A solo planner manages $85 million from her Denver office and serves clients in Colorado, Wyoming, and one client in Utah. She thinks she registers with the SEC. She's wrong. At $85M she registers with Colorado, files nothing federally, and uses the de minimis rule to skip Utah entirely. One AUM number changes everything.
Under the Uniform Securities Act, an investment adviser is any person who, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in, purchasing, or selling securities. Three elements must all be present. Miss one and you are not an investment adviser.
- Advice about securities. General financial planning is not enough. The advice must concern securities specifically. Recommending real estate, commodities, or fixed annuities does not trigger IA status.
- Business. The activity must be regular, not a one-off. A friend who recommends one stock at a barbecue does not become an adviser.
- Compensation. Any economic benefit qualifies. Cash, fees, commissions, soft dollars, even bundled fees inside a financial plan. Compensation does not have to come from the client. Third-party payments count.
Common mistakes
- Forgetting that compensation can be indirect. Candidates assume compensation means client-paid fees. Soft dollars, third-party payments, and bundled fees all count. A "free" financial plan that drives commission product sales is compensated advice.
- Confusing notice filing with registration. A federal covered adviser does NOT register with the state. The state collects a notice filing (Form ADV copy plus fee). Pick notice filing not registration for federal covered advisers at the state level.
- Applying de minimis to IARs of federal covered advisers. The de minimis 5-client rule applies to IAs registering with a state and to state-registered IARs. IARs of federal covered advisers register based on place of business only. Client count does not trigger state IAR registration for federal covered firms.
Bottom line
- Investment adviser = ABC test: Advice about securities, Business (regular activity), Compensation (any form). All three required.
- LATE-BB exclusions (Lawyers, Accountants, Teachers, Engineers, plus Banks and Broker-dealers) apply only if advice is incidental and no special compensation is received.
- Investment Advisers Act Section 203A plus Rule 203A-1 build the ladder: $110M AUM = SEC registration (federal covered). Under $100M = state. $100M to $110M buffer = adviser's choice. Advisers to registered investment companies are always federal covered.
- Federal covered advisers notice-file with states (Form ADV copy, state fee, consent to service of process). They do NOT register, and states impose only anti-fraud requirements.
Exam shortcut
"Federal covered" equals SEC-registered or required to be. If the firm is federal covered, the state's only tools are notice filing and anti-fraud enforcement. The state cannot demand registration, exams, or capital from the firm. If the question mentions "place of business," check the IAR rules immediately. Place of business triggers IAR state registration regardless of firm type.
The full lesson (about 3,380 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- A1
- B2
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