Series 63

AAA

Registrations of Persons - Investment Adviser: Definition

Refer to and review the definition and exclusions above.


Look Out!
The acid test for a publication (and you could see a question regarding internet publications on the exam) is whether the publisher gives advice on the SPECIFIC investment situations of clients. If a publication does not advise clients of stock-specific information and is a "bona-fide" publication (for example: the Wall Street Journal Online), it is NOT an investment adviser.


An investment adviser is a firm that:

  • For compensation, engages in the business of advising others as to the value of securities, or as to the advisability of investing in, purchasing, or selling securities

Who, for compensation and as a part of a business, issues or promulgates analyses or reports security-specific information advising either buying or selling.


Exam Tips and Tricks
As a general rule of thumb, if a person specifically gives advice related to investments for a client\'s specific condition or portfolio, that person is defined as an investment adviser.

Additional Information

  • If a broker-dealer both effects transactions and offers investment advice for special compensation, it must register as an investment adviser as well. As noted earlier, broker-dealers that have "wrap accounts" must register as both broker-dealers and as investment advisers.

  • De Minimis: The NSMIA provides a de minimis exemption for investment advisers that have no place of business in the state and direct business communications to "no more than five non-institutional clients" in a year.

  • In a Memorandum of Understanding dated April 1997, NASAA addresses the requirements of NSMIA regarding investment advisers and investment adviser representatives. The following is from the document:
"If an investment adviser does not qualify for SEC registration, its registration is governed by state laws. State registration authority is limited, however, by a national de minimis standard that prohibits the laws of any state requiring registration, licensing, or qualification as an investment adviser if the adviser does not have a place of business located in the state and during the prior 12 months had five or fewer clients that reside in the state. In addition, the NSMIA requires a state to enforce only those books and records, minimum net capital, or bonding requirements of the state in which the investment adviser maintains its principal place of business."
  • The USA also states that an investment adviser is prohibited "from employing an individual who is prohibited from such employment or association by the Administrator." Violation of this provision does not always result in strict liability, as employees can often mislead employers. To be liable, the investment adviser must have known or should have known of the Administrator's order suspending or barring employment for the employee.
  • An investment adviser may conduct business with institutional clients in different states than its registration without registering in the additional states if:
    • The investment adviser has no physical address in the state(s), but is registered in another state.

    • The client the investment adviser is providing advice for is an institutional client, such as a bank, another investment adviser, a benefit plan with assets greater than $1 million and/or the government.


Exam Tips and Tricks
The De Minimis exemption has frequently been reported to be on the test, so remember: For registration exemption, an investment adviser must have fewer than five clients in twelve months, and NOT have a physical address in the state! Often, this has been reported to be worded as "five or fewer."


Investment Adviser: Initial Registration and Requirements
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