in investment advisor compliance before taking on a client in a new state or continuing a relationship with a client that moves to a new state to ensure the RIA remains in compliance with all rules and regulations.

State regulators can and will fine and otherwise penalize RIAs who exceed the de minimis client standards without registering as required.

When an RIA develops a roster of five or even four clients in any state, it is advisable to begin the registration process in that state. This is because completing the registration takes time and exceeding the de minimis standard before becoming fully registered can result in disciplinary action.

Bottom Line

Financial advisor with new clients, while adhering to the state de minimis exemption.

Most states follow the national de minimis standard that requires registration only for RIAs who have a place of business within the state or have more than five state residents as clients. But it’s still helpful to understand the de minimis exemption by state. The most notable exception is Louisiana, which has no de minimis standard and requires registration for any RIA with a single client in the state. Texas follows the national de minimis standard with regard to registration, but requires advisors to file a notice with the state regulatory agency before taking on any clients in the state.

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