Investment Adviser Definition & The ABC Test
Explores the statutory definition of an Investment Adviser under USA Section 401(f), the three-pronged ABC test (Advice, Business, Compensation), and statutory exclusions including publishers and L.A.T.E. professionals.
- The ABC Test requires: (1) providing Advice regarding securities, (2) as a regular Business, (3) for special Compensation.
- Bona fide publishers of general circulation newspapers or financial periodicals are statutorily excluded from the IA definition (Lowe v. SEC).
- Lawyers, Accountants, Teachers, and Engineers (L.A.T.E.) are excluded IF advice is solely incidental to practice and no separate fee is billed.
Under Section 401(f) of the Uniform Securities Act, 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 statutory definition is universally evaluated using the three-pronged 'ABC Test': (A) Advice: The individual or firm provides advice or issues analyses regarding securities. (B) Business: The advice is provided with regularity as a business, holding oneself out to the public as an adviser. (C) Compensation: The firm receives direct or indirect compensation (management fees, wrap fees, hourly consulting fees, or retainers) for the advisory services rendered.
Statutory exclusions protect certain entities from being categorized as IAs: (1) Investment Adviser Representatives (IARs), (2) Commercial banks, savings institutions, and trust companies, (3) Lawyers, Accountants, Teachers, and Engineers whose performance of advisory services is solely incidental to the practice of their profession and who charge no separate fee, (4) Broker-dealers whose advisory services are solely incidental to brokerage and who receive no special compensation beyond standard commissions, and (5) Publishers of bona fide newspapers, news magazines, or business/financial publications of general and regular circulation.
- Do not assume financial journalists need an agent license; bona fide impersonal publishers are excluded from both BD and IA definitions.
- An accountant charging a separate fee for a financial plan LOSES the L.A.T.E. exclusion and must register as an IA or IAR.
Under Section 401(f) of the Uniform Securities Act, an individual or business entity is considered an Investment Adviser (IA) only if they satisfy the three-pronged 'ABC' statutory definition. A financial columnist writes a syndicated weekly newspaper column discussing individual stocks and receiving a salary exclusively from the publishing company. Why does this columnist NOT meet the definition of an investment adviser?