Investment Advisers Act Of 1940

Under the Investment Advisers Act of 1940, a person who advises others about securities for compensation as part of a business is a(n):

1. A.CustodianA custodian holds and safekeeps assets; it provides no advice and makes no recommendations. Holding property and advising on it are separate functions, and only the latter triggers the definition.
2. B.Investment adviserCorrect - all three prongs are met.
3. C.AgentAn agent is an individual who effects securities transactions for a broker-dealer, compensated through commissions on trades. The distinguishing line is that the agent executes while the adviser is paid for the advice itself.
4. D.Broker-dealerA broker-dealer effects transactions for others or for its own account, and advice given solely incidental to brokerage with no special compensation is expressly excluded. The three-prong test is met here because the compensation is for the advice.

Why: The three-prong test - advice about securities, for compensation, in the business - defines an investment adviser.

The Investment Advisers Act of 1940 is administered by:

1. A.The SECCorrect - the 1940 Act is federal, SEC-administered.
2. B.The Federal ReserveThe Federal Reserve's mandate covers monetary policy and bank supervision, not adviser regulation. It has no authority to register advisers, examine them, or bring enforcement actions under the Advisers Act.
3. C.FINRAFINRA is a self-regulatory organization for broker-dealers and their registered representatives. There is no comparable SRO for investment advisers, which is exactly why the SEC examines federal covered advisers directly.
4. D.Each state AdministratorState Administrators do regulate advisers, so this is the most defensible wrong answer. Their authority comes from state law under the Uniform Securities Act, though; the Advisers Act is a federal statute, and only the SEC administers it.

Why: The SEC administers the federal Investment Advisers Act of 1940.

The federal law that defines investment advisers and governs their conduct at the federal level is the...

1. A.Uniform Securities ActThat is the model state law, not the federal adviser statute.
2. B.Securities Act of 1933The 1933 Act governs new securities offerings, not advisers.
3. C.Investment Advisers Act of 1940Correct — this federal law defines and governs investment advisers.
4. D.Securities Exchange Act of 1934The 1934 Act governs trading and created the SEC, not adviser regulation specifically.

Why: The Investment Advisers Act of 1940 defines investment advisers and governs federally registered advisers. The Uniform Securities Act is the model law at the state level; the 1933 and 1934 Acts govern securities offerings and trading.

Under the Investment Advisers Act of 1940, all three parts of the definition of an investment adviser are...

1. A.Registration, a license, and a bondThese are consequences of being an adviser, not the definition.
2. B.Advice about insurance, real estate, and securitiesThe definition concerns advice about securities, not insurance or real estate.
3. C.Advice, custody of assets, and discretionCustody and discretion are not part of the definition of an adviser.
4. D.Advice about securities, in the business, and for compensationCorrect — the three prongs are advice, business, and compensation.

Why: The ABC test: a person who provides Advice about securities, as a Business, for Compensation. All three prongs must be met.