What Is SEC Release IA-1092?
SEC Release IA-1092 is a guideline from the Securities & Exchange Commission (SEC) that interprets how state and federal adviser laws apply to those providing financial services. This release amplifies the Investment Advisers Act of 1940, reinforcing its protective measures for individuals relying on investment advisers for purchasing and selling securities.
Key Takeaways
- Unified Regulations: SEC Release IA-1092 standardizes the application of state and federal securities laws for investment advisers and financial planners.
- Historical Context: Issued in 1987, it builds upon the Investment Advisers Act of 1940.
- Transparent Guidance: Clarifies the roles and duties of investment advisers and pension consultants.
Understanding SEC Release IA-1092
SEC Release IA-1092 surfaced from the collaboration between the SEC and the North American Securities Administrators Association (NASAA) in 1987. It addressed the growing number of financial planners and investment advisers emerging in the 1980s. Revisiting the definition from SEC Release IA-770, IA-1092 introduced key enhancements:
- Expanded Coverage: Pension consultants and advisers to athletes and entertainers are now included as providers of investment advice.
- Registration Mandate: Firms recommending investment advisers must also register in some cases.
- Regularity Over Principal Business: Offering investment advice regularly, even if not the main business, typically triggers registration.
- Broker-Dealer Exemption Restrictions: Registered representatives creating separate entities for fee-based financial planning cannot exploit the broker-dealer (BD) exemption from registration, creating what is often termed a statutory investment adviser.
- Broad Definition of Compensation: Any form of compensation, monetary or otherwise (e.g., products, services, discounts), is recognized under this definition.
For sports or entertainment agents focusing on contract negotiations and excluding investment advice, registration as an investment adviser is not necessary.
IA-1092 and the Investment Advisers Act of 1940
The Investment Advisers Act of 1940 outlines an investment adviser as anyone who, directly or indirectly, advises others on securities value or profitability and receives compensation. Title 15, Section 80b-1 of the United States Code provides additional insight:
- Interstate Commerce Connectivity: Advisory services often intersect with interstate commerce.
- Securities Transactions: Advisers are typically involved in transactions involving securities traded on national exchanges and in interstate over-the-counter (OTC) markets.
- Broad Economic Impact: Their activities substantially influence interstate commerce, national securities markets, the national banking system, and the broader economy.
Related Terms: Investment Advisers Act of 1940, investment advice, financial planning, pension consultants, broker-dealer.
References
- U.S. Securities and Exchange Commission. “Interpretive Release: Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of Other Financial Services”.
- U.S. Government. “U.S.C. Title 15, Section 80b-1: Findings”.
Get ready to put your knowledge to the test with this intriguing quiz!
---
primaryColor: 'rgb(121, 82, 179)'
secondaryColor: '#DDDDDD'
textColor: black
shuffle_questions: true
---
## What does SEC Release IA-1092 primarily address?
- [x] The definition and qualifications of investment advisers.
- [ ] The process of filing taxes for investment portfolios.
- [ ] Rules regarding insider trading.
- [ ] Policies for issuing municipal bonds.
## In what year was SEC Release IA-1092 issued?
- [ ] 2000
- [ ] 2010
- [x] 1987
- [ ] 1995
## Which regulatory bodies were involved in developing SEC Release IA-1092?
- [ ] Federal Reserve and FDIC
- [ ] SEC and IRS
- [x] SEC and NASAA
- [ ] SEC and NYSE
## Which of the following professionals are specifically mentioned in SEC Release IA-1092 as potential investment advisers?
- [x] Financial planners
- [ ] Accountants exclusively
- [ ] Mortgage brokers exclusively
- [ ] Hedge fund managers exclusively
## What is a key criteria mentioned in SEC Release IA-1092 to determine if someone is an investment adviser?
- [x] Providing advice or issuing reports concerning securities as a business.
- [ ] Building investment algorithms and trading bots.
- [ ] Managing real estate investments.
- [ ] Being licensed as a stockbroker.
## Under SEC Release IA-1092, which of the following is NOT a requirement for someone to be considered an investment adviser?
- [ ] Providing specific investment advice.
- [ ] Being compensated for that advice.
- [ ] Engaging in the business of providing such advice.
- [x] Holding a college degree in finance.
## According to SEC Release IA-1092, who is excluded from being considered an investment adviser?
- [x] Professionals whose advisory activity is solely incidental to their profession.
- [ ] Those who manage more than $100 million in assets.
- [ ] Financial bloggers giving general market commentary.
- [ ] Investment bankers operating in IPO markets.
## Why is SEC Release IA-1092 significant for financial planners and accountants?
- [ ] It imposes tax penalties on them.
- [ ] It provides benefits related to retirement planning.
- [x] It clarifies that they can be considered investment advisers and thus must register accordingly.
- [ ] It guarantees exemption from all SEC rules.
## How did SEC Release IA-1092 expand the definition of an investment adviser?
- [x] By including financial planners, pension consultants, and others providing investment advice.
- [ ] By limiting it to individuals managing mutual funds only.
- [ ] By categorizing only brokerage firms as advisers.
- [ ] By discounting the role of digital advisory firms.
## What is the main impact of SEC Release IA-1092 on qualifications for investment advisers?
- [ ] No impact; it addresses tax implications.
- [ ] It simplifies licensing processes.
- [x] It ensures qualifications extend to more professions who engage in advisory roles.
- [ ] It sets guidelines on cryptocurrency regulations.
