Quick Answer
An investment adviser (IA) passes the three-part ABC test: gives Advice about securities, as a Business, for Compensation. Miss any one and the person is not an IA. Excluded persons (banks, broker-dealers with incidental uncompensated advice, publishers, and incidental-only professionals) never register; state versus federal registration turns on assets under management (AUM).
The whole unit on one sheet: the ABC test, the exclusions, how an IA registers, and where the state/federal line falls.
The ABC Test and the IA Definition
- An investment adviser (IA) is anyone who, for compensation, is in the business of advising others about the value of securities or the advisability of buying or selling securities.
- ABC test, all three must be present: Advice about securities, as a Business, for Compensation. Miss ANY one and the person is not an IA.
- Compensation is read broadly: direct fees, commissions, transaction fees, subscription fees, or ANY economic benefit, including third-party pay. "I don't charge for advice" still counts if commissions flow.
- Holding yourself out as providing advisory services satisfies the "business" prong on its own; a financial planner offering "total financial planning" IS an IA.
Exclusions from the IA Definition
- Excluded = not an IA at all, no obligations. Exempt = still an IA, excused from registration but still bound by antifraud rules.
- Banks, savings institutions, and trust companies are excluded; bank holding companies are NOT.
- Broker-dealers are excluded ONLY if advice is solely incidental to the brokerage business AND they take no special compensation (no separate fee for advice).
- Publishers are excluded ONLY for impersonal, general-circulation advice; personalized recommendations disguised as a "newsletter" lose the exclusion.
- Federal covered advisers (registered with the Securities and Exchange Commission (SEC)) are excluded from the STATE IA definition.
Numbers to Lock In
| Threshold | Value |
|---|---|
| State-only registration | AUM under $25 million |
| Mid-sized adviser band | $25 million to $100 million |
| SEC registration line | $100 million or more (federal covered) |
| Buffer to first hit SEC | at least $110 million |
| Drop back to state | below $90 million |
| De minimis client cap | 5 or fewer non-institutional clients in 12 months |
| Employee benefit plan (institutional) | assets not less than $1 million |
| Registration effective | noon on the 30th day |
| Registration expires | December 31 each year |
Memory Aid: L.A.T.E. Professionals Are Excluded
- L - Lawyers
- A - Accountants
- T - Teachers
- E - Engineers
Excluded from the IA definition ONLY when advice is incidental to their profession and they take no special compensation for it.
Registration and Notice Filing
- Two registration exemptions, both require no place of business in the state: (1) only institutional clients, or (2) de minimis (5 or fewer non-institutional clients in the prior 12 months).
- Register by filing Form ADV, a consent to service of process, and fees.
- Consent to service of process: filed ONCE, IRREVOCABLE, and survives after registration ends.
- Federal covered advisers notice-file with the state (copy of Form ADV plus fees), never state-register. No notice filing if their only in-state clients are institutional.
Top Gotchas
- All three ABC prongs are required. Free advice, one-time help, or non-securities advice each kills the definition.
- Exclusion versus exemption: an excluded person owes nothing; an exempt IA still answers to antifraud provisions.
- Special compensation destroys a broker-dealer's exclusion; a separate financial-plan fee makes the BD an IA.
- Federal covered = notice filing only. States can require notice filings, collect fees, regulate in-state IARs, and enforce antifraud, but CANNOT register the adviser itself (federal preemption).
- The buffer is $90M to $110M, not $95M to $105M; ANY in-state office defeats both registration exemptions.
One-Breath Recap
An investment adviser gives Advice about securities, as a Business, for Compensation (the ABC test), and missing any one prong means no IA. L.A.T.E. professionals (lawyers, accountants, teachers, engineers), banks, broker-dealers with incidental uncompensated advice, and impersonal publishers are excluded outright, while institutional-only and de minimis (5-or-fewer non-institutional clients, no in-state office) advisers are merely exempt from registration but still bound by antifraud rules. Register with Form ADV plus a once-filed irrevocable consent to service of process; state versus federal turns on AUM (under $25M state only, $100M-plus SEC), and federal covered advisers only notice-file.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Investment Adviser Regulation unit for the complete lesson.