What Is the De Minimis Exemption for Financial Advisors

The de minimis exemption refers to the threshold below which certain small-scale transactions or activities are exempt from regulation or taxation. It’s important for advisors to be aware of this rule, so they can ensure compliance with regulations, assess which transactions or activities they’ll have to report, and avoid penalties. Here’s what you need to know.

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How the De Minimis Exemption Works

De minimis stems from “de minimis non curat lex” in Latin, which means “the law does not concern itself with trifles.” And as the name implies, the exemption recognizes that the potential risk posed by small-scale operations to clients and the financial system is minimal.

By reducing the administrative and financial burden of full compliance, the exemption allows smaller advisors to avoid state registrations in states where they have a limited number of clients.

Without this exemption, it could otherwise become burdensome to take on a client or two in a state where you do not have a place of business. So the exemption, therefore, aims to encourage smaller advisors to take on clients.

Registration Requirements for Financial Advisors

The Investment Advisers Act of 1940 outlines the duties of an investment advisor and lays the groundwork for regulatory oversight. The Securities and Exchange Commission (SEC) — which is the primary federal regulator — and the Financial Industry Regulatory Authority (FINRA) — which focuses on broker-dealers — both play important roles in this system. Moreover, state securities regulators also contribute to supervising advisors within their jurisdictions, which frequently requires additional registration.

The registration process for individual advisors with regulatory bodies is thorough, mandating the submission of the Uniform Application for Securities Industry Registration or Transfer (Form U4). This form compiles a comprehensive profile of the applicant’s work history, academic credentials, and any past regulatory or legal issues that could influence their suitability as a reliable advisor. These measures are in place to ensure that only those who are qualified gain entrance to the profession and maintain the industry’s reputation, as well as the confidence of clients.

The registration for an independent RIA (registered investment advisor) can create additional requirements. RIAs are regulated by the Securities and Exchange Commission (SEC) or state securities authorities, depending on the amount of assets they manage. The registration requirements for RIAs can vary slightly based on whether they register with the SEC or with state securities authorities. The de minimis applies to this type of state registration if your firm meets the requirements of the specific state that you do not want to register in.

Does the De Minimis Exemption Apply to Broker-Dealers?

Advisors should take note of this rule to ensure compliance with regulations, report transactions or activities and avoid penalties.

Broker-dealers, who are entities that buy and sell securities for themselves and on behalf of clients, cannot avoid registration in a state with the de minimis exemption, even if they have only a single client in a given state.

Broker-dealers pose a bigger risk for the improper use of investor funds, making it a requirement no matter what.

Recent Changes to the De Minimis Exemption for Internet Advisers

In March 2024, the SEC finalized amendments to the internet adviser exemption rule, significantly changing how online or digital investment advisers register with the Commission. One of the most impactful updates was the removal of the de minimis exemption for internet advisers. Previously, firms could register with the SEC even if they had a small number of clients not served through digital channels. That’s no longer the case.

Under the revised rule, firms must now serve all clients exclusively through a fully interactive website to qualify for SEC registration under the internet adviser exemption. This means that any advisers who continue to work with non-internet clients, even in small numbers, must now register in each applicable state unless they qualify for another exemption.

The SEC’s move to eliminate this exception reflects its broader effort to modernize the regulatory framework around digital advice and enhance investor protections in the online space.

New Compliance and Registration Deadlines for Digital Advisers

Alongside the substantive changes to eligibility, the SEC also requires affected advisers to update their compliance and registration documentation:

Form ADV updates: Advisers must amend their Form ADV filings to explicitly reflect eligibility under the internet adviser exemption and verify that their services are delivered entirely online.
Compliance deadline: Investment advisers must comply with the new rule, and were required to submit updated Form ADV filings by March 31, 2025, aligning with the annual filing deadline for most firms.
Withdrawal deadline: Advisers who no longer qualify for the exemption and don’t have another basis for SEC registration must withdraw by June 29, 2025, and register in the relevant states where they do business.

For digital or hybrid advisory firms, this represents a major shift. Compliance teams should begin evaluating their operational models immediately to ensure alignment with the interactive website requirement. Failing to meet the new standards could trigger enforcement actions or regulatory delays.

Tips for Registering Your RIA

The process for registering an RIA will require you to submit of Form ADV, which comprises two parts: the first for regulatory bodies and the second serving as a brochure for potential clients. Fees associated with registration can vary by state, but they are generally not prohibitive.

You will want to avoid common mistakes, including inaccuracies in Form ADV filings, confusion over state versus federal requirements and underestimating how much time you will need for the registration process. Here are three general tips:

Review all documentation before submission.
Seek guidance from compliance experts familiar with the specific requirements of your firm.
Allocate adequate time to the registration process, allowing for a thorough assembly of required information and addressing any unexpected complications.

Bottom Line

The de minimis exemption can allow smaller financial advisors to avoid regulation or taxation for certain small-scale transactions or activities in states where they have a limited number of clients. Taking note of this rule can help you comply with regulations, report necessary transactions or activities and avoid penalties.

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