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•An institution such as a bank, savings and loan association, or trust company •Publishers of general, regular, and paid circulation publications (for example, newspapers and magazines) •Publishers of subscription newsletters that do not provide investment advice on the specific situations of individual subscribers •Investment adviser representatives •Professionals whose securities advice is incidental to the practice of their profession and for which no additional compensation is charged •Broker/dealers and their agents for whom the advice is incidental to a transaction and for which no special compensation is charged

Persons are not required to register as investment advisers if they are:

must register with the administrator of each state in which they do business.

Persons who are "in the business" of buying or selling securities for their own account or on behalf of others, and persons "in the business" of advising others regarding securities

noon on the 30th calendar day after the date of filing.

Registration becomes effective at

•Those issuers who file federal registration with the SEC •Those issuers whose SEC filing has already become effective and who wish to increase marketing efforts to additional states

Registration by notification is most frequently used by:

any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions and appears on the firm's registration application.

Registration of an investment adviser automatically constitutes registration of

one year from the effective date.

Registration statements are effective for a period of

no more than one year.

Registrations are effective for

•The issuer is a political subdivision of government (government and municipal securities) •The issuer is in an industry already heavily regulated by the government (banks and savings and loan securities) •Information is readily available on the issuer (the securities are listed on stock exchanges or on the Nasdaq Stock Market)

Securities may be exempt from the registration requirements within a state if:

financially sound, established businesses.

Sometimes called REGISTRATION BY FILING, REGISTRATION BY NOTIFICATION is available for

varies from state-to-state.

State administrators determine the registration renewal date. Note that the registration expiration date for each state is December 31st, while the registration renewal date

lack of experience alone.

The administrator cannot disqualify a person due to

no longer in business, cannot be located, has ceased to be in the securities business, or is found by a court to be incompetent.

The administrator may cancel an application or registration if the person is

escrowed or impounded until sales reach a specified minimum amount.

The administrator may require that the proceeds of the sale of the securities under a registration statement be

•The Uniform Securities Act bars any false or misleading statements in any document filed. •It is a violation of the law to represent that the administrator has approved the merits or qualifications of any security, person, or transaction.

The administrator may require the filing of any offering circulars, prospectuses, form letters, sales literature, or advertising used in connection with the sale of any nonexempt security.

15 days of a written request.

The administrator must notify the affected person (and if applicable, the person's employer) of the proceeding. The administrator must also notify the persons of their right to a hearing and provide a hearing within

one year after a person's registration is withdrawn or terminated.

The administrator retains jurisdiction for

at least three years after the adviser is terminated. Before ceasing to conduct business, advisers must arrange for and be responsible for preserving their books and records for the remainder of the period required, and they must notify the administrator of the exact address where the books will be preserved during the period.

The adviser must maintain organizational records (e.g., articles of incorporation, partnership agreements, or minute books) in the office of the adviser, and these records must be preserved until

•Nonresident •New resident

The definition of agent is very straightforward; however, the list of exclusions seems long. It will be helpful to remember that there are only two exclusions to the definition of broker/dealer agent when dealing with non-institutional clients:

••Agents ••Issuers ••Financial institutions ••Out-of-state broker/dealers (those with no place of business within the state) are NOT broker/dealers if their transactions (within that state) are exclusively with or through: •-Issuers •-Other broker/dealers •-Banks •-Institutional investors ••Out-of-state broker/dealers (those with no place of business within the state) are NOT considered broker/dealers if they offer and sell in that state to an existing customer whose residence is not in the state.

The following are NOT defined as broker/dealers, and therefore, they are not required to register in a state as a broker/dealer:

•Investment advisers that have $30 million or more in assets under management •Investment advisers that advise registered investment companies •Investment advisers that provide services in 30 or more states •Any adviser that manages a pension plan of $50 million or more •Any adviser to a nationally recognized statistical ratings organization, such as Morningstar or Value Line

The following are defined as FEDERAL COVERED ADVISERS:

•Loans •Stock dividends •Securities acquired through a merger, consolidation or reorganization

The following do not constitute either an offer or a sale because they do not require payment of any kind:

•Advisers for nationally recognized statistical rating organizations (such as Morningstar) •Pension consultants for pension plans with $50 million or more in assets. Investment advisers are considered a pension consultant if they provide advice for employee benefit plans, government plans, or church plans as defined by ERISA.

The following investment advisers are exempt from registering with individual states, because they are qualified to register with the SEC:

48 hours prior to entering into an advisory contract with the client. If the brochure is not provided 48 hours prior to entering into an advisory contract, it is to be provided at the time the client enters the contract, in which case the client has the right to terminate the contract without penalty within five business days.

The investment adviser SHOULD deliver the brochure to an advisory client or prospective advisory client no less than

the DE MINIMIS standard.

The investment adviser can direct business communications to five or fewer non-institutional clients in a state within a 12-month period without registering in that state. This is referred to as

deliver or offer in writing to deliver, upon written request, the brochure to each advisory client.

The investment adviser of an existing client shall annually and without charge,

$25,000

The net capital requirements for broker/dealers in each state follow the net capital requirements under federal rules, which require a minimum capitalization (liquid net worth) of

the issuer. The issuer is also the person (or company) that directly or indirectly receives a benefit from the issuing of a security.

The person who receives the proceeds from the issuance and original sale of a security (the primary distribution) is

•CONSENT TO SERVICE OF PROCESS (for initial applications). Renewal applications are not required to be accompanied by consent to service of process. •Publication of notice of the application in one or more local or regional newspapers •Registration fees •Fingerprints from the applicants registering as agents are required in every state. The fingerprint requirements for investment advisers and investment adviser representatives differ on a state-to-state basis.

The registration application consists of:

notify the administrator promptly.

The registration of investment adviser representatives is not effective during any period that a registered investment adviser does not employ them. When investment adviser representatives begin or terminate employment with an investment adviser, the adviser is required to

consent to service of process.

The registration statement must also be accompanied by a

an individual, corporation, partnership, government, political subdivision, or any other legal entity with the power to act separately under the law.

The term PERSON could mean

the person who determines or recommends securities transactions for the customer's portfolio or who executes transactions at the direction of a third-party investment adviser.

The term PORTFOLIO MANAGER refers to

every contract of sale, contract to purchase or sell, and any disposition of a security, or any interest in a security, for value.

The term SALE, or SELL, includes

•Stocks (including voting trust certificates and treasury stock) •Bonds (issued by government entities and corporations, including debentures, collateral and equipment trust certificates, as well as Real Estate Investment Trust certificates and collateralized mortgage obligations) •Notes and commercial paper •Certificates of interest in profit-sharing agreements •Participation interests in oil, gas, mining, lease, and/or real estate limited partnerships, including those with a rental pool •Preorganization certificates or subscription agreements •Certificates of deposit •Options, warrants, or rights (to acquire a security) •Variable annuity contracts •Whiskey warehouse receipts •Real estate condominiums and cooperatives if sold subject to a mandatory rental pool -- limited partnerships •Commodity options (option contracts to buy or sell currencies) •Multilevel distributorships (certain merchandise marketing schemes) •Interests in profit sharing agreements, such as oil, gas, and real estate (not the leases for the oil, but units in the partnership)

The term SECURITY includes commonly known investment instruments:

any person compensated under a wrap fee program for administering the program, organizing the program, or for providing advice to customers regarding the selection of advisers for the program.

The term SPONSOR refers to

•Insurance contracts or endowment policies with fixed benefits •Fixed annuities •Keogh and IRA plans (retirement plans are not securities; however, the money invested in the plans may be used to purchase securities) •Commodities futures contracts (note the difference between a futures contract and commodity option contracts. which are securities) •Drilling leases

The term security does not include:

•Notification •Coordination •Qualification

The three types of registration for a security are:

broker/dealer agents. Effecting or attempting to effect a trade for even a single client defines an individual as an agent, which requires him or her to register in the state whether or not they have a place of business in that state. Anyone at the firm who acts in an agent capacity and is defined as an agent is required to register.

There is no de minimis exemption for

•Been in business for at least three years •At least $4 million in net worth •A positive (profit) income for two of the previous three years

To be eligible for registration by notification, the issuer must have:

successor firm. The successor firm may continue to use the unexpired registrations of the firm (B/D or IA) and the associated persons (agents or IARs). This allows the firm to continue its business uninterrupted by the organizational change.

When a firm is reorganized through a merger, acquisition, takeover, or consolidation, the new firm may file an application as the

not registered in that state. Then determine whether the actions of the broker/dealer require the firm to be registered in that state.

When a question on the exam asks about whether or not a firm must be registered in a state, always assume the firm is

have the option of either registering with the state or with the SEC.

if investment advisers have between $25 and $30 million under management, they

an advisory activity requiring the person to be registered as either an investment adviser or investment adviser representative.

the Uniform Securities Act defines the solicitation or referral of an investment adviser as

any person engaged in the business of effecting transactions in securities for the account of others or for its own account.

A BROKER/DEALER is defined as

any program for which a client is charged an advisory service fee that is not based directly on transactions in the client's account and that covers the costs of the advice and execution of the client's transactions.

A WRAP FEE PROGRAM is

ADV, Part 2, and filed with the administrator. This is attached to ADV Part 2 as "SCHEDULE H

A copy of the wrap fee disclosure statement (wrap fee brochure) shall be attached to Form

a security that is exempt from registration within a state.

A covered security is

•Options (puts and calls) •Futures contracts •Forward contracts •CMOs •SWAPS Neither REITs nor UITs are considered to be derivatives.

A derivative is an instrument or contract whose value is determined by the performance of an underlying financial asset. Some examples of derivatives are:

an ASSESSABLE SECURITY. A gift of an assessable security is said to involve an offer and sale.

A gift of a security is not considered a sale unless the security given is

does not have to register with a state.

A person who is a federally registered investment adviser or investment adviser representative only for entities such as mutual funds, insurance companies, or banks

December 31 of each year.

According tothe Uniform Securities Act, agent, broker/dealer, and investment adviser registrations (both IA and IAR) terminate on

financial condition with the administrator by the close of business on the following business day.

Advisers must notify the administrator by close of business on the next business day if their net worth is less than the minimum required. •The advisers must then file a report of

No prior notification needs to be given by the administrator to the investment adviser or broker/dealer when coming to inspect the books and records

All books and records of broker/dealers and investment advisers must be available for examination by a state administrator, within or outside the state, as appropriate or necessary in the public interest.

balance sheet with the administrator. •The balance sheet does not have to be audited but must be prepared in accordance with Generally Accepted Accounting Principles.

All registered investment advisers who do not have custody over client funds or securities, but who do have discretionary authority over them, must file a

•Broker/dealer agents (registered representatives) •Issuer agents

An AGENT is any individual who represents a broker/dealer or an issuer in effecting or attempting to effect the purchase or sale of securities. Therefore, there are two types of agents:

the security can be transacted in a state, or an offer of that security can be made in a state without that security being registered with that state's administrator. In addition, the advertisements for that security do not come under the jurisdiction of that state's administrator.

An EXEMPT SECURITY means that

any individual employed by or associated with an individual investment adviser or investment advisory firm. Only clerical or administrative personnel (known as MINISTERIAL PERSONNEL) are not considered investment adviser representatives. Included in the definition of an investment adviser representative is any partner, officer, director, associate, or employee who participates in or SUPERVISES advisory functions in a number of areas:

An INVESTMENT ADVISER REPRESENTATIVE (IAR) is defined as

WRAP FEE BROCHURE, which contains at least the information required by Part 2A of Form ADV.

An adviser who sponsors a wrap fee program must furnish each client or prospective client with a separate written disclosure statement called

$35,000 at all times.

An adviser with CUSTODY OF CLIENT FUNDS OR SECURITIES must maintain a minimum net worth of

$10,000. In lieu of these requirements, an adviser may post a $35,000 bond or deposit $35,000 in cash with the administrator.

An adviser with DISCRETIONARY AUTHORITY (the IA does not have to consult the client before placing a trade order) over client accounts, but not custody of the accounts, must have a minimum net worth of

electronically. •Copies of all written documents may be kept electronically, if these copies are unalterable.

An agent or adviser must forward written customer complaints received by a representative to a supervisor for action and recording. Firms must submit all required reports, audited financial statements, and ADV amendments

the accountant's opinion as to the investment adviser's financial position.

An independent public accountant or CPA must audit the balance sheet, and it must be accompanied by

IS an agent.

An individual representing the issuer selling U.S. government securities IS NOT an agent, while an individual representing a broker/dealer selling U.S. government securities

five years from the end of the fiscal year during which the last entry was made on record. •During the first two years, the adviser must maintain the required books and records in an easily accessible place.

An investment adviser must maintain and preserve all books and records in an easily accessible location for

They engage in the business of advising others (directly, in writing, or through publications) regarding the value of securities, or they give advice in the buying, selling, or investing in securities. •They publish securities analyses or reports (MARKET LETTERS) for individual investors, on a paid subscription basis as a part of a regular business. •They call themselves financial planners or they are an integral component of other financially related services, which provide investment advisory services as part of a business for direct or indirect compensation

Any persons who have an office in a state and receive compensation or fees for their financial advice are defined as INVESTMENT ADVISORS (IAs) in that state. Investment advisers who do not have offices in a state must still be registered with that state if they receive compensation (a fee) from clients in that state for any of the following:

PROMPTLY amend ADV Part 1 with the administrator.

Any time material information changes or becomes inaccurate, the investment adviser must

not exempt from a state's registration process and must be registered with that state's administrator to do business, be traded, or take place in that state.

Being NONEXEMPT means the security, offer, or transaction is

exempt from the state and federal registration requirements of the Investment Advisers Act of 1940.

Certain professionals whose advice is incidental to their profession and who receive no special compensation for that advice are

registration fees, which vary from state to state.

Each state imposes

•If the order is a buy or sell •The number of shares to be bought or sold •The name of the security to be bought or sold •The type of order transacted •The IAR who made the recommendation •The person who placed the order •The customer name or account number •Date of entry •Broker/dealer that executed/transacted the order •Whether order was discretionary

Every registered investment adviser must maintain a memorandum of each order given by the investment adviser for the purchase or sale of any security and any other customer instructions or modifications related to the order. The memoranda must contain the following information:

audited balance sheet with the initial application. If investment advisers have custody of funds and securities, they must file Form ADV-E (which describes the assets they have in custody) with their balance sheet.

Every registered investment adviser who has custody of client funds and/or securities, or who requires payment six months or more in advance of advisory fees of more than $500 per client, is required to file an

balance sheet, though this balance sheet does not need to be audited.

Every registered investment adviser who has discretionary authority over client funds or securities, but not custody of them, must file a

•If a person is defined as any of the above in a state, then that person has to be registered in that state. •If a person is not defined as any one of the above in a state, then that person does NOT have to be registered in that state.

For all of the above -- a broker/dealer, agent, investment adviser, or investment adviser representative -- it is important for you to understand that:

•The client must agree in writing, sign, and date a disclosure document for the solicitor and the IA. •The client must acknowledge the fact that fees will be paid to the adviser and the solicitor. •The amount of fees paid to the adviser and solicitor must be disclosed. •The amount the client will pay, if any, in addition to the advisory fees, and whether any payment to the solicitor will be added to the advisory fee, creating a differential with respect to the amount charged to other advisory clients who are not subject to the solicitor compensation arrangement, must also be disclosed . •The solicitor and the investment adviser must maintain copies of the agreements.

For the solicitor to provide information to the investment adviser, the following requirements apply:

negotiated directly between the two parties.

Forward contracts are

standardized.

Futures contracts are

in 30 days for all persons.

IARs and agents may withdraw their registrations by submitting a Form U-5, while IAs submit Form ADV-W and broker/dealers file Form BDW. Withdrawal is effective

30 days •Withdrawal is effective in 30 days for both IAs and IARs. •The administrator retains jurisdiction for one year after a person's registration is withdrawn or terminated.

IARs and agents may withdraw their registrations by submitting a U-5 form, while IAs submit Form ADV-W and broker/dealers file Form BDW. Withdrawal is effective in

they do not have a place of business in that state, do not transact in that state, or transact business only with institutional clients in that state.

INVESTMENT ADVISERS or INVESTMENT ADVISER REPRESENTATIVES who are registered in one state do not need to register in another state if

rendered inactive until they are associated with another broker/dealer firm. However, if the administrator suspends an agent or adviser representative individually, this action does not affect the registration for the broker/dealer or investment adviser firm with whom the individual is registered.

If a firm is suspended or its registration is revoked, the registrations of all associated persons of that firm are

books and records for each client. Books and records rules allow investment adviser firms to create their own systems and procedures for retaining books and records.

If investment advisers provide continuous advice to clients, they must maintain all required

confirmations of all transactions for accounts

If the investment adviser has custody of client securities and/or funds, the required records shall include copies of

prospectuses. Exempt issues, such as those trading on an exchange, are not required to file a prospectus -- only nonexempt new issues and mutual funds are required to file a prospectus.

If the issue is nonexempt from state registration, the issuer must also file

must be registered in that state.

If the question states that the firm "has an office in the state," then no matter what additional facts are presented, the firm

Any time a broker/dealer opens a new office in a state, all officers, directors, and partners of the firm who are listed on the firm's registration application (Form BD) are automatically registered in the new state as agents and principals (providing they act in such a role and hold an agent's and/or principal's license). Additionally, branch managers of new offices are automatically registered as agents and principals in the state where the office is opening, if they are listed on Form BD as being the supervisor of the business location. Only firms are registered as B/Ds in the state.

In order for an agent to solicit business or accept orders from customers in a state, both the agent's employer and the agent must register in that state.

"in the public interest" and must state a cause for the action. •Causes may include a conviction of any securities-related misdemeanor, any felony conviction within the last 10 years, or being insolvent or bankrupt.

In order to take disciplinary action against a registrant, the administrator must always determine that the action is

the former employer and the new employer as well as the agent must report the transfer to the state administrator, the former employer and the new employer as well as the agent must report the transfer to the state administrator.

In the event an agent transfers from one broker/dealer to another broker/dealer,

the broker/dealer must notify the administrator. •An agent cannot conduct any securities business without being registered with a broker/dealer.

In the event of resignation/termination,

•Any individual who represents an ISSUER in effecting: •Transactions of certain EXEMPT SECURITIES. •EXEMPT TRANSACTIONS •Transactions to "qualified purchasers" •Transactions of registered investment companies •Transactions with existing employees, partners or directors of the issuer, so long as no commission or other remuneration is paid •Any individual who represents a broker/dealer in effecting transactions with: •Customers temporarily in a state for up to 30 days. •Customers who are new residents for up to 60 days.

Individuals are "defined" as agents if they represent a broker/dealer or issuer in a transaction, and thus agents must be registered in the state where they are transacting business. However, there are exclusions to each definition, and, if an individual is not defined as an agent in a state, he or she does not have to register in that state. The following persons are not defined as agents and, therefore, are not required to be registered:

IARD, which then forwards the information to the SEC for registration.

Individuals or firms must submit their registration application and consent to service form to the

register in each state in which they have a place of business.

Investment adviser representatives of a federally registered adviser are required to

-Their clients are: •Other investment advisers •Broker/dealers •Financial institutions (banks, savings and loan associations, and trusts) •Institutional investors (pension funds or employee benefit plans with at least $1 million of assets under management) •Insurance companies •Investment companies •Government agencies •Other political entities -The investment adviser firm or investment adviser representative does business with five or less residents of the state within a 12-month period.

Investment advisers that do not have a place of business within a state are not defined as IAs in the state and therefore, are NOT required to register with the state if they meet either ONE of the following two criteria:

register in each state in which they have a place of business or have more than five non-institutional clients.

Investment advisers who are not qualified for SEC registration must

$35,000 by a bonding company, or have the necessary net capital requirements listed earlier.

Investment advisers who hold customer securities and funds or hold discretionary authority over customer accounts, must have a surety bond for

exempt from registration with state administrators.

Investment advisers who must be registered with the SEC under the Investment Advisers Act of 1940 are

SEC and are exempt from state registration.

Investment advisers who provide continuous and regular supervisory or management services to securities portfolios that total $30 million or more, or who act as advisers to registered investment companies, must register with the

ADV Part 2A.

Investment advisers who provide individualized (personal) advisory services to their clients must furnish each prospective and current client with Form

advisory services that are not specific to the objectives of specific individuals or account portfolios. Impersonal advisory services may also consist of publications of statistical information that express no opinion as to the investment merits of a particular security, or any combination of these items.

It is also not required for contracts for impersonal advisory services costing less than $500. The term IMPERSONAL ADVISORY SERVICES refers to

incidental and they are not specifically compensated for their investment advice.

Lawyers, accountants, engineers, teachers, and agents are excluded from the definition of an investment adviser if their advice is

one or more oral or written examinations.

Many administrators require that applicants