Quick Answer
The Uniform Securities Act (USA) excludes seven categories from its investment adviser (IA) definition: representatives, banks and trust companies, incidental-advice professionals, incidental-advice broker-dealers, impersonal publishers, federal covered advisers, and Administrator-designated persons. A state exclusion does not decide federal duties or remove advisory antifraud protections for compensated securities advice.
Now that you understand what makes someone an investment adviser, you need to know who is carved out of that definition entirely. The distinction between an exclusion and an exemption is a favorite exam trap.
What Is the Difference Between an Exclusion and an Exemption?
This is a critical distinction:
| Concept | Meaning | Obligations |
|---|---|---|
| Exclusion | The person is outside the applicable IA definition | A state exclusion does not determine federal registration or duties. The USA's advisory antifraud provisions still apply to a person compensated for securities advice |
| Exemption | The person IS an investment adviser but is excused from registration | Still an IA: bound by the §102 antifraud provisions and general fiduciary/prohibited-conduct duties. Registration exemption does not itself trigger the USA's registered-adviser recordkeeping and client-disclosure duties, or financial-report duties under the applicable NASAA model conditions |
There is no exemption from fraud. §102 reaches any person who receives consideration for advising others about securities, whether or not that person is an "investment adviser."
Exclusions live in the Uniform Securities Act's IA definition. They remove a person from that state-law definition. A federal covered adviser remains subject to federal registration and adviser duties despite the state exclusion. Registration exemptions instead excuse a person who remains within the applicable IA definition from registering.
What Are the Seven Exclusions?
| Excluded Person | Key Condition |
|---|---|
| Investment adviser representatives | Investment adviser representatives (IARs) are defined separately as individuals who work for an IA |
| Banks, savings institutions, and trust companies | Excluded entirely; bank holding companies are NOT named in this exclusion |
| Lawyers, accountants, engineers, and teachers | ONLY if advisory services are solely incidental to their profession |
| Broker-dealers and their agents | ONLY if advisory services are solely incidental to broker-dealer (BD) business AND they receive no special compensation |
| Publishers of bona fide publications | ONLY if the publication does NOT provide advice based on each client's specific investment situation |
| Federal covered advisers | IAs registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940 |
| Other persons designated by the Administrator | The Administrator may, by rule or order, designate other persons not within the intent of the definition |
Memory Aid: L.A.T.E.
- L: Lawyers
- A: Accountants
- T: Teachers
- E: Engineers
Excluded from the IA definition when advice is solely incidental to their profession. (The extra no special compensation condition applies to broker-dealers under clause (4), not to L.A.T.E. professionals.)
What Is the "Solely Incidental" Standard?
Two of the most tested exclusions depend on whether the advisory services are solely incidental to the person's primary business.
When Are Professionals Excluded?
For lawyers, accountants, engineers, and teachers, investment advice must be solely incidental to their primary professional practice:
- A lawyer who drafts an estate plan and mentions that certain investments may be suitable - EXCLUDED (advice is incidental to legal practice)
- A lawyer who holds themselves out as providing investment advisory services for compensation - NOT excluded (holding out means the lawyer may not claim the advice is solely incidental)
- An accountant who prepares a tax return and suggests tax-efficient investments in passing - EXCLUDED
- An accountant who advertises portfolio management services - NOT excluded
When Are Broker-Dealers Excluded?
For broker-dealers, TWO conditions must be met:
- Advisory services must be solely incidental to the BD business, AND
- The BD must receive no special compensation for advisory services
"Special compensation" means any fee or payment specifically for investment advice, separate from normal commissions earned on securities transactions:
- A BD that earns commissions on trades and provides investment guidance along the way - EXCLUDED (incidental advice, no special compensation)
- A BD that charges a separate fee for a financial plan or portfolio analysis - NOT excluded (special compensation destroys the exclusion)
Exam Tip: Gotchas
Financial planners and others who hold themselves out as providing investment advisory services may NOT claim that their services are "solely incidental" to another activity. Holding yourself out as an adviser is strong evidence that advisory services are more than incidental. This prevents professionals from marketing advisory services while claiming exclusion.
What Is the Publisher Exclusion?
The publisher exclusion applies to any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether in hard copy, electronic, or other form.
Note what is not a condition: the USA's clause contains no circulation test. "General and regular circulation" appears in the federal Advisers Act's publisher exclusion, not in the USA's, so a narrow-circulation newsletter can still qualify. The key test is whether the advice is impersonal or personalized:
| Type of Publication | Excluded? | Why |
|---|---|---|
| Newsletter recommending stocks to all subscribers equally | Yes | General, impersonal advice |
| Service providing personalized portfolio recommendations | No | Tailored to individual situations |
| "Tipster sheet" distributed free to attract paying clients | No | Designed to solicit advisory business |
The critical question: Is the advice one-size-fits-all (excluded) or tailored to the individual (not excluded)?
Exam Tip: Gotchas
The publisher exclusion does NOT protect a person who provides personalized investment advice disguised as a "newsletter." If the content is tailored to the subscriber's specific investment situation, the publisher exclusion is lost regardless of the format.
Charging a subscription or access fee does NOT defeat the exclusion; the clause's test is tailoring, not price. Separately, the Act's official commentary treats a free tipster sheet distributed to attract paying advisory clients as outside the publisher exclusion.
What Is the Federal Covered Adviser Exclusion?
A federal covered adviser is an IA registered with the SEC under the Investment Advisers Act. Federal covered advisers are excluded from the state definition of IA; they are not state-registered IAs.
However, this exclusion does NOT mean federal covered advisers are free from all state oversight. States can still:
- Require notice filings and collect fees
- Enforce antifraud provisions
- Register the adviser's IARs who have a place of business in the state
- Investigate and bring enforcement actions for fraud or deceit
Federal covered advisers are covered in detail in the state vs. federal registration section.
What Should You Check on Exam Day?
- Distinguish a state exclusion from a registration exemption. Neither removes advisory antifraud protections for compensated securities advice, and a state exclusion does not determine federal registration or conduct duties.
- An exemption excuses registration. It does not itself trigger registered-adviser recordkeeping or client-disclosure duties under the USA, or financial-report duties under applicable NASAA model conditions.
- Confirm the "solely incidental" and "no special compensation" tests separately for broker-dealers; a professional needs only the incidental test, but a broker-dealer needs both.
- Do not let "holds themselves out as an adviser" coexist with an incidental-services claim; the exam treats holding out as proof the services are not incidental.
- On a publisher question, ask only whether the advice is personalized to the individual client, not whether the publication has wide circulation.