SEC Release IA-1092: Who Qualifies as an Investment Adviser?

SEC Release IA-1092, issued October 8, 1987, is the interpretive guidance the Securities and Exchange Commission staff uses to decide who counts as an “investment adviser” under the Investment Advisers Act of 1940. It reads the statutory definition as a three-part test: a person is an investment adviser if they give advice about securities, do so as part of a business, and receive compensation for it. All three elements have to be present at once. Anyone who meets the full test faces registration requirements and a fiduciary duty to clients unless a specific statutory exclusion applies.¹

The release matters because it targeted professionals who had been treating investment advice as a component of some other service and assuming they were outside the Act. IA-1092 said otherwise, and the framework it laid out is still how the SEC staff analyzes the question today.

The Three-Prong Test

Section 202(a)(11) of the Investment Advisers Act defines an investment adviser as any person who, for compensation, engages in the business of advising others about the value of securities or the wisdom of buying, selling, or investing in them.² IA-1092 breaks that definition into three elements evaluated independently. Failing any one of them means the definition does not apply, even if the other two are clearly satisfied.³

Advice About Securities

The first prong asks whether the person gives advice about securities. Recommending a specific stock, bond, or mutual fund is the obvious case. The SEC staff reads the prong more broadly than that: advising someone to shift from equities to fixed income satisfies the element even without naming a particular security, because it is advice about the advisability of investing in a category of securities.³ Asset allocation advice counts. So do reports and analyses about securities issued as part of a regular business.

The line is drawn at advice that has nothing to do with securities. Someone who advises only on directly held real estate or on commodity futures would not satisfy this element, because those are not “securities” as the Act defines them.

In the Business of Advising

The second prong asks whether the person is in the business of providing investment advice. This does not need to be a primary occupation. Three factors indicate someone is “in the business”: holding yourself out as an investment adviser through titles, advertising, or professional designations; receiving a clearly identifiable charge for investment advice; and giving advice with enough frequency and specificity to suggest a regular activity rather than an occasional favor.³

This is where the test catches people who think of investment advice as a side offering. A financial planner who builds retirement plans that include securities recommendations is in the business, even if planning fees are the firm’s primary revenue. A person who gives a one-off tip to a neighbor is not.

Compensation

The third prong requires compensation, and IA-1092 reads the word loosely. A flat fee for a financial plan counts. A percentage-of-assets fee counts. Commissions earned by selling a recommended security count. The economic benefit does not have to be labeled as payment for advice, and it does not have to come directly from the person receiving the advice.³

The practical effect is that bundled fees almost always satisfy this element. If you charge a single fee for a service package and investment advice is part of what the client receives, the compensation prong is met.⁴

Who the Release Specifically Pulled In

IA-1092 exists because certain professionals were providing investment advice inside a broader service without registering. The release named three categories that regulators consider squarely within the definition.

Financial planners are the leading example. A planner who prepares a comprehensive financial program including recommendations about securities or asset allocation gives advice about securities, is in the business of doing so, and is compensated through planning fees. All three prongs are satisfied. The planner does not need discretionary authority over client assets or the ability to execute trades to qualify.⁴

Pension consultants advise employee benefit plans on selecting investment managers or structuring plan portfolios. The consulting fees they charge for that work satisfy both the “in the business” and “compensation” elements.⁴

Sports and entertainment representatives round out the list. When a representative’s service package includes counseling on securities investments alongside contract negotiation and endorsement work, the overall fee for representation is treated as including compensation for investment advice.⁴

These three categories are not exhaustive. Anyone who advises others on selecting investment advisers, provides model portfolios to institutions, or manages a fund-of-funds structure faces the same three-prong analysis.

Statutory Exclusions From the Definition

Section 202(a)(11) carves out several categories of persons who are not considered investment advisers even if they technically satisfy all three prongs. These are exclusions from the definition itself, not exemptions from registration. If you are excluded, the Investment Advisers Act’s registration requirements do not apply to you at all.²

Banks and Bank Holding Companies

Banks and bank holding companies are excluded from the definition, with a limit added by the Dodd-Frank Act. A bank or bank holding company that is also an investment company does not get the exclusion. And any bank or bank holding company that serves as investment adviser to a registered investment company is treated as an investment adviser for purposes of that relationship.²

Lawyers, Accountants, Engineers, and Teachers

The statute excludes lawyers, accountants, engineers, and teachers whose investment advice is “solely incidental” to their primary profession. IA-1092 put real teeth into that phrase. The advice must be a natural byproduct of the professional service being performed, not a separate offering. An accountant who discusses securities as part of tax planning work fits the exclusion. The same accountant charging a standalone fee for ongoing portfolio recommendations does not, because the advice is no longer incidental to the accounting work.³

The exclusion is narrow. If the investment advisory component starts generating its own revenue or becomes a reason clients seek you out, you have moved past “solely incidental” and into the territory of a registrable adviser.

Publishers

Any publisher of a genuine newspaper, news magazine, or financial publication of general and regular circulation is excluded. The Supreme Court defined the scope of this exclusion in Lowe v. SEC, holding that investment newsletters containing disinterested commentary offered to the general public on a regular schedule fall within the exclusion. The key distinction is between impersonal advice distributed to anyone willing to subscribe and personalized advice tailored to a specific client’s portfolio or needs. Personalized advice makes you an investment adviser; impersonal commentary in a publication does not.⁵

Government Securities Advisers

Anyone whose advice relates only to securities that are direct obligations of the United States government, or obligations guaranteed by the government, is excluded from the definition.²

Family Offices

The Dodd-Frank Act added a family office exclusion in 2010, implemented by the SEC through Rule 202(a)(11)(G)-1. A family office is excluded if it provides advice only to “family clients” (family members, former family members, key employees, and entities formed for their benefit), is wholly owned by family clients and controlled by family members, and does not hold itself out to the public as an investment adviser.⁶

The Broker-Dealer Exclusion

The broker-dealer exclusion is the most heavily litigated carve-out and works differently from the others. A broker-dealer avoids the investment adviser definition only when two conditions hold at the same time: the advice is “solely incidental” to brokerage services, and the broker-dealer receives no “special compensation” for the advice.⁷

Solely Incidental to Brokerage

The SEC reads “solely incidental” to mean the advice is provided in connection with, and reasonably related to, the broker-dealer’s primary business of executing securities transactions. A broker offering a market view while handling a trade fits within this limit.⁷

The exclusion breaks down when the relationship shifts from transactional to advisory. A broker-dealer that holds itself out as a financial planner, offers comprehensive portfolio management, or provides ongoing monitoring as a core service has crossed the line. At that point the advice is no longer incidental to executing trades; it has become the service the client is paying for.

No Special Compensation

Special compensation is any fee for advisory services that is separate from or in addition to the standard brokerage commission. Asset-based fees, calculated as a percentage of the client’s account value, are the clearest example. That kind of fee is not tied to a specific transaction; it is paid for the advisory relationship itself. A broker-dealer charging asset-based fees needs to register as an investment adviser.³

Standalone fees for financial plans, separate advisory retainers, and any other charge that compensates the broker-dealer specifically for advice all count as special compensation. The test is functional: if a payment exists because of the advice rather than because of a trade, the second condition fails.

Regulation Best Interest

In 2019, the SEC adopted Regulation Best Interest along with a formal interpretation of the “solely incidental” prong. Reg BI raised the standard of conduct for broker-dealers making recommendations to retail customers, requiring them to act in the customer’s best interest without placing their own financial interests ahead of the customer’s. The SEC acknowledged that broker-dealer investment advice “can be consequential even when it is offered in connection with and reasonably related to the primary business of effecting securities transactions.”⁷

Reg BI did not eliminate the broker-dealer exclusion. It narrowed the practical gap between the two regulatory regimes. The “solely incidental” interpretation and the “no special compensation” condition still operate independently: satisfying one does not excuse a failure on the other.

What Registration Triggers

The reason the definition matters so much is what comes with it. The Investment Advisers Act imposes a federal fiduciary duty on every investment adviser, requiring them to serve the best interest of clients and never place their own interests first. The SEC has described this duty as having two components: a duty of care and a duty of loyalty.⁸

The duty of care means providing advice suitable for the client based on a reasonable understanding of the client’s objectives, seeking best execution when selecting broker-dealers for client trades, and monitoring the relationship at a frequency that makes sense given its scope. The duty of loyalty means making full and fair disclosure of all material conflicts of interest and not subordinating the client’s interests to the adviser’s own. An adviser who earns commissions on recommended products has to disclose that conflict clearly enough for the client to evaluate it.

This fiduciary obligation is broader than the standard applied to broker-dealers under Reg BI. It runs through the entire advisory relationship, not just individual recommendations, and it cannot be waived or disclaimed through client agreements.

Consequences of Meeting the Definition and Not Registering

The consequences of providing investment advice without registering are severe and come from multiple directions. The SEC can bring administrative proceedings seeking cease-and-desist orders, disgorgement of fees earned, prejudgment interest, and civil penalties. Civil penalty tiers under the Act reach up to $100,000 per violation for an individual and $500,000 per violation for a firm when the conduct involves fraud or reckless disregard of a regulatory requirement.⁹

In January 2025, the SEC required three individuals associated with an advisory firm to pay nearly $540,000 in combined disgorgement, prejudgment interest, and civil penalties for acting as unregistered brokers while receiving transaction-based compensation.¹⁰

The anti-fraud provisions of Section 206 apply to all investment advisers, not just registered ones. Anyone who meets the statutory definition is covered regardless of registration status.¹¹ Failing to register does not shield you from liability for fraudulent advisory conduct. It adds the registration violation on top.

1
Securities and Exchange Commission. 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
2
Office of the Law Revision Counsel. 15 U.S. Code 80b-2 – Definitions
3
U.S. Securities and Exchange Commission. Regulation of Investment Advisers by the U.S. Securities and Exchange Commission
4
Securities and Exchange Commission. Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons
5
FindLaw. Lowe v. SEC, 472 U.S. 181 (1985)
6
U.S. Securities and Exchange Commission. SEC Adopts Rule Under Dodd-Frank Act Defining Family Offices
7
Securities and Exchange Commission. Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser
8
Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
9
Office of the Law Revision Counsel. 15 U.S. Code 80b-3 – Registration of Investment Advisers
10
U.S. Securities and Exchange Commission. Three Investment Adviser Representatives Settle SEC Charges for Acting as Unregistered Brokers
11
Office of the Law Revision Counsel. 15 U.S. Code 80b-6 – Prohibited Transactions by Investment Advisers