Module 1: Regulation of Investment Advisers & Covered Advisers (15% Exam Weight)

Series 63 — Module 1: Regulation of Investment Advisers & Covered Advisers

Master the Series 63 — Module 1: Regulation of Investment Advisers & Covered Advisers function of the Series 63 (Uniform Securities Agent State Law) exam with official regulatory rules, quantitative formulas, and targeted practice drills.

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Authoritative Series 63 Study Notes

Key Concepts & Regulatory Highlights

Covers the statutory definition of an Investment Adviser under the Uniform Securities Act (USA), the ABC test (Advice, Business, Compensation), LATE professional exclusions, NSMIA federal preemption ($100M/$110M RAUM thresholds), state notice filing for federal covered advisers, the 5-client de minimis exemption, and state minimum net worth/surety bond rules.

📐 Essential Calculation Formulas

NSMIA SEC Registration RAUM Thresholds

$100M Eligible | $110M Mandatory SEC | <$90M Withdraw to State

Advisers to registered investment companies (mutual funds) must always register with the SEC regardless of RAUM.

State IA Minimum Net Worth (NASAA Model Rule)

Custody = $35,000 | Discretion Only = $10,000

If net worth falls below minimum, the IA must notify the Administrator by the close of business the next day and file a financial report the day after that.

📜 Core Regulatory Rules & Requirements

✓Investment Adviser Definition & Exclusions (USA Section 401(f)): Includes any person who, for compensation, engages in the business of advising others as to securities. Excludes Banks/Savings Institutions, LATE professionals (Lawyers, Accountants, Teachers, Engineers whose advice is solely incidental), Broker-Dealers (when advice is solely incidental and no special compensation is charged), Publishers of bona fide general media, and Advisers solely to U.S. government securities.

✓NSMIA Federal Covered Adviser Thresholds: Advisers reaching $110M in Regulatory Assets Under Management (RAUM) must register with the SEC ($100M–$110M optional buffer). States cannot require registration of federal covered advisers, only a notice filing, consent to service of process, and filing fee.

✓State De Minimis Exemption: An investment adviser with NO place of business in a state is exempt from registering in that state if it has 5 or fewer retail clients resident in that state during the preceding 12 months.

✓NASAA Minimum Net Worth Requirements: State-registered advisers with custody must maintain $35,000 minimum net worth; advisers with discretionary authority (but no custody) must maintain $10,000 minimum net worth (subject to the Home State Rule).

💡 High-Yield Exam Watchouts

•Remember the mnemonic '1-1-1' for Net Worth Deficiency: Notify the Administrator by close of business 1 business day after discovery, and file a net worth report 1 business day after notification.
•Under the Home State Rule (USA Section 202), a state Administrator cannot impose higher net worth, bonding, or recordkeeping standards than those required by the state where the IA's principal office is located.

Why Study Series 63 — Module 1: Regulation of Investment Advisers & Covered Advisers?

The Series 63 — Module 1: Regulation of Investment Advisers & Covered Advisers portion of the Uniform Securities Agent State Law (Series 63) exam is critical for passing on your first attempt. Understanding these concepts builds both test-day precision and practical regulatory fluency.

Our practice questions and formulas are engineered to mirror the official Series 63 blueprint and statutory complexity you'll encounter at Prometric.

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