Investment Adviser Regulation

The whole unit on one sheet: who counts as an adviser, where they register, notice filing, post-registration duties, exempt reporters, and IAR supervision.

The One-Liners That Win Points

• The three-part test (ABC) must be met fully: Advice about securities, in the Business (regular, need not be primary), Compensation (any economic benefit, direct or indirect).
• "Compensation" is read broadly: a referral fee for steering clients to products counts, not just a direct advisory fee.
• Excluded persons (LATE): Lawyers, Accountants, Teachers, Engineers, excluded only when advice is solely incidental and there is no special compensation.
• Banks and bank holding companies are excluded, but bank subsidiaries and affiliates are NOT.
• Broker-dealers are excluded only when advice is solely incidental to brokerage AND they receive no special compensation.
• A federal covered adviser registers with the SEC, not the state; states may only require notice filing.
• Notice filing is NOT registration: states collect a fee and keep records, but cannot add substantive requirements, extra applications, or exams.
• States keep antifraud authority over federal covered advisers and exempt advisers; notice filing limits registration power, not enforcement power.
• Exempt Reporting Adviser (ERA) is exempt from full registration but must still file an abbreviated Form ADV with the SEC.

Numbers to Lock In

Definitions and Exclusions

• Advice covers recommendations, reports, and analyses, not just buy/sell calls.
• "In the business" means ongoing and consistent, even if advising is not the primary occupation (a CPA advising on securities as part of planning qualifies).
• A lawyer who holds herself out as offering advisory services or charges separately for securities advice loses the exclusion.
• Publishers are excluded only as bona fide publications of general and regular circulation.

Notice Filing

• SEC-registered advisers file notice with each state where they do business; state-registered advisers fully register with the state administrator.
• There is no single national notice filing: each state may set its own fee and filing.
• States cannot elevate notice filing into de facto registration; extra substantive requirements are preempted.

Registration and Post-Registration

• State registration files Form ADV with the administrator, pays fees, and may require a qualifying exam (Series 65, or Series 66 plus Series 7).
• Form ADV parts: Part 1 administrative (via IARD); Part 2A the brochure (services, fees, conflicts); Part 2B the brochure supplement (individual providers).
• Post-registration: keep books and records, file annual amendments, meet financial reporting, deliver the brochure.
• State brochure rule: deliver 48 hours ahead (no cancellation right) OR at signing with a 5-business-day cancellation right; SEC advisers deliver before or at signing (no 48-hour rule) and offer an annual update.
• Custody or prepaid fees trigger a minimum net worth; falling below requires prompt notice to the administrator.

Exempt Reporting and Private Fund Advisers

• Private fund advisers (solely to qualifying private funds) are exempt below $150 million U.S. AUM but must file as an ERA.
• Venture capital fund advisers are exempt regardless of size and file as an ERA.
• ERAs file a subset of Form ADV Part 1, report private fund activity, and update annually; "exempt" does not mean invisible.
• States may mirror the federal exemption but retain antifraud authority over exempt advisers.

IAR Supervision

• The adviser must establish, maintain, and enforce written supervisory procedures that are reasonably designed to prevent and detect violations.
• Written procedures must be both adopted AND implemented, not just filed in a drawer.
• Advisers can be liable for IAR violations even without personal knowledge: failure to supervise is the issue, and enforced procedures can provide a defense.

Memory Aids Worth Keeping

• ABC for the three-part test: Advice, in the Business, Compensation.
• LATE for the incidental-professional exclusion: Lawyers, Accountants, Teachers, Engineers.

One-Breath Recap

An Investment Adviser (IA) is anyone who, for compensation, is in the business of advising on securities (the ABC test), unless they fall into an exclusion like the LATE professionals giving solely incidental advice or a bank itself (never its subsidiary). Assets Under Management (AUM) draw the registration line: $100M-plus goes to the SEC as a federal covered adviser, the $25M to $100M buffer generally registers with the state, and federal covered advisers merely notice file (fee and records, never a second registration) in each state, though states keep antifraud power everywhere. State registration takes effect at noon on the 30th day and SEC on the 45th, Form ADV Part 2A is the client brochure with its 48-hour-or-5-day delivery choice, and records run 5 years with the first 2 on-site. Finally, private fund advisers under $150M and venture capital advisers of any size file as Exempt Reporting Advisers rather than register fully, and every adviser must adopt, implement, and enforce reasonably designed written procedures to supervise its investment adviser representatives (IARs).

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.