Regulation of Investment Advisors and Investment Advisor Representatives - State Registered Investment Advisors

Some IAs must register with the state rather than with the SEC (see the section below). If you register through your state, you are regulated by the Uniform Securities Act (USA) instead of the Investment Advisers Act of 1940. Under the USA, you must register as an investment advisor if you provide any of the following services for compensation:

  • Engaging in the business of advising others, either directly or indirectly (such as via a newsletter), as to the value of securities or the advisability of investing in securities OR
     
  • Issuing analyses or reports on a regular basis as part of a business OR
     
  • Providing investment advisory services to others in a financial planning practice

Exclusions from this definition include the following:

  • Banks, savings and loans, trusts
     
  • Professionals such as lawyers and accountants whose advice is incidental to their professional practice
     
  • Broker-dealers whose advice is incidental to the conduct of their business and who receive no special compensation for these services
     
  • Publishers, employees or columnists of bona-fide newspapers, news magazines, business or financial periodicals, and owners and employees of cable, radio or TV networks where the content is NOT based on the specific investment situation of each client
     
  • Federal covered advisors
     
  • Investment advisor representatives
     
  • Any other person that is excluded by the Investment Advisers Act of 1940 from the definition of investment advisor; or
     
  • Any other person excluded by the Administrator

Note that the definitions and exclusions for state covered advisors and federal covered advisors are similar but not identical.
 

Look Out!
The acid test for a publication (and you could easily see a question regarding Internet publications on the exam) is whether the publisher gives advice on the specific 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 advisor.

 

Stop!
Refer to Appendix C for the Uniform Securities Act.

Registration Requirements
An IA must register in every state where he or she does business with clients, whether or not he or she actually maintains a place of business in the state. The only exemption is for advisors with no place of business in a state who:

  • only deal with professional investors
    OR
  • have five or fewer clients in that state.

Look Out!
Notice that this USA definition for IAs, who must register if they have out of state clients, is very different from the one under the Investment Advisers Act of 1940, (mentioned in the earlier section). On the exam, make sure you determine whether a question is about an IA who is state registered or federally registered.

Registration with the SEC or with the State?
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