Notes

In general terms, the Investment Advisers Act of 1994 protects against self-dealing by providing for an "investment adviser" to have limited liability. However, the Advisers Act does not define an "investment adviser" or even specifically exclude any categories of persons from its definition. Similarly, the Advisers Regulations does not limit the responsibilities of a self-employed investment adviser (as it does the professional fiduciary). In short, the regulations and FINRA do not apply to self-employed investment advisers. This begs the question as to whether a self-employed professional fiduciary is subject to the same FINRA regulation as an investment adviser.
Under the Investment Advisers Act, an investment adviser is defined as: a "a person practicing as an investor" who: (I) advises a client; (ii) provides advisory services on behalf of a client; or (iii) holds himself out to be an investor. To be self-employed, a person must: (I) possess a trade or occupation ordinarily related to the business of banking or in the practice of managing financial accounts; (ii) derive most of his or her income from investments; and (iv) possess the necessary qualifications and conduct business in a manner consistent with the provisions of the securities laws of the United States.

Under the rules of the Advisers Regulations, a self-employed professional fiduciary is subject to the same FINRA regulations as other registered investment advisors. As such, he or she must: (a) maintain proper books of account; (b) retain records of all transactions; (c) report changes in assets, liabilities, and ownership of personal assets; (d) prepare and file reports as required by the SEC; (e) engage in communications with clients as required by the SEC; (f) carry out other functions as directed by the SEC; and (g) provide timely reporting and compliance with applicable federal, state, and local laws. FINRA enforcement may be further divided between two categories as outlined in the regulations: (I) investment management and (ii) investment counsel. As an advisor, a personal fiduciary is responsible for the advising the client on investment matters and for preparing the client's financial reports and for compliance with applicable federal, state, and local laws.

As an investment adviser, your clients may receive regular advice from you as to the investment products that would suit his or her needs. You should not provide investment advice to a client without first obtaining the client's informed consent. This means that you should not suggest the purchase or sale of any securities other than those that are qualified for investment according to the client's investment needs. It is also important to remember that you are not a legal representative of your client. As an investment adviser, your fees may be paid either as a flat fee, an annual fee, or in a deferred or residual manner. The manner in which the fees are paid will depend on the specific arrangement between you and your client.

As an investment adviser, it is your responsibility to diligently seek out and obtain the best investment deals for your clients. Advice as to where to invest should only come from you. You should not rely solely on the advice of your employees, estate planners, insurance agents, or bankers. Before you make recommendations to a client, you need to be confident that you have the information necessary to justify such recommendation.

An investment adviser's performance is also affected by the availability of other competent investment counselors. If one or more of these professionals are unavailable, you may lose business. An investment adviser's reliability and character are directly affected by the availability of other professionals who are able to act as a backup should the situation ever arise. You are therefore advised to keep in touch with other professionals as well as friends and family when you are looking for a new investment counsel.
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