Impersonal Advisory Services

Marlowe Sterne earns his living publishing written analyses of thinly traded regional bank stocks. Subscribers pay $1,200 a year. The reports address no subscriber's personal situation; each one dissects a bank's balance sheet and ends with a rating. Marlowe issues a report whenever he finishes it rather than on any schedule, and several have been released in the days immediately following the subject bank's earnings announcement. Under the Uniform Securities Act, Marlowe is:

1. A.Not an investment adviser, because a rating is an opinion about value and never a recommendation to buy or sellThe statute reaches analyses and reports concerning securities, so a rating-based report is within it whether or not it uses the word buy.
2. B.An investment adviser, because issuing analyses or reports about securities for compensation as a regular business is enough, and his irregular, event-timed publication is not a bona fide publication of general and regular circulationCorrect. The reports prong of the definition is satisfied, and the publisher exclusion fails on both regularity and bona fides.
3. C.Excluded from the definition as a bona fide publisher, because subscribers pay for a publication rather than for adviceThe publisher exclusion requires general AND regular circulation. Irregular, event-timed reports do not qualify.
4. D.Excluded from the definition, because his reports are impersonal and never address any subscriber's individual circumstancesThe definition expressly covers issuing analyses or reports concerning securities. Personalization is not required.

Why: Two points combine here. First, the investment adviser definition does not require personalized advice: a person who, for compensation and as part of a regular business, issues or promulgates ANALYSES OR REPORTS concerning securities is an investment adviser. Impersonality alone rescues nobody. Second, the publisher exclusion is narrow. It covers a bona fide publication of general and regular circulation. Marlowe publishes irregularly and times releases to market events, so his output is neither regular nor genuinely general, and the exclusion fails.

Ashgrove Sedley LLC sells a subscription service for $2,400 a year. Every subscriber receives exactly the same thing: one of four standardised model portfolios of named securities, chosen by the subscriber from a questionnaire that Ashgrove never reviews. Ashgrove never speaks to a subscriber, never learns anyone's finances, and tailors nothing. It publishes no newspaper, magazine or newsletter of general and regular circulation. Its principal argues that because the advice is impersonal, the firm gives no investment advice at all. Under the Uniform Securities Act, is Ashgrove Sedley an investment adviser?

1. A.Yes. Impersonal advisory services are still investment advice, and all three elements of the definition are met.Correct. Recommendations of named securities, given as a regular business for compensation, satisfy the definition whether or not they are tailored.
2. B.No, because advice that is not tailored to a client's individual circumstances is not investment advice under the Act.There is no tailoring requirement in the definition. Impersonal advice is still advice about the value of and advisability of investing in securities.
3. C.No, because the firm qualifies for the exclusion available to publishers of investment information.That exclusion requires a bona fide publication of general and regular circulation. The stem states Ashgrove publishes no such thing.
4. D.Yes, but only because subscribers pay a fee; had the service been free the recommendations would not be advice.Compensation is one required element, but the recommendations would remain advice in substance. A free service would fail the definition on the compensation prong, not because the content stopped being advice.

Why: Advice does not have to be individualised to be investment advice. Impersonal advisory services, meaning recommendations that are not tailored to any client's particular circumstances, are still advice about the value of securities and the advisability of investing in them. Ashgrove recommends named securities, does so as its regular business, and is compensated $2,400 a year, so all three elements of the definition are satisfied. The publisher exclusion does not rescue the firm either, because that exclusion is reserved for bona fide publications of general and regular circulation, which Ashgrove expressly does not produce. Impersonality can affect how certain rules apply to an adviser, but it does not remove the firm from the definition.

Under the three-prong test for investment adviser status, a person is an IA if he (1) provides ADVICE about securities, (2) as a BUSINESS, and (3) for COMPENSATION. A blogger writes free market commentary but accepts voluntary 'tips' from readers via a donation link. The compensation prong is:

1. A.Possibly satisfied - compensation is construed broadly - but IA status still requires all three prongs togetherCorrect. Broad compensation reading, holistic three-prong conclusion.
2. B.Never satisfied, because tips are not feesWrong-but-tempting. INDIRECT economic benefit can satisfy the compensation prong.
3. C.Automatically satisfied, making him an IAWrong. One prong alone never creates IA status.
4. D.Irrelevant, because bloggers are always excludedWrong. The publisher exclusion has its own conditions (bona fide, general, regular) - it is not automatic.

Why: Compensation includes any economic benefit, direct or indirect; however, IA status requires all three prongs, and generic impersonal commentary supported by voluntary tips generally fails the business-of-advising element even if some compensation exists. Citation: Uniform Securities Act Sec. 401(f); SEC Release IA-1092 three-prong analysis. Takeaway: analyze all three prongs together - compensation is broad, but advice must be a business about securities.