State vs. Federal Covered Advisers ($100M/$110M)
Covers the jurisdictional division created by NSMIA 1996: State-registered advisers (< $100M AUM) vs Federal Covered Advisers ($110M+ AUM), and the state Notice Filing requirement.
- Advisers with $110M+ RAUM MUST register with the SEC as Federal Covered Advisers.
- Advisers between $100M and $110M may choose either state registration or SEC registration.
- States cannot regulate books, records, or capital of federal covered advisers, but MAY require Notice Filing, Form ADV copies, and filing fees.
The National Securities Markets Improvement Act of 1996 (NSMIA) created a strict division of regulatory jurisdiction between the SEC and state securities Administrators over investment advisers.
Advisers managing under $100 million in Regulatory Assets Under Management (RAUM) register with the state Administrator in each state where they maintain an office or exceed de minimis thresholds. Advisers managing $110 million or more MUST register with the SEC. Between $100M and $110M, advisers have the option to remain state-registered or transition to SEC registration.
When an adviser registers with the SEC, state registration requirements are preempted by federal law. States cannot conduct merits reviews or impose net capital or recordkeeping rules on federal covered advisers. However, states retain the legal authority to require 'Notice Filing' (submitting copies of Form ADV Parts 1 and 2), payment of state filing fees, and execution of a Consent to Service of Process.
- Do not confuse State IA registration with Federal IA Notice Filing; Federal Covered IAs NEVER register with states, they only notice-file.
- State registration threshold is under $100M; the buffer zone is $100M-$110M; mandatory SEC registration begins at $110M.
A registered investment advisory firm based in Chicago currently manages $115 million in regulatory assets under management (RAUM) across accounts in Illinois, Wisconsin, and Indiana. Under the National Securities Markets Improvement Act of 1996 (NSMIA) and the Uniform Securities Act, what is the regulatory registration status of this firm in those three states?