Series 65 Study Textbook

Understanding The Role Of The Investment Adviser For The Series 65 Exam
The Uniform Investment Adviser Law Examination

One of the keys to passing the Series 65 exam is to make sure that you have a complete understanding of how the role of the investment adviser will be tested on the Series 65 Exam. This article which was produced from material contained in our Series 65 textbook and will help you master the material so that you pass the Series 65 exam.


Investment Adviser State Registration

It is unlawful for an investment adviser to conduct securities business without being duly registered or exempt from registration. State registration exemptions are provided for investment advisers who:

  • Are federally registered
  • Manage portfolios for investment companies
  • Manage portfolios in excess of $100,000,000
  • Have no office in the state and conduct business exclusively with financial institutions
  • Have no office in the state and offer advice to no more than five clients in any 12-month period. This is known as the de minimis exemption

The National Securities Market Improvement Act of 1996

The National Securities Markets Improvement Act of 1996, also known as the coordination act, eliminated regulatory duplication of effort and established registration requirements for investment advisers. A federally covered investment adviser must register with the SEC, and is any investment adviser:

  • That manages at least $100,000,000
  • Manages investment company portfolios
  • Not registered under state laws

All federally registered investment advisers must pay state filing fees and notify the administrator in the states in which they conduct business. An investment adviser is required to register with the state if they manage less than $90,000,000. An investment adviser who manages between $90,000,000 and $100,000,000 may choose to register either with the state or with the SEC. Investment advisers whose assets under management (AUM) exceed $110,000,000, must register with the SEC. Investment advisers who register with the SEC must file form ADV part I. The SEC will normally grant the adviser's registration within 45 days of the adviser's filing or begin a hearing process to determine the adviser's eligibility to become registered. Advisers will also have to file form ADV part I with the SEC within 90 days of the adviser's fiscal year end to continue their federal level registration. If the adviser is no longer eligible to maintain a federal level registration they must file form ADVW within 90 days and become registered at the state level. If an investment adviser is based in a state that does not require the registration of investment advisers they must register with the SEC.

Investment Adviser Representative

All investment adviser representatives who maintain an office within the state must register within the state. An investment adviser representative is an individual who:

  • Gives advice on the value of the securities
  • Gives advice on the advisability of buying or selling securities
  • Solicits new advisory clients
  • Is an officer, director, partner, or supervisor of the investment adviser

An investment adviser may not employ any Representative who is not duly registered. Clerical and administrative employees are not considered Representatives and do not need to register. A Representative of an investment adviser has a much greater suitability obligation than a Representative of a broker dealer.

State Investment Adviser Registration

An investment adviser must file the following with the state securities administrator before they become registered:

  • Application Form ADV
  • Filing fees
  • Consent to service of process

Capital Requirements

An investment adviser must maintain a minimal level of financial solvency. For advisers with custody of customer's cash and securities, the investment adviser must maintain minimum net capital of $35,000. If the adviser is unable to meet this requirement, they may post a surety bond. Deposits of cash and securities will alleviate the surety bond requirement. An adviser is considered to have custody if they have their customers' cash and securities held at their firm or if they have full discretion over their customers' accounts. Full discretion allows the adviser to withdraw cash and securities from the customer's account without consulting the customer. Advisers who have only limited discretionary authority over customer's accounts need to maintain a minimum of $10,000 in net capital. An adviser with limited discretionary authority may only buy and sell securities for the customer's benefit without consulting the customer. They may not withdraw or deposit cash or securities without the customer's consent. Investment adviser representatives are not required to maintain a minimum level of liquidity.

Exams

The state securities administrator may require investment adviser representatives as well as the officers and directors of the firm to take an exam, which may be oral, written, or both. All registrations become effective at noon, 30 days after the application has been filed. The administrator may require that an announcement of the investment adviser's intended registration be published in the newspaper.