Not really sure which exam section to post this under because I think it’s a topic that’s covered on all of them…
If someone gives FREE financial advice to a friend but doesn’t necessarily facilitate the transaction - for example, recommendeds a specific fund for the friend’s IRA - does that constitute a private securities transaction which would require the rep/adviser to notify his/her firm?
And does it make a difference whether he/she is an IAR (Series 65 registered) or agent of a broker-dealer (Series 7)?
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Hi @Mass_coffee_louse - great question. First, a private securities transaction always involves a person facilitating a transaction. Providing advice only would not constitute a transaction (or facilitation of one). Additionally, the advice being given is free, so it doesn’t meet the definition of investment adviser activity (giving securities advice as a regular business activity for compensation).
I don’t think your situation constitutes any activity worthy of notifying an employer or gaining a securities license. It’s free advice to a friend, which will likely “fly under the radar” of the regulators.
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Thanks.
So, to clarify, giving investment advice must be reported only if being paid while facilitating transactions must be reported regardless of whether there’s compensation involved. Correct?
And - it’s possible that this will be mentioned later in the Series 63 materials, but - are agents of broker-dealers even allowed to give paid financial advice (no facilitating securities transaction involved) if they’re not IAR registered?
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So, to clarify, giving investment advice must be reported only if being paid while facilitating transactions must be reported regardless of whether there’s compensation involved. Correct?
A person only must register as an investment adviser or IAR if they’re giving advice as a regular business activity for compensation. Giving advice to a friend for free is missing two of those components - it’s not a regular business activity and no compensation is involved. Therefore, the hypothetical person in your example would not be performing investment advisory duties and is not subject to registration/reporting/etc.
And - it’s possible that this will be mentioned later in the Series 63 materials, but - are agents of broker-dealers even allowed to give paid financial advice (no facilitating securities transaction involved) if they’re not IAR registered?
I’m not sure where you are in the material, but we cover this concept in this chapter. Here’s a quote:
A broker-dealer or its agent whose performance of these services is solely incidental to the
conduct of its business as a broker-dealer and who receives no special compensation for them [is excluded from the definition of an investment adviser].
It’s basically the same rule - IA/IAR registration is only required if providing securities advice as a regular business activity for compensation. Agents/BDs that provide advice for no special compensation are not required to register as IARs/IAs. If they provide advice regularly and collect compensation without being properly registered, they’re breaking the law.
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If an agent does charge a fee for this advice (not regularly, but as a one-time thing) and doesn’t facilitate the transaction, does he/she have to register as an IAR? And if registration is not required, does the agent have to report it to a supervisor/manager?
I just read the section you referenced and I’m a bit confused because the quote from the USA states:
A broker-dealer or its agent whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them [is excluded from the definition of an investment adviser].
That sounds like there’s only an exclusion if there’s no compensation AND it’s incidental. But registration would be required if there’s compensation - even if it’s not a regular part of their business.
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If an agent does charge a fee for this advice (not regularly, but as a one-time thing) and doesn’t facilitate the transaction, does he/she have to register as an IAR? And if registration is not required, does the agent have to report it to a supervisor/manager?
This scenario lacks the ‘regular business activity’ component, so they wouldn’t need to register as an IAR. However, the compensation would need to be reported to the firm as an outside business activity of some form.
I just read the section you referenced and I’m a bit confused because the quote from the USA states:
A broker-dealer or its agent whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them [is excluded from the definition of an investment adviser].
Giving advice to a friend for a fee once is not considered ‘business of the broker-dealer’ and would fall outside of activities related to the firm. The quote above is making reference to an agent performing their normal duties (e.g., processing trade requests) and also giving advice. Your hypothetical doesn’t fit into the quoted regulation.
That sounds like there’s only an exclusion if there’s no compensation AND it’s incidental. But registration would be required if there’s compensation - even if it’s not a regular part of their business.
True, but again - this is assuming the advice being given is related to firm activities. Giving advice to a friend does not meet this definition. Now, if your friend was a client/customer of the firm and the advice being given was charged through the firm’s platforms, then IAR registration would likely be required.
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