At first glance, it seems that virtually all financial planners, stockbrokers, money managers, pension consultants, etc. would be covered under this definition. However, there are a number of exclusions that may apply:
- Banks, or bank holding companies
- Professionals, such as lawyers, accountants, teachers, etc., whose advice is incidental to their profession and who receive no special compensation for making recommendations
- Publishers of bona fide newspapers, magazines or financial publications of a general and regular circulation
- Government securities advisers
- Broker-dealers and their registered representatives whose advisory services are incidental to the securities business and who receive no special compensation for making recommendations
This last exception may seem illogical, since stockbrokers seem to be the major dispensers of investment advice. However, their job function is investment sales and they receive transaction based compensation and not a fee for advice; therefore, the investment advice they give is considered incidental to that role. Also, broker-dealers and their representatives are regulated by the Securities Exchange Act of 1934. Others who are exempt from registration include:
- IAs whose only clients are insurance companies
- IAs who qualify for the private-adviser exemption (i.e., less than 15 clients, do not hold themselves out to the public as investment advisers and do not advise registered investment companies)
Exclusions versus exemptionsIt is important to understand the difference between exclusions and exemptions as applied to investment adviser registration requirements. A person excluded from IA regulations means that person does not fall within the definition of an IA under federal or state standards. An exemption means the person does meet the definition of an IA, but under the applicable federal or state standard is exempt from registration requirements.For instance, under the federal Investment Advisers Act of 1940, bank holding companies are excluded from the definition of investment adviser.An example of an exemption from registration requirements under the federal law - despite meeting the definition of investment adviser - would be an adviser to a church employee pension plan.
Look Out!You can expect at least one question on the "out of state" clients. One of the options may be "IAs whose only clients are banks"; but remember it is IAs whose only clients are insurance companies that are exempt - not those with other institutional clients.
SEC Investment Adviser Releases IA 770 & 1092
Financial AdvisorLearn the importance of having a financial adviser whom you can trust and why questioning the funds he selects is part of that process.
Financial AdvisorDiscover 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.
Financial AdvisorDiscover what the best financial advisers share in terms of the traits they possess, and learn what clients value most in their advisers.
Personal FinanceTo lower your tax bill, make sure that you're taking all the exemptions that apply to you.
InvestingLook at how Facebook's Instant Articles feature works, and how it differs from the new Accelerated Mobile Pages feature from Google and Twitter.
Financial AdvisorSavvy financial advisers will either need to gain Social Security advice expertise or find a source or partner to provide this vital service to clients.
ProfessionalsYour career as a securities agent begins with this test. We'll show you how to score high.
Financial AdvisorLearn how the worst financial advisers tend to share common traits, including greed, arrogance, ignorance and being difficult to reach when times are tough.
Financial AdvisorSeveral things factor into the salary of a financial advisor. Here's a look.
InvestingLearn what you need to know about the state securities administrator to pass the Series 63 exam.