Series 65

Regulation of Investment Advisors - SEC Investment Adviser Releases IA 770 & 1092

IA 770 was issued in 1981 to clarify the definition of investment advisers. It provided guidance on the following matters:
  • What is a "security" - life insurance and fixed securities are not securities, so those who give advice solely on these financial instruments are not required to register as IAs

  • What is "advice" - the guideline here is very broad - simply recommending that a client buy "stocks" instead of insurance is considered advice

  • Who is "in the business" of giving advice about securities - the standard requires only that you "hold yourself out" as a financial planner or investment adviser (e.g., by advertising, making business cards, etc.) even if you have no clients yet

  • What is "compensation" for giving advice about securities - compensation includes fees, commissions, assigning a liability of the adviser to the client or requiring the purchase of another product
IA 1092 was issued in 1987 as a result of the increased activity in financial planning and investment advice. It essentially reaffirmed the definition of an IA as stated in IA 770, with some refinements:
  • Pension consultants and advisers to athletes and entertainers are considered to be providers of investment advice
  • Firms that recommend investment advisers may have to register themselves
  • An IA does not have to give advice as his/her principal business activity - simply doing so with some regularity is enough to require registration
  • If a registered representative of a broker-dealer sets up a separate business entity to provide financial planning or investment advice for a fee, he/she may not rely on the broker-dealer exemption from registration (this is known as a statutory investment adviser)
  • "Compensation" does not have to be monetary to fall under the definition - receipt of products, services or discounts is also considered compensation
In regard to sports or entertainment agents, those who negotiate contracts but do not render investment advice would be excluded from the definition of an IA.

The complete IA 1092 release can be viewed here.



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