Q:
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
A:
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.

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