Series 7

Rules and Regulations - Investment Advisors

An RR is different from an investment advisor (IA). An RR handles trades and might also advise as part of her regular business, while an IA sells advice, not securities.

IAs are governed by the Investment Advisers Act of 1940, which defines them as persons who "engage in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities."

If you think that rule is a mouthful, you should see the exceptions to it. Before looking at the exceptions, let's re-cap what is important about the definition.

Exam Tips and Tricks
The key points to remember for your upcoming exam are that an IA\'s advice:
  • can be in person or through writings and
  • concerns the value of securities or the advisability of buying or selling them.
    Alternately, IAs can be defined as the following:
  • people who promulgate securities analyses and reports, and
  • people who do so for pay and as a regular part of their jobs.

This does not mean that anyone with a hot stock tip is acting as an IA and needs to be registered as such. As suggested above, the 1940 Act spills more ink describing exceptions than the rule.



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