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


Related Articles
  1. Professionals

    Investment Adviser: Initial Registration and Requirements

    FINRA/NASAA Series 63 - Investment Adviser: Initial Registration and Requirements. In this section Investment Adviser initial registration, financial requirements, update and renewal.
  2. Savings

    Question the Funds Picked By Your Financial Advisor

    Learn the importance of having a financial adviser whom you can trust and why questioning the funds he selects is part of that process.
  3. Professionals

    Who Must Register As An Investment Adviser?

    FINRA/NASAA Series 65 - Who must register as an investment adviser?
  4. Professionals

    Investment Adviser Representative (IAR): Definition

    FINRA/NASAA Series 63 - Investment Adviser Representative (IAR): Definition. This section defines investment advisor representative and its exclusions.
  5. Professionals

    The Uniform Securities Act (USA) - Definitions Part 2

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definitions Part 2. This section defines and explains Investment advisor in detail.
  6. Professionals

    5 Traits the Best Financial Advisors Share

    Discover what the best financial advisers share in terms of the traits they possess, and learn what clients value most in their advisers.
  7. Professionals

    The Pros & Cons of a Financial Advisor Career

    Discover what a career as a financial adviser entails, and learn what pros and cons an individual faces when embarking on a career in this field.
  8. Professionals

    The Uniform Securities Act (USA) - Definitions Part 4

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definitions Part 4. In this section definitions of guaranteed, institutional investor and investment advisor representative.
  9. Professionals

    State Registered Investment Advisers

    FINRA/NASAA Series 65 - State Registered Investment Advisers. In this section registering with the state and exclusions.
  10. Personal Wealth & Private Banking

    Six Things Bad Financial Advisers Do

    A good financial adviser can improve your life in many ways. But a bad financial adviser? Not so much.
RELATED TERMS
  1. Investment Adviser Registration ...

    An electronic system through which investment advisers register ...
  2. Agency Cross

    A transaction in which an investment adviser acts as the broker ...
  3. SEC Form ADV-E

    A certification of client assets, both cash and securities that ...
  4. SEC Form ADV-W

    The form used to withdraw registration as a Registered Investment ...
  5. SEC Form ADV

    The application for registration as an investment adviser or ...
  6. Investment Advisers Act of 194 ...

    A piece of legislation passed in 1940 that, among other things, ...
RELATED FAQS
  1. The de Minimis clause for investment advisers means:

    A. An investment adviser must register with the state if it holds less than $25 million in assets.B. An investment adviser ... Read Answer >>
  2. Under the Uniform Securities Act, which of the following advisers is NOT defined ...

    The correct answer is b). Federal covered advisers include those who manage client assets of $25,000,000 or more or who advises ... Read Answer >>
  3. Under the Uniform Securities Act, the registration of an investment adviser results ...

    The correct answer is b. Clerical employees do not need to be registered as investment adviser representatives, while solicitors, ... Read Answer >>
  4. Under the Uniform Securities Act, registration requirements for an investment adviser ...

    The correct answer is a) Investment advisor representatives do not need to include a minimum amount of net capital since ... Read Answer >>
  5. What is the difference between fee-only advisors and fee-based advisors?

    Better manage your retirement account by understanding the important differences between fee-only and fee-based financial ... Read Answer >>
  6. Why are fee-based accounts preferred by many high net worth individuals (HNWI)?

    Learn why many high-net-worth individuals prefer fee-based financial advisers, and learn how commission based advisers may ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center