Definition of Investment Adviser
The first category of people and companies regulated under the Uniform Securities Act is investment advisers (IAs). In its most basic definition, an investment adviser is someone who provides investment advice in exchange for compensation of some kind. However, the law makes it more complex than that simple definition, adding numerous exceptions that you’ll be tested on.
The Investment Advisers 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 investment advisory services to others for compensation and as part of a business, or who hold themselves out as providing investment advisory services to others for compensation.
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”), because they are not included in the definition of investment adviser.
Under the SEC’s three-pronged test, an investment adviser is a company or person that does all of the following:
- 1. Offers advice or analyses concerning securities
- 2. Is in the business of offering such advice (even it is not the primary service offered)
- 3. Receives compensation for offering these services
SEC Release IA-1092 also stated directl