Series 63: Investment Adviser – Definition

Taken from our Series 63 Online Guide

Investment Adviser – Definition

The first category of people and companies regulated under the Uniform Securities Act are investment advisers. In its most basic definition, an investment adviser is someone who provides investment advice in exchange for compensation of some kind. As you’ll quickly come to see however, the law makes it a little more complex than that simple definition, adding numerous exceptions that you’ll be tested on.

The Investment Advisors Act of 1940 states:

“Investment adviser” means any person who, for compensation, engages 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 a part of a regular business, issues or promulgates analyses or reports concerning securities.

“Investment adviser” also includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation.

As you may have noticed, the definition itself includes some people who provide investment advice alongside other services (such as being a financial planner) and those who write newsletters that contain investment recommendations and securities analysis.

On the exam, you’ll likely be asked a question about whether or not someone would be considered an investment adviser. When this occurs, you’ll be best served by memorizing the “three pronged list” issued under SEC Release IA-1092, as well as the list of exemptions of who is not required to register as an investment adviser (known as “exempt”).

Under the SEC’s three-pronged test, an investment adviser is a company or person that does all of the following:

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