Real World De Minimis

I just had a former client, who passed his Series 66 with an 80%, send me an email wondering if the de minimis exemption for out-of-state advisers with 5 clients actually applies in the real world, since he has 1 client in the state of Colorado but no place of business there.

Here is Question 8 and the answer from the Colorado Division of Securities website:

Q: Are there any exemptions from licensing for an IA located in another state, that are not FCAs?
A: The law contains a diminimus exemption from licensing for an IA that has no place of business in Colorado and has five or less clients in Colorado.

By "FCA" can you guess what they mean? Federal Covered Adviser. So, if I'm not a federal covered adviser, I have no place of business in Colorado, can I have 5 clients there without registering there? Yes. This saves you some time and money. Of course, if you defraud these Colorado residents, Colorado can come after you, and so can your state securities Administrator. But, you don't plan to do anything like that, of course.

And, of course, things change when the adviser employs an IAR with a place of business in Colorado, as # 9 on the website explains:

Q: What is required of an IA located in another state that is not a FCA, has five or less clients in Colorado and employs one or more IARs with a place of business in Colorado?
A: The difference between this question and the one immediately above is the IA employs IARs with a place of business in Colorado. It does not matter how many clients are located in Colorado. An IA should file a current Form ADV and pay the appropriate fee. For each IAR with a place of business in Colorado the IA shall file a Form U-4 for each individual and pay the IAR fee.

As you can see--and as I've written before--much of the information that you study for your exam is connected to the real world. It's just buried under a bunch of tricky exam questions filled with mumbo-jumbo. But the de minimis exemption is 5 on the test and 5 in the real world. Just thought you'd like to know that.