Regulation of Investment Advisers

A is correct. The investment adviser definition uses the ABC or ABCS test, requiring ALL three prongs: (A) provides Advice or analysis about securities, (B) is in the Business of providing such advice regularly, and (C) receives Compensation (economic benefit) for the advice. The (S) reminds us the advice must be about Securities. All three elements must be present.

B (Series 65 license) is incorrect because holding a license is not part of the definition. Someone can meet the IA definition without any license, triggering the requirement to register. C (Registers with SEC) is incorrect because registration is a consequence of being an IA, not part of the definition itself. D (Offers financial planning) is incorrect because while financial planners may be IAs, these specific activities are not the three required elements of the definition.

B is correct. Accountants (along with Lawyers, Teachers, and Engineers, remembered by the acronym LATE) are excluded from the investment adviser definition if their securities advice is solely incidental to their primary profession. The key word is "incidental," meaning the advice is not the main focus of their business.

A (Never) is incorrect because accountants can qualify for the LATE exclusion. C (CPA designation) is incorrect because holding a professional designation doesn't automatically exclude someone. The exclusion depends on whether the advice is incidental, not on credentials. D (Less than $500) is incorrect because there is no fee threshold in the exclusion. Even if an accountant charges substantial fees, they're excluded if the advice remains incidental to their accounting practice.

D is correct. With $95 million in AUM, this adviser is a "mid-sized adviser" (between $25M and $100M) and generally must register with the state, not the SEC. Advisers don't become eligible for SEC registration until they reach $100 million in AUM.

B (Required SEC) is incorrect because the adviser hasn't reached the $110 million threshold where SEC registration becomes mandatory, nor even the $100 million threshold where it becomes optional. C (Choose between) is incorrect because mid-sized advisers between $25M and $100M typically must use state registration unless they qualify for specific exceptions like being a pension consultant or multi-state adviser. A (Exempt from all) is incorrect because this adviser must register somewhere. They don't qualify for exemptions like the de minimis exemption.

C is correct. The buffer zone rules require an SEC-registered adviser to switch to state registration when AUM falls below $90 million. This $90M threshold prevents advisers from bouncing between SEC and state registration with minor AUM fluctuations. Since the adviser dropped to $85 million (below $90M), they must de-register from the SEC and register with appropriate states.

D (Immediately) is partially correct about the action but incorrect about timing. The adviser should transition to state registration, not simply withdraw. A (Continue indefinitely) is incorrect because once AUM falls below $90 million, the adviser loses eligibility for SEC registration. B (Below $75 million) is incorrect because it references a non-existent threshold. The de-registration trigger is $90 million, not $75 million.

A is correct. Federal covered advisers (those registered with the SEC) must make a notice filing in any state where they do business. Notice filing requires submitting copies of SEC filings, paying a filing fee, and providing consent to service of process. It's a simplified filing compared to full state registration.

B (Full registration) is incorrect because federal covered advisers don't do full state registration. That's reserved for state-registered advisers. They only do notice filing. C (No filing required) is incorrect because even though the adviser is SEC-registered, states require notice filing to maintain awareness of who's doing business in their state. D (Exemption filing) is incorrect because the de minimis exemption applies to out-of-state advisers with 5 or fewer clients, not to federal covered advisers doing business in a state.

C is correct. The de minimis exemption allows an out-of-state investment adviser to avoid registration in a state if the adviser has no office in that state AND has 5 or fewer clients who are residents of that state in the last 12 months. With only 4 Nevada clients and no Nevada office, this adviser qualifies for the exemption.

A (Required to register) is incorrect because the adviser falls below the 5-client threshold that triggers registration. B (Register with SEC) is incorrect because the de minimis exemption already solves the Nevada registration issue, and nothing in the facts suggests the adviser meets SEC registration thresholds. D (Prohibited) is incorrect because advisers can have clients in states where they're not registered, as long as they qualify for exemptions like de minimis.

B is correct. A broker-dealer is excluded from the IA definition only if advice is solely incidental to their BD business AND they receive no special compensation for the advice. If the BD receives special compensation for advice, they lose the exclusion and must register as an investment adviser. This is the outlier that does NOT qualify for exclusion.

A (Teacher) is incorrect because it's a valid exclusion under the LATE exclusion (Lawyers, Accountants, Teachers, Engineers) when advice is incidental. C (Bank) is incorrect because banks and bank holding companies are excluded from the IA definition due to separate federal banking regulation. D (Publisher) is incorrect because bona fide publishers of publications with general circulation are excluded, as they're providing general information rather than personalized advice.

B is correct. Investment advisers (both SEC-registered and state-registered) must file their annual updating amendment to Form ADV within 90 days after the end of their fiscal year. This ensures the SEC and states have current information about the adviser's business, conflicts of interest, and disciplinary history.

D (30 days) is incorrect. While 30 days is relevant to other deadlines (such as when Form ADV becomes effective after initial filing), it's not the deadline for annual amendments. A (60 days) is incorrect. This is a common wrong answer designed to catch those who confuse various SEC filing deadlines. C (120 days) is incorrect because it exceeds the required timeframe and would result in late filing penalties.

D is correct. Under NASAA Model Rules, a state-registered investment adviser with discretionary authority (but no custody) must maintain a minimum net worth of $10,000. The financial requirements reflect the level of control and risk the adviser has over client assets.

A ($35,000) is incorrect because that's the minimum net worth requirement for advisers who have custody of client assets, not merely discretionary authority. B (Positive net worth) is incorrect because that's only required for advisers who have neither custody nor discretionary authority. C (No minimum) is incorrect because all investment advisers have some minimum net worth requirement based on their activities, with discretionary authority triggering the $10,000 requirement.

B is correct. Pension consultants are a specific exception to the mid-sized adviser rules. If a pension consultant has at least $200 million in pension plan assets under management, they may register with the SEC even though they're below the general $100 million threshold for eligibility. This exception recognizes the specialized nature and scale of pension consulting.

A (10 states) is incorrect. While multi-state advisers registered in 15 or more states can register with the SEC, this adviser is only in 10 states and doesn't meet the exception. C (Accredited investors) is incorrect because managing money for accredited investors doesn't create an exception to AUM thresholds. The $100M threshold applies regardless of client type. D (5 years in business) is incorrect because longevity in business doesn't create an exemption from AUM requirements. The exceptions are based on specific characteristics like pension consulting or multi-state presence, not time in business.