Most questions in this area are sorting problems. First decide whether the person is an adviser at all. Then decide which regulator registers it, and only then what it owes that regulator.
Each state regulates the advisers doing business within it, and many states build their law on one model act so the rules stay similar from state to state. The Uniform Securities Act (USA) is the model state securities law written by the North American Securities Administrators Association (NASAA). Its Section 401(f) defines an investment adviser. It is a person who, for compensation, is in the business of advising others about the value of securities or whether to buy or sell them.
Most candidates apply a three-part test, and all three parts must be present:
- Advice about securities: The advice concerns stocks, bonds, funds or other securities, not only real estate or collectibles.
- In the business: The person advises with some regularity or holds out as an adviser, rather than doing a one-time favor.
Common mistakes
- No fee, no adviser: Any economic benefit counts, so a commission-paid planner who holds out is an adviser.
- Exempt means unregulated: Antifraud rules survive any exemption. An ERA under $150 million is not a federal covered adviser, so a state may still require filings under the NASAA model.
- Wrong prepayment figure: $1,200 more than six months ahead is the SEC's Form ADV Part 2A figure. The state models use more than $500, six or more months ahead.
Bottom line
- An investment adviser gives securities advice, is in the business and receives any compensation; holding out as a planner defeats the "solely incidental" exclusions.
- IARs, banks and trust companies, incidental LATE professionals, broker-dealers without special compensation, bona fide publishers and federal covered advisers are excluded, while exempt advisers keep antifraud duties.
- ERAs advise only venture funds or only private funds under $150 million and report on Form ADV to the SEC within 60 days of relying on the exemption.
- Under the NASAA exemption, non-venture 3(c)(1) funds admit only qualified clients: $1,400,000 managed or net worth over $2,700,000, residence excluded.
Exam shortcut
Sort before you calculate. Ask in order: Is this an adviser? Is it excluded, or only exempt? Does it belong with the SEC or the state? Only then reach for a deadline or dollar figure. Read the stem signals. "Solely incidental" paired with a separate fee or a planning advertisement means adviser. "Federal covered" means notice filing, never state registration, with antifraud intact.
The full lesson (about 4,868 words, 32 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- D30
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