Question of the Week

Inter-Galaxy Investors Inc is a large broker-dealer headquartered in North Dakota. The company conducts brokerage transactions for individual investors and receives commissions from its broker transactions. As a part of its client service, the company’s research department provides reports and advice regarding the purchase and sale of securities. Is Inter-Galaxy considered an investment advisor?

a) Yes, because it receives commissions on transactions
b) Yes, because it provides investment advice
c) No, because it does not charge specific fees for investment advice
d) Maybe, if the company also opens an office in South Dakota


The correct answer is c)

Inter-Galaxy would appear to be an investment advisor because the company provides advice, is in the business of providing that advice and receives compensation for the advice (the ABC rule). However, broker-dealers are exempt from registering as investment advisors if they if they do not charge a specific fee for the advice they dispense. Inter-Galaxy, like most broker-dealers, receives a commission on the securities trades transacted; the company is not charging for research or investment recommendations.

Professionals FAQs
  1. Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
  2. If I am looking to get an Investment Banking job. What education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The caveat here is that the MBA would most probably need to be from a Top-20 B-School.The Chartered Financial Analyst (CFA) is well worth considering if you (a) are aiming for an entry-level position in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level.
  3. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it. The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam.
  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.