Chapter 1 Answers and Explanations

1. B – Assets under management. While assets under management are a measure used to determine whether or not someone is a required to register with the SEC, or simply with their state, it doesn’t actually determine if someone is an adviser or not. Whether or not someone actually provides advice and whether or not they receive compensation directly related to that advice are definitely measures of whether someone is an adviser. Someone’s job description does affect whether or not they’re considered an investment adviser; if giving advice simply occurs as something incidental to another job (such as being a lawyer or teacher), then the person would not be required to register as an investment adviser.

2. D – A publisher of a subscription based online newsletter that includes an interactive component where investors can put in information and receive advice specific to their needs. While the publishers of general newspapers, newsletters, and magazines are not required to register as investment advisers, publishers of newsletters that focus specifically on security analysis and recommendations based on clients’ individual situations must register as investment advisers. The lawyer, professor, and personal finance author do not need to register since any investment advice they give is secondary to their primary role.

3. D – I, II, III, and IV. All choices are considered exceptions to who must register at the state level as an investment adviser. Investment adviser representatives register as such, not as an investment adviser. Investment advisers with more than $100 million are required to register on a federal level. The publisher of a general interest magazine is not considered an investment adviser. Banks and savings institutions are not required to register as investment advisers.

4. C – Their assets under management did not exceed $100 million.