Definition of Investment Adviser

Overview

An entity is required to register with the SEC as an "investment adviser," and is subject to the resulting regulatory requirements under the Investment Advisers Act only if it is within the definition of that term, as set forth in Section 202(a)(11) of the Investment Advisers Act. As a starting matter, the IAA defines an "investment adviser" as any person who, for compensation, engages in the business of advising others, "as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities. . . "

From this starting point, the IAA then carves out a number of categories of entities based on varying policy considerations, such as the fact that the entities may be otherwise regulated (e.g., banks) or that that their securities advisory activities are incidental to their primary business (e.g., broker-dealers and commodity trading advisors).

Section 203 of the Investment Advisers Act requires certain "investment advisers" to register with the SEC. See the topic page on the IA Registration Requirement. This page provides information about the scope of the definition of the term "investment adviser" (as defined in Section 202(a)(11) of the Advisers Act. That section provides a number of definitional exclusions, but in practice it may not be clear whether a particular exemption is available.

Among the ongoing definitional issues are:

(i) what is the scope of the "publisher's exemption" from the definition of the term investment adviser and is the SEC's regulation of the giving of advice inconsistent with the right of free speech under the First Amendment to the Constitution;

(ii) what is the scope of advisory activities that broker-dealers may conduct under the "incidental" exclusion;

(iii) at what point does the provision of data or other information morph into the giving of advice; and

(iv) does the construction of a financial index that forms the basis of investment decisions constitute the giving of advice.

One of the more important exclusions from the definition of the term "investment adviser"--that for "family offices"--is dealt with on a separate topic page (see the topic page on Family Offices).

In addition to the above-mentioned exclusions, the IAA provides an exclusion for an adviser to a "family office." This exclusion is dealt with on the separate topic page on Family Offices.

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