The Federal Covered Adviser That Opened a Branch

Meridian's own status. As an SEC-registered adviser it is a federal covered adviser. State B may not require it to register, may not examine its books as a condition of doing business, and may not subject its advisory contracts to merit review. But preemption is not immunity: State B may impose a notice filing - typically a copy of the Form ADV parts the SEC requires, a consent to service of process, and a fee - timed to the SEC filing and renewed annually.

What changed in March. The new office is a place of business in State B. That single fact is what defeats the compliance officer's position:

• Any investment adviser representative who has a place of business in State B must be registered as an IAR there, even at a federal covered adviser.
• Daniel holds out to State B residents from a State B office, so as an agent of the affiliated broker-dealer he also needs agent registration in State B.
• Ana performs clerical/operational work and does not solicit or give advice; clerical employees are excluded from the agent and IAR definitions.

Conclusion. The statement is wrong in two directions at once - it ignores the notice filing and it ignores the branch-level IAR/agent registrations. Meridian should file the notice, register Daniel in both capacities, and document Ana's clerical role.

Apply the definitional test, not geography alone. An IAR is a person who, for compensation, gives advice or solicits advisory business from a place of business in the state.

• Lena has no place of business in State C - a residence used only for private meetings is not held out to the public and does not become one.
• Federal preemption bars State C from requiring IAR registration where the representative's place of business is in another state and the representative had fewer than six clients resident in that state during the preceding 12 months. Three clients is comfortably inside that line.

So no IAR registration in State C - for now. Two cautions to flag in the file:

1. The exemption is client-count sensitive. If Lena's State C book grows past the threshold, registration becomes mandatory and the failure is not curable retroactively.
2. Preemption limits registration, not conduct. State C retains full antifraud jurisdiction over anything Lena says or omits to those three clients, and the firm's supervisory obligations follow her there regardless of registration status.

Merit review: no. NSMIA preempts state registration, licensing, and qualification of a federal covered adviser and its advisory contracts. A demand to approve or disapprove contract terms is a registration requirement wearing a different label, and it is unenforceable. The permissible asks are narrow: notice filing, consent to service, and fee.

Bond: no, on these facts. A bond or minimum capital requirement is a registration condition and is likewise preempted as applied to a federal covered adviser. Bonding authority in state law is generally tethered to custody of client funds or securities (and, in some states, discretionary authority) - a regulatory response to the risk that client assets disappear. Nothing in the facts suggests Meridian holds client assets.

What Meridian should do. Do not simply ignore the letter. Respond in writing, identify itself as a federal covered adviser, supply the notice filing, and ask the director to state the statutory authority relied upon. If the director presses the bond on a custody theory, the correct answer is to disclose custody accurately on the ADV and maintain the qualified custodian and surprise-examination safeguards - not to pay a bond that cannot lawfully be demanded. Preserve the correspondence; an unlawful order that is obeyed without objection is hard to unwind later.