Chapter 4: Regulation of Investment Advisers and IARs
This chapter covers 10% of the Series 63 exam (approximately 6 questions) split evenly between investment advisers (5%) and investment adviser representatives (5%).
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Investment Adviser Regulation | IA definition, three-prong test, exclusions, federal vs. state registration, Form ADV |
| 2 | Investment Adviser Representative Regulation | IAR definition, registration requirements, Form U4, supervision, state notice filing |
Why This Chapter Matters
Investment advisers and their representatives are regulated differently from broker-dealers and agents. The exam tests whether you understand the three-prong test for IA status, the division between federal and state registration (the $100 million threshold), and the specific requirements for IARs.
This chapter completes the registration picture: after learning about BDs (Chapter 2) and agents (Chapter 3), you now cover the advisory side of the industry.
Exam Strategy
At 10% of the exam (5% each for IAs and IARs), this is a lighter section but still produces 6 questions. Key areas:
- Three-prong test: Compensation + business + advice about securities - all three must be met
- Exclusions: Banks, lawyers, accountants, engineers, teachers, broker-dealers (when advice is incidental)
- Federal vs. state: $100 million AUM threshold for SEC registration; de minimis exemptions
- Form ADV: Parts 1 (regulatory), 2A (firm brochure), 2B (brochure supplement)
- IAR registration: IARs register with the state, not the SEC, regardless of the firm's registration
Think of it this way: The BD/agent relationship mirrors the IA/IAR relationship. If you understood Chapters 2 and 3, this chapter follows the same pattern with different rules.