“Who Counts?” Before the exam asks if you can advise anyone, it asks a
colder question. Does the law even see you?
You know what a stock is. You can explain a covered call to your barber. None of that saves you in
the first room, because the Series 65 doesn't open with markets. It opens with a clipboard.
This is where confident people go to die. Sixty percent of the folks who fail the 65 lose it in the
rulebook, not the math. So we start here, while your coffee's hot.
The boss of this room is named Who Counts. He only speaks in definitions.
The 4 Heads of the Beast
The Uniform Securities Act (yes, it's abbreviated USA, the regulators love a confusing name) watches
four kinds of people. Two are firms, two are humans. Swap them and you don't miss one question, you miss a cluster.
Role
What it does
Firm / Human
Paid via
Investment Adviser (IA)
Gives advice for pay
Firm
Fees
IA Representative (IAR)
The human at the IA
Human
via the IA
Broker-Dealer (BD)
Transacts. Buys and sells.
Firm
Commissions
Agent
The human at the BD
Human
via the BD
⚙ Trap Card #1: Fee vs. Commission.
The cleanest line on the whole exam. Advice for a fee is IA world. Transactions for a commission is BD world.
When a question buries the word “fee” or “commission” in a wall of text, that word is
the answer. The rest is set dressing. Circle it and move on.
The ABC test
NASAA wants to know if someone is an Investment Adviser. There's a three-part test, and you need all three.
A is Advice about securities. Not real estate, not gold bars, not the baseball cards in your closet.
B is Business. You do it regularly, or you hold yourself out as doing it.
C is Compensation. You get paid. Any form counts.
All three, you're an IA. Miss one, you're not. The exam hands you a character missing exactly one
prong and asks if they have to register. Find the missing prong.
⚙ Trap Card #2: Comp doesn't have to be a check.
Bundle the advice fee into a bigger bill and it still counts as compensation. NASAA loves the
“but he didn't charge separately” head-fake. Don't fall for it.
Excluded vs. Exempt
This is the line that separates passing from almost passing, and people blow it because the
two words feel like the same word. They aren't.
Excluded means the law never saw you as an adviser in the first place. You were never in the room.
Exempt means the law sees you just fine. It's an adviser. It just waves you through registration anyway.
The classic exclusions: the “LATE” crowd
Professionals whose advice is solely incidental to their real job and who take no special pay
for it. Lawyers, Accountants, Teachers, Engineers. Plus banks and broker-dealers.
The second one of them starts charging specifically for securities advice and holding out as an
adviser, they fall out of the club and become an IA. The exam flips that switch mid-sentence and waits to see if you noticed.
⚙ Trap Card #3: The “solely incidental” tripwire.
Accountant telling you which tax lot to sell? Incidental, excluded. Accountant running a billed model
portfolio for clients? That's an IA wearing an accountant costume. Same person, opposite answer.
State or Federal? The $100M line
An IA registers with the SEC or with the state. Almost never both for the same work. The line is
Assets Under Management.
Under $100M: register with the state. You're state-covered.
$100M and up: register with the SEC. You're a federal covered adviser.
The buffer, roughly $100M to $110M: you get to choose. Cross the top and you go federal.
Fall back under the bottom and you go back to the state.
⚠ Verify the exact buffer numbers and the oddball cases (mid-size advisers in states
without exam authority, pension consultants) against current NASAA and SEC material before you trust them.
Those thresholds get tweaked, and my memory is not a primary source.
Little advisers go to the states. Big advisers go to the feds. That's the whole shape of it.
⚙ Trap Card #4: Notice filing.
A federal covered adviser doesn't register with the state. But the state can still make it
notice file, which is a copy plus a fee, and the state keeps its anti-fraud teeth.
“The state has zero power over a federal adviser” is a wrong answer built to feel right.
🎯 The Run: Episode 1 Quiz
0XP
0/10Answered
Q1
A CPA does a client's taxes and, while she's at it, tells him to hold a stock until next
year for the better capital-gains rate. She charges her normal tax-prep fee, nothing extra. Is she an IA?
No. Excluded. The advice is solely incidental and there's no special pay. She's
in the LATE club. (Trap #3)
Q2
Same CPA. Now she launches a service: for a separate quarterly fee, she picks and
monitors a securities portfolio for 40 clients. Now?
Yes, she's an IA. All three prongs land: Advice, Business (40 clients,
regularly), Compensation (separate fee). The costume stops working the second she steps into the role.
Q3
Fill in the blanks. An IA is a firm paid by ____. A Broker-Dealer is a firm paid by ____.
Fees for the IA, commissions for the BD. Cleanest line on the test. (Trap #1)
Q4
A firm manages $250M. Where does it register?
The SEC. Federal covered. Well past $100M, so it's the feds. The states can
still ask for a notice filing, but registration is federal. (Trap #4)
Q5
A firm manages $40M. Where does it register?
The state. Under $100M means state-covered.
Q6
True or false: excluded and exempt both just mean you don't have to register.
False. Excluded means not an adviser at all. Exempt means an adviser with a
hall pass. Different words, different consequences, and the exam lives in that gap.
Q7
A guy gives stock opinions on a free podcast. Never charges, never manages money,
never holds out as an adviser for hire. IA?
No. He fails Compensation (and probably Business too). General, impersonal,
regularly-published commentary can sit under a publisher's exclusion. The day he charges for
individualized advice, that protection is gone.
Q8
A firm's IA registration is effective. A brand-new rep starts advising clients the
next morning. Fine, since the firm is registered?
No. The rep has to be registered too. A registered firm does not auto-license
its people. “The firm's registered, so the rep's good to go” is the trap.
Q9
Which single word is the whole answer here? “A person, for a flat annual fee,
gives clients ongoing recommendations on which mutual funds to hold.”
“Fee.” Fee plus securities advice is IA world. Everything else in
the sentence is decoration. (Trap #1)
Q10
A federal covered adviser opens an office in a new state. The state demands full
registration. Right or wrong?
Wrong. The state can require a notice filing plus fees and it keeps anti-fraud
authority, but it can't pile a second full registration on a federal covered adviser. (Trap #4)
📓 Weak-Knees Ledger
Check the traps that got you. It saves in your browser, and these come back to ambush you in Episode 3
when you think you've forgotten them.
Study aid, not legal or compliance advice. Verify current thresholds against official NASAA materials.