Nearly every rule in this lesson answers one question: when the adviser's interest and the client's interest pull apart, who wins? The client does, and the exam tests the disclosures, consents and records that prove it.
An investment adviser is a fiduciary, a person trusted to act for someone else's benefit. So is each investment adviser representative (IAR) who works for it. The North American Securities Administrators Association (NASAA) opens Model Rule 102(a)(4)-1 with that duty. NASAA model rules bind a state only once the state adopts them. The Securities and Exchange Commission (SEC) 2019 adviser fiduciary interpretation splits the duty into two parts.
- Duty of care: Give advice in the client's best interest, based on a reasonable understanding of the client's objectives and finances. When you choose the broker, seek best execution.
- Duty of loyalty: Never put your own interests first. Make full and fair disclosure of conflicts and other material facts so the client can give informed consent.
Common mistakes
- Calling time or price discretion. It is not discretion, so no written authority is needed.
- Misreading the fee-deduction safe harbor. Fee deduction is still custody; the safe harbor waives only the surprise exam and the $35,000 net worth.
- Using stale qualified-client figures. The old $1.1 million and $2.2 million figures apply only to contracts signed before June 29, 2026.
Bottom line
- Advisers and IARs are fiduciaries owing care and loyalty; broker-dealer retail recommendations follow Reg BI, and retirement advice uses the restored 1975 five-part test.
- Fees must be reasonable, the contract states the prepaid-fee refund, and commissions, fee-plus-commission arrangements, 12b-1 fees and referral pay are disclosed in writing before any advice.
- Performance fees need a qualified client: at least $1,400,000 managed, net worth over $2,700,000 excluding the home, a qualified purchaser or an insider; 3(c)(1) funds are looked through.
- Section 28(e) protects paying up for research when the commission is reasonable in good faith; overhead is excluded and mixed-use items are split.
Exam shortcut
DECISION: Identify the actor first. Adviser or IAR: fiduciary duty, written discretion within 10 business days of the first trade, no SAR duty before 2028. Broker-dealer agent: Reg BI, written discretion before the first trade, Rule 2165 holds up to 55 business days. Any withdrawal authority means custody, so check for the fee-deduction safe harbor before adding a surprise exam or $35,000.
The full lesson (about 4,966 words, 33 min read) adds 2 worked examples, a self-check, free in the app.
Learning objectives
- D37
Browse all free Series 65 lessons or jump into free Series 65 practice questions.