NASAA Series 63Regulation of Investment Advisers and IARsMedium
An agent of a broker-dealer exercises discretionary trading authority over numerous client brokerage accounts, deciding what securities to buy and sell without obtaining prior client approval for each transaction. The broker-dealer charges only commissions and no separate advisory fee. How is this activity treated under the Uniform Securities Act?
- AIt removes the agent and broker-dealer from the incidental advice exclusion, triggering investment adviser and IAR registration requirements
- BIt qualifies for the de minimis exemption because the accounts are held at a single broker-dealer
- CIt is automatically exempt because FINRA already regulates discretionary trading by registered representatives
- DIt remains covered by the broker-dealer's incidental advice exclusion because no advisory fee is charged
Show answer & explanationAnswer & explanation
Correct answer: A. It removes the agent and broker-dealer from the incidental advice exclusion, triggering investment adviser and IAR registration requirements
Exercising ongoing discretionary authority goes beyond advice that is 'solely incidental' to brokerage services. This takes the activity outside the broker-dealer incidental advice exclusion, requiring the firm to register as an investment adviser and the agent as an IAR, even without a separate advisory fee.
Why the other options are wrong
- B. The de minimis exemption relates to out-of-state clients, not the nature of the activity performed.
- C. FINRA oversight does not substitute for state investment adviser registration requirements.
- D. The exclusion requires advice to be incidental to brokerage; discretionary authority exceeds that scope.
Discretionary Authority Exceeds Incidental Advice
When a broker-dealer's agent exercises ongoing discretionary trading authority, the activity is no longer 'solely incidental' to brokerage, requiring IA/IAR registration.
- Discretion = making investment decisions without prior client approval
- Removes BD incidental advice exclusion
- Applies even absent a separate advisory fee
Memory trick: Take control, lose the exclusion.