The Definition, the Exclusions, the Registration Thresholds and Form ADV: What the Series 65 Tests About RIAs
A registered investment adviser, or RIA, is a firm or individual that is paid to give advice about securities as part of a business and is registered with either the Securities and Exchange Commission or one or more state securities regulators. Every RIA owes its clients a fiduciary duty, which means putting the client’s interests ahead of its own.
On the Series 65, the topic is tested through definitions and thresholds rather than career paths. Candidates are expected to know who meets the definition, who is excluded, where an adviser registers and what it must disclose.
This guide works through each of those exam points in turn, with worked examples, the traps the exam sets and five practice questions with explanations. Preparing for your exam? Watch FRC’s Series 65 playlist on YouTube, with exam traps called out in every topic.
The Legal Definition
The Investment Advisers Act of 1940 defines an investment adviser as any person who, for compensation, is in the business of advising others about the value of securities or whether to invest in, buy or sell them. The definition also covers anyone who, for compensation and as part of a regular business, issues analyses or reports about securities.
The Uniform Securities Act, the model state law, uses a closely matching definition. “Person” in both laws includes firms as well as individuals.
An adviser that meets the definition and is not excluded or exempt must register. Once registered, it becomes a registered investment adviser, and FRC’s guide to what the Investment Advisers Act of 1940 actually requires in practice covers the federal law in more depth.
Where This Topic Appears on the Exams
Questions on investment advisers sit in the laws, regulations and ethics section of the Series 65, which carries 30% of the exam. They test the definition, the exclusions, registration with the SEC or the states, and the disclosure an adviser must give clients.
FRC’s Series 65 Exam Preparation course covers the Uniform Securities Act, the Investment Advisers Act and adviser registration in full, and the exam requires no sponsor. The SIE Examination Preparation course introduces the main market participants and the regulators that oversee them.
Every FRC course can be spread across interest-free monthly payments, so cost is no reason to delay. Definition questions are among the most reliable marks on the exam once the three-part test is clear.
The Three-Part Test
The SEC uses a three-part test to decide whether someone meets the definition of an investment adviser. All three parts must be met.
The first part is advice about securities. Advice about real estate, commodities or insurance alone does not count, but advice that compares securities with other investments does.
The second part is being in the business of giving advice, which includes holding yourself out as an adviser, receiving separate compensation for advice or giving specific advice on more than rare occasions. The third part is compensation, which means any economic benefit, not just a separate advisory fee.
Who Is Excluded From the Definition
Some people meet the plain words of the definition but are excluded by law. Banks and bank holding companies are excluded from the federal definition, as are publishers of bona fide newspapers and magazines of general and regular circulation.
Lawyers, accountants, teachers and engineers are excluded only when their advice is solely incidental to their profession. Broker-dealers are excluded when their advice is solely incidental to their brokerage business and they receive no special compensation for it.
The trap is assuming the profession itself creates the exclusion. An accountant who charges a separate fee for investment recommendations, or markets an advisory service, meets the definition and must register.
The Firm and the Person
On the exam, “investment adviser” usually means the firm, and “investment adviser representative” means an individual who works for it. Representatives give advice, manage accounts, determine recommendations or solicit advisory business on the firm’s behalf.
The firm registers as an investment adviser, while its representatives register separately with the states. An individual running a one-person advisory business may register both as an adviser and as its own representative.
FRC’s guide to investment advisor representative vs registered investment adviser compares the two roles from a career perspective.
Where an RIA Registers
Registration depends mainly on regulatory assets under management. An adviser with less than $100 million generally registers with its home state, and at $110 million it must generally register with the SEC.
Between $100 million and $110 million, the adviser may choose either. Once registered with the SEC, an adviser does not have to switch back to the states unless its assets fall below $90 million.
Some advisers register with the SEC whatever their size. These include advisers to registered investment companies, and advisers that would otherwise have to register in 15 or more states, which may choose SEC registration instead.
| Adviser profile | Usual regulator | Key threshold or rule | Exam trap |
|---|---|---|---|
| Under $100 million in assets | Home state | Below the mid-sized threshold | Assuming every adviser registers with the SEC |
| $100 million to $110 million | State or SEC, adviser’s choice | Buffer zone | Treating $100 million as a hard cut-off |
| $110 million or more | SEC | Must register federally | Forgetting the $90 million level for switching back |
| Adviser to a registered fund | SEC | Required regardless of size | Applying the asset test to fund advisers |
| Would need 15 or more state registrations | SEC, if it chooses | Multi-state exemption | Assuming state registration is mandatory |
What Federal Covered Advisers Still Owe the States
An SEC-registered adviser is called a federal covered adviser. The states cannot register it, but they can require a notice filing, collect a fee and enforce their antifraud laws against it.
Its investment adviser representatives still register with the states where they have a place of business. That rule catches many candidates, who assume SEC registration of the firm covers its people.
FRC’s guide to Series 65 ethics questions works through this and the other registration traps in the laws section.
Exempt Reporting Advisers
Some advisers are exempt from SEC registration but still file parts of Form ADV and are subject to examination. They are known as exempt reporting advisers.
The two main groups are advisers solely to venture capital funds, and advisers solely to private funds with less than $150 million in assets under management in the United States. They file reports with the SEC, but they are not registered investment advisers.
The trap is treating an exempt reporting adviser as either registered or completely unregulated. It is neither; it reports without registering.
Form ADV: What an RIA Discloses
Form ADV is the registration and disclosure form for investment advisers, filed electronically through the Investment Adviser Registration Depository. Part 1 gives regulators information about the firm’s business, ownership, clients, assets and disciplinary history.
Part 2A is the firm brochure, a plain-English document for clients describing services, fees, conflicts of interest and disciplinary information. Part 2B is the brochure supplement, giving information about the individuals who provide advice.
Advisers that serve retail investors also deliver a short relationship summary, Form CRS, which explains services, fees and conflicts in a standard format. FRC’s guide to what conflicts of interest an investment adviser must disclose covers what the brochure must contain.
Keeping Form ADV Up to Date
An RIA must file an annual updating amendment to Form ADV within 90 days after the end of its fiscal year. It must also file prompt amendments during the year when certain information becomes inaccurate.
SEC-registered advisers must deliver the brochure to a new client before or at the time of entering into the advisory contract. Each year, they must also deliver either a summary of material changes or an updated brochure within 120 days after the fiscal year end.
Worked example: an RIA’s fiscal year ends on December 31, 2026. Its annual updating amendment is due by March 31, 2027, which is 90 days later, and its summary of material changes must reach clients by April 30, 2027, which is 120 days later.
How RIAs Are Paid
Most RIAs charge a fee based on assets under management, a flat fee, an hourly fee or a fixed fee for a financial plan. Many use tiered fee schedules that fall as assets rise.
Worked example: an RIA charges 1% on a client’s $750,000 account, which is $7,500 a year. On a $2.5 million account with a schedule of 1% on the first $1 million and 0.75% on the rest, the fee is $10,000 plus $11,250, or $21,250, an effective rate of 0.85%.
Performance-based fees, which share in the client’s gains, are generally prohibited. The main exception allows them for qualified clients who meet asset or net worth thresholds.
What State-Registered RIAs Must Meet
State-registered advisers face financial requirements that SEC-registered advisers do not. Under NASAA’s model rules, an adviser with custody of client assets must generally maintain a minimum net worth of $35,000, and one with discretionary authority but no custody must maintain $10,000.
An adviser that cannot meet these requirements may be able to post a surety bond instead. These are firm-level requirements, so the trap is attaching them to individual representatives.
States also set qualification requirements for the people who give advice. A representative typically qualifies by passing the Series 65, or the Series 66 together with the Series 7, unless they hold a designation the state accepts in place of the exam.
RIA vs Broker-Dealer
A broker-dealer buys and sells securities for customers, usually earning commissions or markups on each transaction. An RIA gives advice, usually for a fee, and owes a fiduciary duty throughout the relationship.
Since June 2020, Regulation Best Interest has required broker-dealers to act in a retail customer’s best interest when making a recommendation. The adviser’s duty, however, is broader in time, because it covers the whole advisory relationship rather than individual recommendations.
Many large firms are dual registrants, operating as both an RIA and a broker-dealer. On the exam, the duty that applies depends on the capacity in which the professional is acting.
What Registration Does Not Mean
Registration is not an endorsement. An RIA may not suggest that the SEC or a state has approved its abilities or qualifications, and implying government approval is misleading.
The letters “RIA” describe a firm’s registration status, not a professional designation. Using them after an individual’s name as if they were a credential is considered misleading by regulators.
The exam often tests this with an answer choice saying that registration means the regulator has verified the adviser’s competence. That answer is always wrong.
The Duties Every RIA Owes
Every RIA owes its clients a fiduciary duty made up of a duty of care and a duty of loyalty. The duty of care covers advice in the client’s best interest, best execution and monitoring, while the duty of loyalty covers conflicts and full and fair disclosure.
FRC’s guides to what an investment adviser’s duties of care and loyalty are and duty of care vs duty of loyalty explain both duties in detail.
SEC-registered advisers must also adopt written compliance policies, appoint a chief compliance officer and review the program at least once a year. They must keep a code of ethics covering personal trading and maintain books and records for set periods.
The Exam Traps
The first trap is assuming registration means government approval. It does not, and claiming otherwise is misleading.
The second trap is the threshold numbers. Below $100 million is generally state registration, $100 million to $110 million is a choice, $110 million or more is generally SEC registration, and an SEC adviser can stay federal until its assets fall below $90 million.
The third trap is mixing up the firm and the person. The adviser is the firm, and its representatives register with the states even when the firm is SEC-registered. The fourth is treating exempt reporting advisers as registered.
For more traps like these, see FRC’s guide to Series 65 exam traps and common mistakes.
A Memory Aid
For the definition, remember “securities, business, compensation.” All three must be present.
For the thresholds, remember “100 may, 110 must, 90 to leave.” An adviser may choose the SEC from $100 million, must register with it from $110 million and can leave only below $90 million.
Practice Questions
Question one: an adviser has $80 million in regulatory assets under management and is not an adviser to a registered fund. Where does it generally register? With its home state.
Question two: an accountant charges clients a separate fee for portfolio recommendations. Is she excluded from the definition of an investment adviser? No, because her advice is not solely incidental to her accounting work.
Question three: an RIA’s fiscal year ends on December 31. When is its annual updating amendment to Form ADV due? Within 90 days, by March 31.
Question four: does registration with the SEC mean the SEC has approved the adviser’s qualifications? No, registration is not an endorsement.
Question five: an adviser solely to private funds has $120 million in U.S. assets under management. What is its status? It is generally an exempt reporting adviser, which files reports with the SEC but does not register.
Related Questions
The RIA rules connect closely to the path most candidates take into the industry. FRC’s guide to how to become an investment adviser representative covers each step from the exam to a first role.
Get Exam-Ready
Questions on investment advisers are among the most dependable marks in the laws section once the definition, the exclusions and the thresholds are clear. The FRC Series 65 playlist linked at the top of this guide covers every exam section, with the traps to look out for in each one.
The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes covering the FINRA and SEC rules you are tested on, so you can open any term and go deeper whenever a question catches you out.
Study With FRC
FRC’s programs and memberships are open to everyone. Whether you are preparing for the Series 65, the SIE or both, structured exam preparation turns adviser regulation into marks you can rely on.
FRC’s Professional Membership adds verified progress and a Digital Profile, so when you apply for roles, employers can see your exam progress and the knowledge you are building, not just read about it on a resume.
Your Next Step
A registered investment adviser is a firm or individual paid to give securities advice as a business, registered with the SEC or a state and bound by a fiduciary duty. The exam tests the three-part definition, the exclusions, the $100 million and $110 million thresholds and Form ADV.
Remember “securities, business, compensation” and “100 may, 110 must, 90 to leave,” and you will be ready for every version of this question the exam can ask.
