NASAA Series 65 (Uniform Investment Adviser Law Examination) Glossary
26 essential terms and definitions for NASAA Series 65 (Uniform Investment Adviser Law Examination). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
A
- Assets Under Management (AUM)
- Assets under management is the total market value of client assets the investment adviser manages. AUM thresholds drive whether an adviser must register at the state level or with the SEC (generally above $110 million).
B
- Brochure (Form ADV Part 2A)
- The brochure is the plain-English Form ADV Part 2A that investment advisers must deliver to clients. It describes the adviser's business, fees, conflicts of interest, disciplinary history, and key personnel.
- Brochure Delivery Requirement
- Investment advisers must deliver the Form ADV brochure to prospective clients at or before entering into an advisory contract, then annually thereafter (or interim updates for material changes). Failure is a frequent examination finding.
C
- Capital Asset Pricing Model (CAPM)
- CAPM relates an asset's expected return to its systematic risk: expected return equals the risk-free rate plus beta times the equity risk premium. It is the foundation of cost-of-equity estimation in modern finance.
- Custody
- Custody is the adviser's ability to hold or dispose of client funds or securities. Advisers with custody must use a qualified custodian, provide quarterly account statements, and (with limited exceptions) undergo an annual surprise verification by an independent auditor.
D
- Discretionary Account
- A discretionary account is one where the adviser has authority to make investment decisions without obtaining the client's consent for each transaction. The authority must be in writing and is subject to specific disclosure and supervision requirements.
- Duration (Macaulay)
- Macaulay duration is the weighted-average time to receive a bond's cash flows. It measures interest-rate sensitivity (modified duration adjusts for yield convention) and increases with longer maturity and lower coupons.
E
- Efficient Frontier
- The efficient frontier is the set of portfolios that maximize expected return at each level of risk. Mean-variance optimization produces the frontier from inputs of expected returns, variances, and covariances.
F
- Federal Covered Adviser
- A federal covered adviser is one registered with the SEC rather than the states. The cutoff is typically AUM above $110 million; advisers below register with the states where they have a place of business and clients.
- Fiduciary Standard
- The fiduciary standard requires investment advisers to act in clients' best interests, disclose conflicts of interest, and provide suitable advice consistent with the client's circumstances. It is more demanding than the suitability standard applicable to broker-dealers.
I
- Internal Rate of Return (IRR)
- IRR is the discount rate that sets the net present value of a series of cash flows to zero. It is commonly used to evaluate investments with irregular cash flow patterns, including private equity and real estate.
- Investment Adviser Representative (IAR)
- An IAR is an individual employed by an investment adviser who provides advice, manages accounts, or solicits clients. IAR registration occurs at the state level even when the employing adviser is federally registered.
- Investment Advisers Act of 1940
- The Advisers Act requires advisers above the AUM threshold to register with the SEC and establishes a fiduciary duty to clients. It also restricts performance-based fees, principal transactions, and contracts assignable without consent.
- Investment Company Act of 1940
- The Investment Company Act regulates the structure and operation of investment companies, including mutual funds, closed-end funds, and unit investment trusts. It addresses governance, capital structure, custody, and affiliated transactions.
M
- Modern Portfolio Theory (MPT)
- MPT constructs portfolios to maximize expected return at each level of risk via diversification across imperfectly correlated assets. The framework underlies the efficient frontier and the Capital Asset Pricing Model.
- Mutual Fund
- A mutual fund is an open-end investment company that issues redeemable securities representing pro-rata interests in the fund's portfolio. Orders are filled at the next NAV (forward pricing) calculated once per business day.
N
- Net asset value is the per-share value of a fund's net assets. It is computed by dividing total assets minus liabilities by shares outstanding and is published once per business day for open-end funds.
P
- Performance-Based Fee
- A performance-based fee is a fee tied to investment results. The Advisers Act permits performance fees only with qualified clients (generally over $1.1 million net worth excluding primary residence or over $2.2 million AUM) under Rule 205-3.
- Principal Trade
- A principal trade is one in which the adviser (or an affiliate) sells to or buys from a client for its own account. The Advisers Act requires written disclosure and the client's consent before settlement of each such trade.
R
- Random Walk Hypothesis
- The random walk hypothesis holds that successive price changes are independent, so future prices cannot be predicted from past prices. It underlies the weak form of the efficient market hypothesis.
S
- Securities Act of 1933
- The Securities Act of 1933 governs the public offering of securities, requiring registration (subject to exemptions) and prohibiting fraud. It is the federal 'truth in securities' act.
- Securities Exchange Act of 1934
- The Exchange Act regulates secondary trading, broker-dealers, exchanges, and ongoing reporting by public companies. It created the SEC and underlies the principal antifraud rule for secondary markets (Rule 10b-5).
- The Sharpe ratio is excess return over the risk-free rate per unit of total volatility. It is the canonical risk-adjusted performance measure and a standard reporting metric for investment advisers.
- Soft-Dollar Arrangement
- A soft-dollar arrangement uses client brokerage commissions to pay for research provided by the broker. It is permitted only within the Section 28(e) safe harbor and requires the adviser to determine that the research is of value and that commissions are reasonable.
- Solicitor
- A solicitor is a person who refers clients to an investment adviser for compensation. Under the Marketing Rule and prior Cash Solicitation Rule, solicitors must be disclosed to clients and must meet specific qualification and disclosure requirements.
T
- Time-Weighted Return (TWR)
- Time-weighted return removes the effect of external cash flows by computing geometrically linked sub-period returns. It is the standard performance measure for adviser reporting under GIPS and is more comparable across managers than money-weighted (IRR) returns.