What Is SEC Release IA-1092?

SEC Release IA-1092 is a release from the Securities & Exchange Commission (SEC) that provides uniform interpretations of how state and federal adviser laws apply to those that provide financial services.

SEC Release IA-1092 builds on the Investment Advisers Act of 1940 or the Advisers Act that Congress enacted to protect persons who rely on investment advisers for advice on purchasing and selling securities.

Key Takeaways

  • SEC Release IA-1092 clarifies how state and federal securities laws apply to investment advisers and financial planners.
  • This memo, which was issued in 1987, expands on the Investment Advisers Act of 1940.
  • IA-1092 defines the roles and duties of investment advisers and pension consultants, in particular.

Understanding SEC Release IA-1092

SEC Release IA-1092 is the result of a 1987 collaboration between the Securities & Exchange Commission (SEC) on the federal side and the North American Securities Administrators Association (NASAA) on the state side.

These organizations issued IA-1092 in 1987 as a memo in response to the proliferation of financial planning and investment advice professionals in the 1980s. The act reaffirmed the definition of an investment adviser (IA) as described in SEC Release IA-770 and added some refinements:

  • First, pension consultants and advisers to athletes and entertainers were included as providers of investment advice.
  • Second, in some cases, firms that recommend investment advisers also had to register themselves.
  • Even if an IA did not render investment advice as his or her principal business activity, simply doing so with some regularity in many cases was enough to require registration.
  • If a registered representative of a broker-dealer set up a separate business entity to provide financial planning or investment advice for a fee, she or he was not allowed to rely on the broker-dealer (BD) exemption from registration. (This became known as a statutory investment adviser.)
  • Compensation did not have to be monetary to fall under the definition. Simply the receipt of products, services, or even discounts was also considered compensation.

With regard to sports or entertainment agents, those individuals that negotiated contracts but did not render investment advice were excluded from the definition of an investment adviser.

SEC Release IA-1092 and the Investment Advisers Act of 1940

TheĀ Investment Advisers Act of 1940 defines an investment adviser as any person who, either directly or indirectly through writings, engages in the business of advising others on the value or profitability of securities and receives compensation for this.

Guidelines for the Investment Advisers Act of 1940 can be found in Title 15 section 80b-1 of the United States Code, which notes that investment advisers are of national concern, due to:

  • Their advice, counsel, publications, writings, analyses, and reports being in line with interstate commerce.
  • Their work customarily relating to the purchase and sale of securities that trade on national securities exchanges and in interstate over-the-counter (OTC) markets.
  • Their connection with securities issued by companies engaged in interstate commerce.
  • The volume of transactions often materially affecting interstate commerce, national securities exchanges, other securities markets, the national banking system, and even the economy as a whole.