Professor Emmerich Saltby teaches a personal investing course in the evening division of Kelverstone College. Enrolled students pay tuition to the college, and Saltby discusses portfolio construction and named securities in class. Separately, he offers any student a private engagement at 400 dollars an hour in which he reviews the student own holdings and recommends specific purchases and sales. Under the Uniform Securities Act:
- A.neither activity requires registration, provided he tells private clients he is not registeredDisclosure does not substitute for registration. Telling clients you are unregistered is not a cure for acting as an unregistered adviser.
- B.the classroom teaching is excluded, but the private paid engagements make him an investment adviser required to registerCorrect. Advice solely incidental to teaching is excluded; a separate paid advisory service is not incidental and is not excluded.
- C.both activities require registration, because he named specific securities in the classroomNaming securities in a course does not defeat the exclusion. The advice remains incidental to the instruction the college is paying him to give.
- D.both activities are excluded, because he is a teacher by professionThe exclusion attaches to advice that is incidental to teaching, not to everything a teacher does for money.
Why: A teacher whose advice about securities is solely incidental to the practice of the teaching profession is excluded from the definition of investment adviser. Classroom instruction, even when it names securities, stays inside that exclusion. The private paid engagements are not incidental to teaching; they are a separate advisory business conducted for compensation, so the exclusion no longer covers him and he must register.
Rathmell Brothers is a broker-dealer registered in State C whose representatives have always discussed securities selection with customers at no separate charge, earning only commissions on the resulting trades. In July the firm launches a service under which a customer pays a flat 1,500 dollar annual fee for a written financial plan, payable whether or not the customer ever places a trade. Under the Uniform Securities Act, Rathmell Brothers:
- A.remains excluded so long as every plan it writes recommends only securities the firm can executeWhere the recommended securities are traded has nothing to do with the test. The fee itself is what breaks the exclusion.
- B.must now register in State C as an investment adviser as well, because the separate planning fee is special compensation and the advice is no longer solely incidentalCorrect. Losing either prong of the exclusion pulls the firm into the investment adviser definition.
- C.remains excluded from the investment adviser definition, because a registered broker-dealer is never also an investment adviserThe exclusion is conditional, not automatic. A broker-dealer that charges separately for advice is routinely required to register in both capacities.
- D.must withdraw its broker-dealer registration and register solely as an investment adviserNothing forces the firm out of the brokerage business. Dual registration is the normal outcome.
Why: A broker-dealer is excluded from the investment adviser definition only while two conditions both hold: the advice is solely incidental to the brokerage business, and the firm receives no special compensation for it. A standalone planning fee that is owed regardless of any trade is special compensation, and the advice is no longer merely incidental to executing orders. The exclusion collapses and the firm must register as an investment adviser in addition to keeping its broker-dealer registration.