Series 63 practice questionhardDefinition of Investment Adviser — Exclusions and Dual Registration
Blue Lake Trust Company is a state-chartered bank that provides financial planning services to its trust clients for a separate fee. It also operates a wholly-owned subsidiary, BL Advisors, which offers investment advice to the general public for compensation. Under the Uniform Securities Act, which of the following statements is TRUE regarding the definition and registration requirements of an investment adviser in this scenario?
- ANeither Blue Lake Trust Company nor BL Advisors is required to register as investment advisers because their advice is incidental to their banking business.
- BBlue Lake Trust Company is excluded from the definition of investment adviser, but BL Advisors must register as an investment adviser with the state unless another exemption applies.✓ Correct answer
- CBlue Lake Trust Company must register as an investment adviser with the state, but BL Advisors need not register if its clients are only institutional investors.
- DBoth Blue Lake Trust Company and BL Advisors are excluded from the definition of investment adviser because they are affiliated.
Explanation
Why B — Blue Lake Trust Company is excluded from the definition of investment adviser, but BL Advisors must register as an investment adviser with the state unless another exemption applies.
Under the USA, banks and bank holding companies are excluded from the definition of investment adviser (USA Section 401(c)), but their separately incorporated subsidiaries are NOT excluded and must register if they are compensated for providing investment advice, unless another exemption applies. BL Advisors, as a separate legal entity, would need to register, but Blue Lake Trust Company itself is excluded.
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