The Foundation - The Uniform Securities Act (USA) - Definitions Part 2

INVESTMENT ADVISER - "Investment adviser" means a person that, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. The term includes a financial planner or other person that, as an integral component of other financially related services, provides investment advice to others for compensation as part of a business or that holds itself out as providing investment advice to others for compensation. The term does not include:

    1. An investment adviser representative;
    2. A lawyer, accountant, engineer, or teacher whose performance of investment advice is solely incidental to the practice of the person's profession;
    3. A broker-dealer or its agents whose performance of investment advice is solely incidental to the conduct of business as a broker-dealer and that does not receive special compensation for the investment advice;
    4. A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation;
    5. A federal covered investment adviser;
    6. A bank or savings institution

First, an "investment adviser" (IA), as the Law defines it, is generally a company or a firm that is "in the business of" providing investment advice for a fee. The "investment adviser representative" is an individual who works for an investment adviser. The USA permits a sole proprietor to register as an investment adviser, but for exam purposes, think of an IA as a firm that hires others.

Notice that as long as any investment advice provided by Teachers, Engineers, Accountants and Lawyers(teal) is "solely incidental to the practice of the person's profession" that person is not defined as an investment adviser.

Broker-dealers are not defined as investment advisers as long as their advice is "solely incidental to the conduct of business as a broker-dealer and that does not receive special compensation for the investment advice." Here's another clue that a person is not an investment adviser: not receiving special compensation for the investment advice. The test sometimes uses the word, "remuneration," which simply means money paid for work or a service.

But what about broker-dealers that manage client accounts, take assets under management and charge "wrap fees"? Those B/Ds must be registered as both B/Ds and investment advisers.

Notice that banks are, again, not considered investment advisers. Subsidiaries of banks, however, may very frequently be registered as investment advisers.

 

Look Out!

Banks and similar institutions are exempt from many of the requirements of the USA because they are so heavily regulated by other entities. The USA, in recognition of this fact, has exempted banks and other similar institutions from yet another layer of regulation.

 

The Uniform Securities Act (USA) - Definitions Part 3


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