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Series 7

Rules and Regulations - Exceptions to IA Registration

For example, there is a legal and cultural separation of banks and brokerages in the U.S. that dates back to the Great Depression. Your neighborhood banker can offer you friendly advice about a security without triggering this Act. The same goes for these other professionals:
  • Lawyers
  • Accountants
  • Engineers
  • Teachers
What must be determined is whether the investment advising services provided by these people are central to their professions or incidental to them. If investment advising is their main stock and trade, then they need to register as IAs.

This exception also applies to RRs, by the way. It is acceptable for you, as a stockbroker or bond trader, to suggest a security to a client as long as you are compensated based on the trade rather than the advice.

Independent journalists are exempt. So are advisors who focus solely on U.S. government-issued or -guaranteed securities.

Other exemptions include the following:
  1. an advisor whose clients all live in the same state as her principal office and who does not furnish advice or issue analyses on any security that trades on a national exchange,

  2. an advisor whose only clients are investment companies or insurance companies, or

  3. an advisor who has had fewer than 15 clients over the previous 12 months and who does not hold herself out to the public as an investment advisor.
Remember, this Act is a federal law, so that is its scope. What goes on within state borders is the state's business to regulate. That explains exemption 1 above. It also explains the legal reason for registering as an IA: to be permitted to use the U.S. Mail and other institutions of interstate commerce.

Next: Registering As An Investment Advisor »


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