The same recommendation carries different duties depending on who makes it, so start with your role. An investment adviser is in the business of giving securities advice for compensation. An investment adviser representative acts for an adviser, for example by giving advice, managing accounts, or selling advisory services. A broker-dealer handles securities transactions through its agents.
The North American Securities Administrators Association (NASAA) publishes model rules that each state may adopt in its own way. Apply the Uniform Securities Act of 1956 and the operative rules as of October 29, 2026.
A fiduciary must put clients' interests first. The adviser's duty of care requires understanding the client's finances, objectives, risk tolerance, and circumstances before providing suitable advice in the client's best interest. Seek best execution when selecting brokers. Provide monitoring appropriate to the advisory relationship.
The duty of loyalty addresses conflicts of interest, situations where another interest could compromise your judgment. Eliminate conflicts or provide full and fair disclosure sufficient for informed client consent. Consent never excuses advice contrary to the client's best interest.
Common mistakes
- Giving an agent the adviser's 10-business-day discretion window.
- Treating exactly $2.7 million as exceeding $2.7 million. The net-worth test is strict; the $1.4 million management test includes equality.
- Confusing the $5,000 SAR threshold with the $10,000 CTR threshold.
Bottom line
- Advisers owe care and loyalty; retail broker-dealer recommendations must satisfy Regulation Best Interest.
- New qualified clients generally need at least $1.4 million managed or net worth exceeding $2.7 million under the adjusted tests.
- NASAA permits initial oral adviser discretion with writing within 10 business days; agents need prior written customer authority.
- Fee deduction creates custody, even when a conditional surprise-examination exception applies.
Exam shortcut
Identify the actor first: adviser, agent, firm, access person, or custodian. Another actor's rule is a common distractor. Underline the action: choosing trades, withdrawing assets, receiving compensation, or sharing information. Circle boundary language such as “at least,” “exceeding,” “before,” and “business days.” When an answer says “disclose and proceed,” check whether the conduct instead requires mitigation, elimination, written consent, or prohibition.
The full lesson (about 4,621 words, 31 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- D26
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