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

Related Articles
  1. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  2. Investing

    How Google & Twitter Compete with Facebook's Instant Articles (FB, GOOG)

    Look at how Facebook's Instant Articles feature works, and how it differs from the new Accelerated Mobile Pages feature from Google and Twitter.
  3. Personal Finance

    Career Advice: Financial Analyst Vs. Financial Adviser

    Read an in-depth review of the differences between a career as a financial Adviser versus a career as a Financial Analyst, including how to decide which is best.
  4. Financial Advisor

    The Pros & Cons of Partnering with a Broker/Dealer

    Financial advisors must determine a business model that meets their needs and meets the expectations of their clients.
  5. Financial Advisor

    What Are Virtual Financial Advisors?

    The internet has provided a convenient way for financial advisors to offer their services to a wide customer base through virtual financial advising.
  6. Financial Advisor

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  7. Financial Advisor

    Top Tips for the Recently Unemployed

    When a major life change such as a job loss comes up the advice and counsel of a trusted financial advisor can prove to be invaluable.
  8. Financial Advisor

    Career Advice: Stockbroker Vs. Financial Advisor

    Read a detailed comparison between life as a stockbroker versus a financial advisor; find out how the two are different and which one is best for you.
  9. Financial Advisor

    5 Top Tax Concerns Clients Face

    Clients of advisors may have more tax issues as their financial plans become more complicated.
  10. Financial Advisor

    3 Digital Platforms FAs Should Keep on Their Radar

    Find out which digital platforms financial advisers should look to as the trend toward adviser-based digital advice continues into 2016.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center