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A.4.2 State Securities Regulation

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

A.4.2 State Securities Regulation

Key Takeaways Explain This Topic AI

Blue sky laws originated in Kansas in 1911 to protect investors from offerings with 'no more basis than so many feet of blue sky'

NASAA coordinates 67 state, provincial, and territorial securities regulators across the US, Canada, and Mexico

Dodd-Frank established AUM thresholds: under $100M register with state; $100M+ register with SEC; $100-110M buffer zone allows choice

NSMIA (1996) preempts state registration for 'covered securities' but preserves full state anti-fraud enforcement authority

Last updated: January 2026

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:

  • Function Description
  • Policy Coordination Develops model rules and uniform forms for state adoption
  • Investor Education Provides resources to help investors avoid fraud
  • Training Offers professional development for state examiners
  • Electronic Filing Operates the Electronic Filing Depository (EFD) for streamlined multi-state filings
  • Coordinated Examinations Facilitates coordinated review of securities offerings

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:

  • AUM Level Primary Regulator Notes
  • Under $25 million State only No SEC registration available

$25 million to $100 million State (generally) May register with SEC if state does not require registration or examine advisers

  • $100 million to $110 million State or SEC "Buffer zone" allows choice
  • Over $110 million SEC only Must switch from state to SEC

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:

Area Federal Preemption State Authority Preserved

"Covered Securities" States cannot require registration for securities listed on NYSE, NASDAQ, or sold under Rule 506 States may still require notice filings and fees

Investment Advisers SEC-registered advisers exempt from state registration States may require notice filing and fees

  • Anti-Fraud N/A States retain full anti-fraud enforcement authority
  • Broker-Dealer Agents N/A States may register individual agents

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:

  • Form Purpose Filing System
  • Form ADV Investment adviser registration IARD (Investment Adviser Registration Depository)
  • Form U4 Individual registration (broker-dealer and IA reps) Web CRD
  • Form U5 Termination of individual registration Web CRD
  • Form BD Broker-dealer registration Web CRD
  • Form D Notice of exempt securities offering SEC EDGAR + NASAA EFD
  • 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