State Securities Regulation

While federal securities laws establish a baseline for investor protection, state securities regulation provides an additional layer of oversight. These state laws, commonly known as "Blue Sky laws," predate federal securities regulation and remain an important component of the regulatory landscape. CFP professionals must understand how state and federal regulation interact, particularly regarding investment adviser registration thresholds.

The Origin of Blue Sky Laws

The term "blue sky law" originated in the early 1900s to describe state laws designed to protect investors from fraudulent securities offerings that had "no more basis than so many feet of blue sky." Kansas enacted the first blue sky law in 1911, and other states quickly followed.

Purpose of Blue Sky Laws:

• Require registration of securities offerings and sales
• Register broker-dealers, investment advisers, and their representatives
• Establish anti-fraud provisions
• Provide state-level enforcement against securities violations

Today, the blue sky laws of 40 states are patterned after the Uniform Securities Act of 1956, which provides model legislation to promote consistency across states while allowing for state-specific variations.

NASAA: Coordinating State Regulation

The North American Securities Administrators Association (NASAA) serves as the coordinating body for state, provincial, and territorial securities regulators. NASAA's membership includes regulators from:

• All 50 U.S. states
• District of Columbia
• Puerto Rico
• U.S. Virgin Islands
• Canada
• Mexico

NASAA's Role:

NASAA launched its Electronic Filing Depository (EFD) System in December 2014, allowing issuers to file Form D and pay applicable fees to multiple states through a single submission. This significantly streamlined the compliance process for multi-state offerings.

State vs. Federal Registration: The AUM Threshold

One of the most important concepts for CFP professionals is understanding which regulator oversees investment advisers based on assets under management (AUM). The Dodd-Frank Act of 2010 established clear dividing lines:

Important Exceptions to State Registration:

Even state-registered advisers may register with the SEC if they:

• Advise a registered investment company
• Are exempt from state registration in their home state
• Would be required to register in 15 or more states

2025 Developments: Re-examining the Threshold

In April 2025, SEC Acting Chair Mark Uyeda spoke at the annual federal-state securities cooperation conference, suggesting it may be time to re-examine the $100 million AUM threshold.

Key Points from the 2025 Discussion:

• Since 2012, the number of SEC-registered investment advisers has grown by approximately 45% to over 15,400 advisers
• Nearly 9,000 advisers now manage between $100 million and $1 billion in AUM (up from about 5,850 in 2012)
• The original Dodd-Frank intent was for the SEC to focus on larger, more complex advisers while states handle smaller firms
• Discussion continues about whether the threshold should be adjusted to better align with Congressional intent

Federal Preemption Under NSMIA

The National Securities Markets Improvement Act of 1996 (NSMIA) significantly changed the relationship between federal and state securities regulation by preempting certain state requirements.

NSMIA Preemption:

Critical Point: Even when NSMIA exempts a security from state registration requirements, states retain full authority to enforce their anti-fraud provisions. This means fraudulent conduct can be prosecuted by both federal and state authorities.

State Registration Requirements

Investment advisers and their representatives must comply with state registration requirements, which typically include:

For Investment Adviser Firms:

• Form ADV filing (coordinated through IARD)
• State-specific notice filing
• Registration fees
• Surety bond (some states)
• Net worth requirements (some states)

For Investment Adviser Representatives (IARs):

• Form U4 filing
• Qualification examinations (typically Series 65 or Series 66)
• State registration fees
• Continuing education (varies by state)

State Enforcement Authority

State securities regulators have significant enforcement powers, including:

• Investigation authority - Subpoena documents and testimony
• Administrative actions - Deny, suspend, or revoke registrations
• Civil actions - Seek injunctions and restitution
• Criminal referrals - Refer cases to state attorneys general
• Emergency powers - Issue temporary orders to protect investors

States often work together and coordinate with federal regulators on multi-state enforcement actions. NASAA facilitates this coordination through working groups and information sharing.

Uniform Forms and Coordinated Filing

The securities industry uses uniform forms to streamline registration across jurisdictions:

For CFP Professionals

Understanding state securities regulation helps CFP professionals:

• Determine registration requirements based on where they have clients and their firm's AUM
• Maintain proper state registrations as the firm grows or takes clients in new states
• Recognize the "switching" requirement when AUM crosses the $100 million threshold
• Understand anti-fraud exposure even when federal preemption applies to registration
• Navigate multi-state compliance using coordinated filing systems
• Anticipate regulatory changes as the SEC and states continue discussions about the AUM threshold