De minimis exemption (investment advisers)
Also known as: de minimis rule, de minimis standard
The de minimis exemption allows an investment adviser with no place of business in a state and only a handful of clients there to avoid registering in that state. Under the Uniform Securities Act, the limit is five or fewer non-institutional clients in a 12-month period.
The de minimis exemption is a registration exemption for investment advisers and their representatives who do only minimal business in a state. "De minimis" is Latin for "about trivial things" — the idea is that a state shouldn't force a firm through its full registration process over a tiny amount of in-state activity.
Under the Uniform Securities Act, an investment adviser qualifies if it meets two conditions: it has no place of business in the state, and it has had no more than five non-institutional (retail) clients residing in that state during the preceding 12 months. Both parts matter. An adviser with an office in the state must register regardless of how few clients it serves there, and a sixth retail client ends the exemption.
Certain clients don't count toward the limit at all. Advisers whose only in-state clients are institutional investors — broker-dealers, other investment advisers, banks, insurance companies, and similar entities — are generally exempt without regard to the five-client count. The exemption also pairs with the snowbird concept: serving an existing client who is temporarily vacationing in a state doesn't trigger registration there.
The de minimis exemption is a reliable exam topic on the Series 66 and Series 65, which test state (blue sky) regulation of advisers. Expect questions that ask whether an adviser must register given a specific number of clients, the presence or absence of an in-state office, and whether the clients are retail or institutional.
Key takeaways
- The de minimis exemption excuses an adviser from state registration when in-state business is minimal.
- The standard: no place of business in the state and five or fewer retail clients there in the past 12 months.
- An office in the state kills the exemption no matter how few clients the adviser has.
- Institutional clients such as banks and broker-dealers generally don't count toward the limit.
- The Series 66 and Series 65 exams test this rule with client-counting scenario questions.