Series 66

AAA

Regulation of Investment Advisors and Investment Advisor Representatives - SEC Investment Advisor Releases IA-770 & 1092

IA 770 was issued in 1981 to clarify the definition of investment advisors. 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 guidelines here are 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 advisor (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 advisor to the client, or requiring the purchase of another product.

IA 1092 was issued in 1987 in response to increased activity in financial planning and investment advice. It essentially reaffirmed the definition of an IA as stated in IA 770, but refined some of the definitions:

  • Pension consultants and advisors to athletes and entertainers are considered providers of investment advice.
  • Firms that recommend investment advisors may have to register themselves.
  • An IA does not have to give advice as his/her principle business activity - simply doing so on occasion 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 advisor).
  • Compensation does not have to be monetary to fall under the definition - receipt of products, services or discounts is also considered compensation.
State Registered Investment Advisors
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