Section 4.1Laws, Regulations, and Guidelines

Investment Adviser Definition & NSMIA Registration

Examines the ABC test, statutory exclusions (L.A.T.E., publishers), and federal vs. state registration AUM thresholds under NSMIA.

Key Exam Takeaways

ABC Test: Anyone providing Advice regarding securities as a Business for Compensation is an Investment Adviser.
Federal Covered Advisers: Mandatory SEC registration at $110M+ AUM; choice between SEC and state between $100M and $110M.
State Advisers: Under $100M AUM register with state Administrators; buffer floor allows remaining with SEC until AUM drops below $90M.

Common Exam Traps

Accountants or lawyers who charge a separate advisory fee or market financial planning LOSE their statutory L.A.T.E. exclusion.
Federal covered advisers notice file with states, but states have zero jurisdiction to regulate their books and records or registration qualifications.

Under Section 202(a)(11) of the Investment Advisers Act of 1940 and 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 regarding securities. Exclusions protect commercial banks, bona fide general publications, and L.A.T.E. professionals whose advice is incidental and unbilled.

The National Securities Markets Improvement Act of 1996 (NSMIA) divided adviser oversight to eliminate dual state-federal regulation. Advisers with $110 million or more in Regulatory Assets Under Management (RAUM) must register with the SEC as Federal Covered Advisers. Advisers with less than $100 million register with state Administrators.

Firms between $100M and $110M may choose either state or federal registration. A $20 million buffer prevents rapid regulatory ping-pong: once SEC-registered, a firm is not forced to register with states unless its AUM falls below $90 million at its annual updating amendment.

🎯 Knowledge Checkpoint

Knowledge Checkpoint • Section 4.1

Under Section 202(a)(11) of the Investment Advisers Act of 1940 and Section 401(f) of the Uniform Securities Act, an entity is defined as an Investment Adviser (IA) only if it satisfies all three prongs of the 'ABC Test'. What are the three statutory prongs?