IA and IAR Exemptions
Just as with broker-dealers and agents, certain persons are excluded from the investment adviser definition or exempt from registration requirements. These exemptions are heavily tested on the Series 63 exam.
Persons Excluded from IA Definition
The following are not investment advisers under the USA:
Federally Regulated Entities
| Entity | Why Excluded |
|---|---|
| Banks and bank holding companies | Regulated by banking authorities |
| Trust companies | Regulated as financial institutions |
| Savings institutions | Federally regulated |
| Federal covered advisers | Registered with SEC (not excluded, but different registration) |
LATE Professionals
L-A-T-E = Lawyers, Accountants, Teachers, Engineers
| Professional | Excluded If: |
|---|---|
| Lawyers | Advice is solely incidental to legal practice |
| Accountants | Advice is solely incidental to accounting practice |
| Teachers | Advice is solely incidental to teaching profession |
| Engineers | Advice is solely incidental to engineering practice |
Conditions for LATE Exclusion:
- Investment advice must be solely incidental to the profession
- Person does NOT hold themselves out as an investment adviser
- Person receives NO special compensation for investment advice
Exam Tip: If a lawyer advertises "estate planning and investment management services," they are holding themselves out as an IA and lose the exclusion.
Broker-Dealers
Broker-dealers are excluded from the IA definition if:
| Condition | Required? |
|---|---|
| Advice is solely incidental to BD business | Yes |
| No special compensation received for advice | Yes |
"Special Compensation" means any fee beyond normal brokerage commissions paid specifically for investment advice.
| Compensation Type | BD Excluded from IA Definition? |
|---|---|
| Commission only | Yes (excluded) |
| Commission + wrap fee | No (must register as IA) |
| Commission + financial planning fee | No (must register as IA) |
Publishers
Publishers of bona fide financial publications are excluded if:
| Requirement | Description |
|---|---|
| Bona fide | Legitimate publication, not an advisory front |
| General circulation | Available to the public, not targeted to specific individuals |
| Regular publication | Published on a set schedule |
| Paid circulation | Subscribers pay for the publication |
| Publication | Excluded? |
|---|---|
| Wall Street Journal | Yes |
| Monthly newsletter to all subscribers | Yes |
| Free tip sheet | No |
| Personalized advice via newsletter | No |
Exemptions from State Registration
Even if a person meets the IA definition, they may be exempt from state registration:
No Place of Business Exemption
An investment adviser with no place of business in the state is exempt if they have:
| Client Type | # of Clients Allowed | Registration Required? |
|---|---|---|
| Non-institutional clients | 5 or fewer | No (de minimis) |
| Institutional clients only | Unlimited | No |
De Minimis Rule: An IA with no office in the state may advise up to 5 non-institutional clients in that state without registering.
Institutional Client Exemption
An IA with no place of business in the state is exempt when advising ONLY:
| Institution Type |
|---|
| Banks |
| Savings institutions |
| Trust companies |
| Insurance companies |
| Investment companies |
| Pension/profit-sharing trusts |
| Other institutional buyers |
Federal Covered Advisers
Federal covered advisers (SEC-registered) are not required to register with states:
| Requirement | Federal Covered Adviser |
|---|---|
| State registration | Not required |
| Notice filing | May be required |
| State fees | May be required |
| Anti-fraud compliance | Required |
IAR Exemptions
Investment adviser representatives may be exempt from registration in certain situations:
When IAR Registration Is NOT Required
| Situation | Exempt? |
|---|---|
| IAR of federal covered adviser with no place of business in state | Generally yes |
| IAR performs only clerical functions | Yes |
| IAR provides only impersonal advice | May be exempt |
What Is "Impersonal Advice"?
Impersonal advice is investment advice that:
- Does not consider individual client circumstances
- Is delivered to the public at large
- Is not tailored to specific investors
| Example | Personal or Impersonal? |
|---|---|
| Newsletter with general stock picks | Impersonal |
| Portfolio recommendation for specific client | Personal |
| Radio show discussing market trends | Impersonal |
| Written financial plan for client | Personal |
ERISA Plan Exemptions
Advisers to ERISA-qualified pension plans may have special registration considerations:
| Situation | State Registration |
|---|---|
| Adviser to ERISA plan, no other clients in state | May be exempt |
| Adviser to ERISA plan + other clients | Registration likely required |
Summary: Registration Decision Tree for IAs
-
Are they excluded from the IA definition?
- Bank, LATE professional (incidental), BD (no special compensation), bona fide publisher
- If YES → No registration required anywhere
-
Are they a federal covered adviser?
- $110M+ AUM or other federal covered status
- If YES → SEC registration; state notice filing only
-
Do they have a place of business in the state?
- If YES → Must register in that state
- If NO → Check de minimis exemption
-
De minimis exemption applicable?
- 5 or fewer non-institutional clients in state
- If YES → Exempt from registration in that state
Key Takeaways
- Banks and LATE professionals are excluded if advice is incidental
- Broker-dealers are excluded if no special compensation for advice
- Publishers of bona fide general circulation publications are excluded
- De minimis exemption: 5 or fewer clients in a state with no office
- IAs advising only institutions may be exempt from state registration
- Federal covered advisers make notice filings but don't register with states
- IARs may still need to register even when employing IA is exempt or federal covered
A CPA occasionally provides investment advice to tax clients as part of their overall financial planning. The CPA does not charge separately for investment advice and does not advertise investment services. Is this CPA required to register as an investment adviser?
An investment adviser has no place of business in State X and currently advises 4 individual clients and 10 institutional clients in that state. Must this adviser register in State X?
A broker-dealer provides investment advice to customers and charges a quarterly fee of $500 in addition to transaction commissions. Is this broker-dealer excluded from the investment adviser definition?
Which of the following would qualify for the publisher exclusion from the investment adviser definition?