1.1.2.1 Federal vs. State Registration
While investment advisers are always subject to both the laws of their state and federal securities laws, the jurisdiction (state vs. federal) with which they must register ultimately depends on the size and nature of their advisory practice. In short, the bigger an adviser’s practice and the broader its geographical reach, the more likely it is that the firm will be required to register at the federal level. Advisers that register at the federal level are called federal covered advisers. The law that separated the registration process into federal and state registration is called the National Securities Markets Improvement Act (NSMIA) of 1996.
The most common factor for determining where an adviser needs to register is how much client money the firm has under management. In most cases, if an adviser has less than $100 million in client assets under its care, it must register on a state level. If it has $110 million or more in assets under management, then federal registration is required (the SEC). If it has at least $100 million but less than $110 million in assets under management, the adviser can choose to register on the federal level or on the state level.
Additional factors that result in required federal registration include:
• Serving as an adviser to registered investment companies (such as mutual funds)
• Acting as a pensio