This post is different, therefore it has to start with a disclaimer.

I am not a lawyer. Yes, I am good at reading legal documents, such as securitization agreements, structured securities, insurance contracts, insurance laws and regulations, etc., but that is not the same as having legal training.  I make mistakes, and how much more so when I am operating near the edge of my field of competence?

So don’t rely on this.  This is not legal advice. This is just my faltering attempt to figure out a legal question that faces my business.  For all the small investment advisers out there who face similar problems, use this as a springboard in your discussions with your lawyers, or for your own research if you don’t employ a lawyer.  I am providing links to laws that I think, but don’t know, are current as of today.  Use them at your own risk.

I make no representation or warranty that this is accurate. I did my best.  Since my website is free, please realize that you get what you pay for.  You’re paying nothing, so don’t expect miracles, and don’t sue me, please?

There. I feel better now.  Here’s the question: if you are a State-registered investment adviser, how many clients can you have in a state where you have no physical presence before you have to register with the state?

This is an important question for me, because I am best known for what I have written at Aleph Blog and RealMoney.com.  I get most of my clients “out of the blue,” e-mailing me and asking what I am doing.

When I was at a meeting with the head of the Maryland Division of Securities last February, she asked if any of us were “internet only” advisors.  I was the only one that raised my hand.  I have far more clients outside of Maryland than inside Maryland.

That ‘s the reverse of most small RIAs that I interact with in Maryland.  They tend to be Maryland-centric.  Good for them.

Back to the question: if you are a State-registered investment adviser, how many clients can you have in a state where you have no physical presence before you have to register with the state?

For most states, the answer is you can have five clients.  Before you take on client number six, on a one year rolling threshold, you must register, which means a lot of paperwork and the payment of fees on an annual basis thereafter.

Note: when you register in 15 states, you have the option of moving to Federal regulation, even if you are still below the $100 million Asset Under Management limit.

Now, unlike other sites that have tried to answer this question, I am giving you links to the state laws that answer this question.  But state laws change.  Links get broken.  Sometimes links don’t get broken, and you get an old version of the law.  Use this as a springboard for your own research, not as a substitute for it.

Here are the states that have the five client “de minimus” limit:

• Alabama
• Alaska (PDF file, look at page 12)
• Arizona
• Arkansas (PDF file, look at page 5)
• California
• Colorado
• Connecticut
• Delaware (PDF file, look at page 21)
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas (PDF file, look at page 18)
• Kentucky (PDF)
• Maine
• Massachusetts
• Michigan
• Minnesota
• Mississippi (PDF file, look at page 35)
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota (PDF file, look at page 27)
• Ohio
• Oklahoma
• Oregon
• Pennsylvania (PDF, look section 302)
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wisconsin
• District of Columbia
• Puerto Rico

Wyoming does not have registration of investment advisers, as far as I can tell.

Here are the states that require registration on the first client:

• Louisiana
• Maryland
• Texas

I am less certain about Maryland, because other non-governmental sources say it is a “de minimus” state.  I can’t find it in the law or regulations, though.  I have e-mailed both Louisiana and Maryland to clarify their positions, but I haven’t heard back from them yet.  I find it funny that I am registered in two of the odd states, Maryland and Texas.

One more note: occasionally states cite section 222 from the Investment Advisers Act of 1940, which gives a national “de minimis” standard.  But that’s not a national standard, and thus Louisiana, Maryland and Texas require filing on the first client, and in Wyoming, you never file.

On the journey to gather this data, I found that some states have very good websites and some are quite poor.  Some go out of their way to help investment advisers, and some seem to have little interest in that.  Some follow the model law in one of its historical variations, and some are eclectic, or even weird.  Still, there seems to be more standardization in securities law for investment advisers than for life insurers.  That’s not saying much.

For those reading this, let me know about errors, broken links, law changes, etc.  I might repost this someday.

And remember, this could all be wrong, outdated, etc., so do your own due diligence or hire a lawyer.