SEC Release IA-1092: Overview and Implications

What IA-1092 is

SEC Release IA-1092 is an interpretive memorandum issued jointly by the U.S. Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA) that clarifies how federal and state securities laws apply to persons and firms who provide financial planning or investment-advisory services. Issued in 1987, it expands on the Investment Advisers Act of 1940 and provides guidance on who must register as an investment adviser and when.

Background

The release responded to the rapid growth of financial planners and related professionals during the 1980s. It reaffirmed the basic definition of an investment adviser from prior guidance and added specific clarifications to address new business models and service arrangements that had emerged.

Key clarifications in IA-1092

• Broad scope of “investment adviser”: Persons who, for compensation, advise others about the value or advisability of securities are generally investment advisers—even if advice is only part of their overall services.
• Inclusion of pension consultants: Pension consultants and advisers to athletes and entertainers were specifically recognized as potential investment advisers.
• Registration triggers: Regular provision of investment advice, even if not the firm’s principal business, can trigger registration requirements.
• Compensation definition: Compensation need not be monetary—receiving products, services, or discounts in exchange for advice can constitute compensation.
• Broker-dealer exemption limited: Registered representatives who set up separate businesses to provide fee-based financial planning or investment advice generally cannot rely on the broker-dealer exemption from adviser registration (termed a statutory investment adviser).
• Sports/entertainment agents: Individuals who only negotiate contracts and do not give investment advice are excluded from the adviser definition.

Relation to the Investment Advisers Act of 1940

The Investment Advisers Act of 1940 defines an investment adviser as someone who, for compensation, engages in the business of advising others about securities. The Act (see Title 15, section 80b-1) treats investment advisers as matters of national concern because:
– Their publications and advice typically cross state lines,
– Their work often relates to securities traded on national exchanges or in interstate OTC markets,
– Their activities can materially affect national securities markets and the broader economy.

IA-1092 interprets and applies these statutory principles to modern advisory practices, helping regulators and practitioners determine when federal or state registration and regulation apply.

Practical implications

• Financial planners, pension consultants, and others providing investment-related advice should evaluate whether their activities and compensation arrangements require adviser registration.
• Firms and individuals offering fee-based separate entities should not assume broker-dealer registration covers advisory activities.
• Non-monetary benefits tied to advice should be treated as compensation for regulatory purposes.
• Agents whose role is limited to contract negotiation (without investment advice) are generally not advisers under the guidance.

Key takeaways

• IA-1092 clarifies the reach of adviser registration and applies the 1940 Act to a broad set of financial-service activities.
• Regular provision of investment advice or receiving non-monetary compensation can trigger adviser obligations.
• The release helps distinguish advisory activities that require registration from other financial services that do not.

Sources

• U.S. Securities and Exchange Commission. Interpretive Release: 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 (IA-1092).
• U.S. Code, Title 15, Section 80b-1 (Investment Advisers Act of 1940 findings).