Definition of "Investment Adviser"
Chapters in this video
- 0:00 The ABC test: three non-negotiable pillars
- 1:57 Frank the free advice friend: missing B and C
- 2:45 Compensation direct versus indirect: the Ivan trap
- 3:29 Ivan the indirect earner: third-party commissions count
- 4:11 Fiona the financial planner: the 1986 NASAA amendment
- 5:45 The holding-out standard: marketing makes the business
- 6:11 Rapid-fire exam recap
What this video covers
- The three elements of the ABC test: advice about securities, business of advising, and compensation, and why all three must be present simultaneously
- Why missing any single element (A, B, or C) means a person is NOT an investment adviser (IA), no matter how the scenario is dressed up
- The broad definition of compensation under the USA, including direct fees, commissions, transaction-based fees, subscription fees, and any economic benefit from a third party
- Why "free" advice that generates back-end commissions still satisfies the compensation element, using the Ivan example
- How the 1986 North American Securities Administrators Association (NASAA) amendment brought financial planners into the IA definition, and the line between total financial planning versus non-securities-only advice
- The holding-out standard: why marketing yourself as providing investment advisory services for compensation legally makes you an IA with no separate business analysis required
- How to apply the ABC test to rapid-fire exam scenarios and avoid the most common wrong-answer traps
Read the full lesson, free
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