Quick Answer
Under the Uniform Securities Act (USA), an investment adviser (IA) is any person who, for compensation, is in the business of advising others about the value or advisability of buying or selling securities. The ABC test names the three required elements: Advice, Business, Compensation. The definition also expressly reaches financial planners and anyone who holds themselves out as an adviser.
Before you can understand how investment advisers are regulated, you need to know exactly who qualifies as one. The USA uses a specific three-part test to make this determination, and the exam leans hard on scenarios where one element is quietly missing.
What Is the Statutory Definition?
Under the USA, an investment adviser (IA) is 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.
The definition also covers any person who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.
Importantly, the definition expressly includes financial planners and other persons who provide investment advisory services as part of broader financial services, as well as anyone who holds themselves out as providing investment advisory services for compensation.
What Is the ABC Test?
The ABC test is a convenient way to remember the three elements that must ALL be present for a person to be an investment adviser:
| Element | Letter | What It Means |
|---|---|---|
| Advice about securities | A | The person advises on the value of securities or the advisability of investing |
| Business | B | The person is in the business of providing such advice (not a one-time occurrence) |
| Compensation | C | The person receives compensation for the advice |
If ANY one element is missing, the person is NOT an investment adviser under the USA.
- A person who gives securities advice for free (no compensation): NOT an IA
- A person who gives one-time advice to a friend (not in the business): NOT an IA
- A person who gives compensated advice only about real estate, not securities: NOT an IA
Exam Tip: Gotchas
- All three ABC elements must be present. The exam often presents a scenario missing one element (free advice, one-time help, non-securities subject) and asks whether the person is an IA. The answer is no: missing any one of A, B, or C removes the person from the definition.
How Broadly Is Compensation Interpreted?
The compensation element is where most exam traps live. Compensation does not need to be a direct fee charged specifically for investment advice. It includes:
- Direct advisory fees (hourly, flat-fee, or asset-based)
- Commissions on products sold
- Transaction-based fees
- Subscription fees for newsletters or reports
- Any economic benefit received in connection with advisory services
Key points:
- Compensation does not have to be paid directly by the client; third-party compensation counts
- A financial planner who charges a flat fee for a comprehensive plan that includes investment recommendations IS receiving compensation for investment advice
- A person who provides "free" investment advice but earns commissions on products sold IS receiving compensation
Exam Tip: Gotchas
A financial planner who says "I don't charge for investment advice" but earns commissions on product sales IS receiving compensation under the USA definition of an investment adviser. If a person receives ANY economic benefit for providing investment advice (even indirect compensation from a third party), the compensation element is satisfied.
How Does the Definition Reach Financial Planners?
The 1986 North American Securities Administrators Association (NASAA) amendment explicitly brought financial planners into the IA definition. Here's how this works:
- A person who holds themselves out as providing investment advisory services for compensation is necessarily in the business of doing so; no separate "business" analysis is needed
- Financial planners offering "total financial planning" are holding themselves out as providing investment advisory services and ARE investment advisers
- Financial planners rendering advice exclusively in non-securities areas (e.g., insurance only, budget management only) are NOT covered by the IA definition
The holding-out standard is powerful: if you market yourself as providing investment advisory services, you cannot later claim you're not in the business of advising.
What Should You Check on Exam Day?
- Run every fact pattern through all three ABC elements before answering. If the stem is silent on compensation, or explicitly says the advice was free and a one-time favor, the person is not an IA.
- Remember that "holding yourself out" as an adviser satisfies the business element on its own; you never need a separate showing of regular activity once someone markets themselves that way.
- Watch for a professional who charges separately for a financial plan, or a broker-dealer agent whose "free" advice is paired with commissions; both traps hinge on the broadly defined compensation element.