A brokerage recommendation and a paid financial plan may discuss the same mutual fund. The services, compensation, and business relationship determine whether investment adviser requirements apply.
Before you recommend services to a customer, identify who provides them and what that person receives in return. A professional title alone cannot tell you whether investment adviser rules apply.
The state securities regulator is the Administrator. The state-law baseline here is the 1956 Uniform Securities Act, as amended by the North American Securities Administrators Association (NASAA). Under §401(f), an investment adviser (IA) is a person in the business of providing securities advice for compensation. Issuing securities analyses or reports as a compensated business also qualifies. A person can be an individual or an entity, such as a corporation or partnership.
Use the advice, business, and compensation (ABC) test to organize the three required elements:
- Advice: The services concern securities values or whether to invest in, buy, or sell securities. Paid securities analyses and reports can satisfy this element without face-to-face recommendations.
- Business: The person provides advisory services as a business activity. Securities advice need not be the person's only business.
Common mistakes
- Equating compensation with separate billing. A $600 planning package containing securities recommendations can satisfy the compensation element even without an itemized advice fee.
- Treating a profession as sufficient. An accountant promoting a paid investment-advice business cannot rely on the incidental-professional exclusion.
- Ignoring the brokerage conjunction. A $75 special advisory fee defeats the broker-dealer exclusion even when the advice accompanies a trade.
Bottom line
- Investment adviser status generally requires securities advice or reports, a business activity, and compensation.
- The professional exclusion requires solely incidental advice; the brokerage exclusion also requires no special compensation.
- The state publisher exclusion requires impersonal information rather than advice tailored to each client's investment situation.
- Section 201(c)(2) requires no in-state place of business and qualifying institutional clients or no more than five other clients during the preceding 12 months.
Exam shortcut
Start with the actor: adviser business, brokerage agent, or IAR. Then identify whether the question asks about definition, registration, or notice filing. For an incidental-advice answer, inspect the services and compensation separately. Advertising paid investment advice is a signal to reject an incidental-services claim. Underline any office and the preceding 12-month period before counting clients. Sort institutions out before adding the remaining clients.
The full lesson (about 3,702 words, 25 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- A1
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