Series 65 Section IV: laws, regulations and unethical business practices — what’s tested and the traps
Section IV of the Series 65 (Uniform Investment Adviser Law Examination) tests laws, regulations and guidelines, including the prohibition on unethical business practices: 39 of the 130 scored questions, or 30%. Most turn on the Uniform Securities Act of 1956 as amended by NASAA, read next to the Investment Advisers Act of 1940.
- Section
- IV
- Outline weight
- 30%
- Scored items
- 39 of 130
- Drill here
- 12 questions
What Section IV covers
Section IV ties with Section III as the largest block on the content outline NASAA put into effect in June 2023: three of every ten questions that count. The study guide hub shows how it sits beside the other three sections. The outline splits it into eight areas.
| Area | What it covers |
|---|---|
| A · Investment advisers | definitions, state vs federal covered, notice filing, registration, books and records, Form ADV |
| B · IARs | definition, activities that need registration, exclusions, Form U4 updates |
| C · Broker-dealers | definition, underwriters, market makers, associated persons |
| D · Agents | of a broker-dealer or of an issuer |
| E · Securities and issuers | registration methods, exempt securities and transactions, antifraud |
| F · Administrator and liability | powers, administrative actions, civil and criminal liability |
| G · Client communications | disclosures, claims about registration, contracts, advertising |
| H · Ethics and fiduciary duty | fees, custody, discretion, conflicts, personal trading, vulnerable adults |
Learn it in the order the questions assume: who the person is, where they register, what they may not do, and what happens when they do it anyway.
Who is an investment adviser, an IAR, a broker-dealer, an agent
The act regulates four kinds of “person”. Sort the stem wrong and every rule after it is wrong too.
- Investment adviser (IA)
- In the business of advising others on securities for compensation. A firm or a sole proprietor; a financial planner who gives securities advice is one.
- Investment adviser representative (IAR)
- An individual who advises, manages accounts or solicits for an IA. A clerk doing none of that is not one.
- Broker-dealer (BD)
- In the business of effecting securities trades for others or for its own account. A firm or a sole proprietor.
- Agent
- An individual who represents a BD or an issuer in buying or selling securities.
| Who | Excluded while… | Loses it when… |
|---|---|---|
| Banks, savings institutions, trust companies | they act as such | — |
| Lawyers, accountants, teachers, engineers | advice is solely incidental to the profession | they hold out as advisers or charge for advice |
| Broker-dealers | advice is incidental to brokerage | they take special compensation for it |
| Publishers | bona fide, general, regular, paid circulation | the advice is personalized |
| Federal covered advisers | SEC-registered | — but they still notice-file |
The exemption you will meet most is the de minimis rule. An IA with no place of business in a state need not register there if all its clients there are institutional, or if it had 5 or fewer non-institutional clients resident there in the past 12 months. Open an office in the state and it is gone at any count. BDs have their own version covering existing customers who do not reside in the state (the “snowbird” case).
One habit pays for this whole section: name the person, IA, IAR, BD or agent, before you read the choices.
State vs federal: Uniform Securities Act, Advisers Act, NSMIA
NSMIA split adviser regulation by size: the SEC registers the larger advisers under the 1940 Act, the states register the rest. The line runs through assets under management (AUM).
| AUM | Registers with | Detail |
|---|---|---|
| Under $25M | the state | barred from the SEC unless an exception applies (e.g. adviser to a registered fund, or required in 15+ states) |
| $25M to under $100M | generally the state | the mid-size band |
| $100M to $110M | either | may register with the SEC |
| $110M or more | the SEC | must register |
| Already with the SEC | the SEC | stays until AUM falls below $90M |
Federal covered advisers only notice-file with states. The state keeps its antifraud power and still registers the IARs with a place of business in the state, the most-missed fact here: the firm sits with the SEC while its people sit with the state.
Registration mechanics
Effective at noon on day 30
after a complete filing (BD, agent, IA, IAR), unless the Administrator acts sooner. For an IAR the firm files Form U4.
Renew by December 31
Every registration expires on Dec 31 unless renewed.
Report moves
When an agent joins or leaves a BD, both notify the Administrator.
Withdraw
Effective after 30 days; the Administrator keeps jurisdiction for 1 year.
Securities: registration and exemptions
Notification is for seasoned issuers; coordination rides a federal registration and goes effective with it; qualification covers the rest and goes effective when the Administrator orders. Federal covered securities only notice-file or are exempt.
| Exempt security | Exempt transaction | |
|---|---|---|
| Answers | what is sold | how it is sold |
| Examples | US government, municipal, bank, listed, non-profit; commercial paper ≤ 9 months, top-3 rated, $50,000+ units | isolated non-issuer, unsolicited, institutional, private placement, executor sales |
| Watch for | a variable annuity is not exempt as insurance | state private placement: ≤ 10 offerees in 12 months |
| Antifraud | applies | applies |
Fiduciary duty, custody, contracts and fees
An IA owes a fiduciary duty, care and loyalty, that the client cannot waive; a “hedge clause” asking the client to give up rights is unethical. Regulation Best Interest governs BDs and agents with retail customers, not IAs, and Form CRS is not filed by state-registered IAs. Suitability itself is Section III, in the client recommendations guide.
The advisory contract under the USA
- In writing (the federal Advisers Act does not require this).
- No performance fee unless the client qualifies (below).
- No assignment without consent; a minority-interest change is not one.
- A partnership tells clients when its membership changes.
$1.4M
Qualified client: AUM with the adviser
or $2.7M net worth excluding the home; SEC thresholds since June 29, 2026 (were $1.1M / $2.2M). States may lag.
$35,000
Minimum net worth, state IA with custody
$10,000
Minimum net worth, discretion only
>$500
Prepaid 6+ months ahead
triggers an audited balance sheet for a state IA
Custody is wider than holding cash: authority to deduct fees counts, and so does acting as trustee or general partner. Fee deduction needs written authority, an invoice to the client and qualified-custodian statements at least quarterly.
Brochures and discretion
- Brochure, state IA: 48 hours before signing, or at signing with 5 business days to cancel.
- Discretion, IA: oral authority for 10 business days after the first discretionary trade, then written.
- Discretion, agent: written before the first discretionary trade.
- Time or price only: not discretion; good for that day.
Unethical business practices
NASAA’s statements of policy become scenarios: someone did something, and you decide whether it crossed the line. Most turn on whether the conflict was disclosed and consented to before the act.
| Practice | Allowed only when | Unethical when |
|---|---|---|
| IA borrows from a client | the client is in the lending business | anyone else |
| Agent shares in an account | written approval from client and BD, in proportion to contribution | unapproved or out of proportion |
| Agency cross trade | prior written consent, a confirmation per trade, annual summary | the IA recommends to both sides |
| Principal trade by an IA | disclosure and consent before settlement of each trade | blanket or after-the-fact consent |
| Soft dollars (§28(e)) | research or brokerage that aids decisions, disclosed | it pays rent, travel, meals or marketing |
| Political contributions | ≤ $350 per election if the contributor can vote, $150 if not | above: 2 years without paid advice to that government entity |
| Advertising | testimonials with the SEC Marketing Rule disclosures | implying registration means approval; “RIA” after a name |
Also on the list: churning, selling away (an agent selling outside the firm’s knowledge), manipulation, confidentiality, and insider trading, with a civil penalty up to 3 times the profit gained or loss avoided.
Administrator powers and penalties
The exam tests the edges of the state regulator’s authority, so learn what it cannot do as well as what it can.
| Action | Can it? | Condition |
|---|---|---|
| Deny, suspend, revoke a registration | Yes | notice, a hearing opportunity, public interest and a statutory ground |
| Summarily suspend pending a hearing | Yes | hearing within 15 days of a written request |
| Cease-and-desist, subpoena, investigate out of state | Yes | — |
| Cancel a registration | Yes | person no longer exists or is incompetent; not a penalty |
| Deny only for lack of experience | No | not if qualified by training or knowledge |
| Imprison anyone | No | only courts can |
$5,000 / 3 yrs
Criminal cap, willful violation
fine, prison or both
3 yrs / 2 yrs
Civil suit deadline
3 years after the sale or advice, 2 after discovery; whichever comes first
30 days
To accept a rescission offer
or the right to sue is lost
A buyer who wins a civil suit recovers the price paid plus interest, costs and attorneys’ fees, less income received.
Common traps
The accountant who starts billing
A CPA flags a client’s concentrated bonds during tax work, free. Next year the invoice adds “portfolio review”.
Excluded in year one; an IA in year two
Six clients, no office
No place of business in the state; 6 non-institutional clients there in 12 months.
Must register: de minimis stops at 5
A state adviser reaches $105M
AUM grows from $80M to $105M.
May move to the SEC; must at $110M
Practice: Section IV questions
The pad holds 12 original practice questions written to the Section IV outline; it drills, it does not predict a result. Answer and the key gets a navy box and a ✓, with a note on every option. Unsure? “Skip to the second pass” (S) parks it until the first pass ends. For a mixed set, the Series 65 practice test has 60 questions, 18 from Section IV; log misses by topic (“de minimis”, “agency cross”) in your study plan.
Section IV drill · 12 questions
0 of 12 answered · 0 right
Question 1 of 12§ IV · Law & ethics
Which of the following is considered a 'federal covered security' that is generally exempt from state registration requirements?
Pick an answer. The reasoning, and a note on every option, appears here.
Keys: 1–4 or A–D answer · N next · S skip
Section IV FAQ
What is on the laws and regulations section of the Series 65?
39 of the 130 scored questions (30%) on who counts as an adviser, IAR, broker-dealer or agent; state vs SEC registration; securities exemptions; contracts and communications; fiduciary duty, custody and unethical practices; and the Administrator’s powers and penalties, under the 1956 Uniform Securities Act as amended by NASAA and the Advisers Act of 1940.
What is the difference between an investment adviser and an investment adviser representative?
The adviser is the business, a firm or sole proprietor, that advises on securities for pay; the IAR is an individual who advises or solicits for it. The adviser registers with the SEC or the state by AUM; the IAR registers with the state where they have a place of business, even when the firm is SEC-registered.
Which Uniform Securities Act is tested on the Series 65?
The 1956 act as amended by NASAA. The 2002 version is not tested.
- Study guideSeries 65 study guide: the 4 sections, their weights, and what to study
- Section IIISeries 65 Section III: client recommendations and strategies — what’s tested and the traps
- Practice testFree Series 65 practice test: 60 questions across all 4 sections
- LicenseHow to get a Series 65 license: requirements, registering for the exam, and IAR registration
- Study planHow long to study for the Series 65, and a plan that follows the section weights
Take the pad with you
Series 65 practice on your iPhone, for the commute and the ten minutes before bed.