Last updated: February 2026 | Sources: NASAA, SEC, Uniform Securities Act
Why the Laws & Regulations Section Is Where Most Candidates Fail
The Laws, Regulations, and Guidelines section accounts for 30% of the Series 65 exam -- approximately 39 scored questions out of 130. That makes it the joint-largest section on the test (tied with Client Investment Recommendations and Strategies). But here is the critical difference: it is the section where the most candidates lose their passing margin.
Why? Three reasons:
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The material is dense and legalistic. The Uniform Securities Act reads like a law textbook. Registration requirements, exemptions, exclusions, prohibited practices, and administrator powers all have precise definitions with subtle distinctions that trip up even experienced finance professionals.
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Candidates underestimate it. Many test-takers come from investment backgrounds and assume their market knowledge will carry them. They spend weeks on portfolio theory and economics but give the Laws section only a few days. That is a fatal miscalculation.
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The questions test distinctions, not definitions. The exam rarely asks "what is a fiduciary?" It asks questions like: "In which of the following situations does the adviser NOT have a fiduciary obligation?" or "Which of the following persons is EXCLUDED from the definition of investment adviser?" These require precision, not general knowledge.
The bottom line: If you master this section, you give yourself a massive advantage. If you neglect it, you are almost certainly going to fail. This guide breaks down every major topic in the Laws & Regulations section so you can walk into the exam confident.
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Fiduciary Duty Explained: Investment Advisers vs. Broker-Dealers
Understanding fiduciary duty is the single most important concept in the Laws section. The Series 65 exists specifically to license people who will be held to this standard, so expect it to be tested from multiple angles.
What Is Fiduciary Duty?
A fiduciary is a person who holds a legal obligation to act in another party's best interest. For investment advisers, this means:
- Duty of Loyalty: Put the client's interests ahead of your own in every situation
- Duty of Care: Provide advice that is suitable, well-researched, and in the client's best interest
- Duty of Disclosure: Reveal all material facts, including conflicts of interest, fees, and disciplinary history
- Duty to Seek Best Execution: Obtain the most favorable terms reasonably available for client transactions
- Duty to Monitor: Continuously review client accounts and update recommendations as circumstances change
Fiduciary vs. Suitability: The Critical Distinction
| Standard | Fiduciary Duty (IA Standard) | Suitability / Reg BI (BD Standard) |
|---|---|---|
| Who | Investment Advisers (IAs) and IARs | Broker-Dealers (BDs) and Agents |
| Core Obligation | Act in the client's best interest at all times | Recommendation must be suitable at the time it is made |
| Conflicts | Must avoid or fully disclose all conflicts | Must disclose conflicts at time of recommendation |
| Ongoing Duty | Yes -- continuous monitoring obligation | No -- duty applies at the time of recommendation |
| Compensation | Fee-based (AUM, hourly, flat fee, performance-based for qualified clients) | Commission-based or fee-based |
| Legal Source | Investment Advisers Act of 1940; state law | FINRA Rules; SEC Regulation Best Interest |
| Key Phrase | "Best interest of the client" | "Suitable based on client's profile" |
Exam Tip: When a question describes a person giving investment advice for compensation in an ongoing relationship, that person is almost certainly an investment adviser held to the fiduciary standard. When a question describes a one-time securities transaction, think broker-dealer and suitability.
Memory Trick: IA = I Always put clients first (fiduciary). BD = Before the Deal is suitable (suitability at time of recommendation).
The Uniform Securities Act (USA): Registration Requirements
The Uniform Securities Act is the backbone of the entire Laws section. It is a model state securities law that most states have adopted (with modifications). The Series 65 tests the USA extensively because it governs how investment advisers, their representatives, broker-dealers, and agents operate at the state level.
Who Must Register?
The USA requires registration for four categories of persons:
| Person | Definition | Registers With |
|---|---|---|
| Investment Adviser (IA) | A person who, for compensation, engages in the business of advising others about securities | State (if AUM < $100M) or SEC (if AUM >= $100M) |
| Investment Adviser Representative (IAR) | An individual who represents an IA and makes recommendations, manages accounts, or solicits advisory services | State where they have an office or meet clients |
| Broker-Dealer (BD) | A person in the business of effecting transactions in securities for the accounts of others or for their own account | State and FINRA/SEC |
| Agent | An individual who represents a BD in effecting or attempting to effect securities transactions | State where they operate |
The $100 Million AUM Threshold
This is one of the most tested concepts:
- Under $100 million AUM: Register with the state (state-registered adviser)
- $100 million to $110 million AUM: May register with either the state or SEC (buffer zone)
- $110 million AUM and above: Must register with the SEC (federal covered adviser)
Exam Tip: Federal covered advisers are not subject to state registration requirements, but they must still notice file in states where they conduct business. Notice filing means filing a copy of their Form ADV and paying a fee -- but the state does not "register" them and cannot impose additional requirements beyond what the SEC requires.
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Registration Exemptions: Who Does Not Need to Register
Not every person who provides investment-related services must register as an IA. The USA provides several important exclusions and exemptions.
Excluded from the Definition of Investment Adviser
These persons are not investment advisers under the USA and therefore have no registration requirement:
| Excluded Person | Condition for Exclusion |
|---|---|
| Banks and trust companies | Automatically excluded (regulated by banking regulators) |
| Lawyers, accountants, engineers, teachers | Advice must be incidental to their profession and they receive no special compensation for it |
| Broker-dealers | Advice must be incidental to BD business and they receive no special compensation for it |
| Publishers | Must be of general and regular circulation (not personalized advice) -- the "bona fide publisher" exclusion |
| Federal covered advisers | Excluded from state registration (registered with SEC instead) |
| Any person the administrator designates | State administrator has authority to exclude specific persons by rule or order |
Exam Tip: The two-part test for the LATE exclusion (Lawyers, Accountants, Teachers, Engineers) is critical: (1) advice must be incidental to their profession, AND (2) they receive no special compensation for the advice. If either condition fails, they must register as an IA. Remember: LATE = Lawyers, Accountants, Teachers, Engineers.
Exempt from Registration (But Still an IA)
These persons meet the definition of IA but are exempt from registration:
- IAs with no place of business in the state who deal only with institutional clients (banks, insurance companies, other IAs, broker-dealers, pension plans)
- IAs with no place of business in the state who have 5 or fewer non-institutional clients in the state during the preceding 12 months (the de minimis exemption)
- Federal covered advisers (registered with the SEC, not the state)
Exam Tip: The de minimis exemption is a common trap. An IA from another state can advise up to 5 non-institutional clients in a state without registering there -- but only if they have no place of business in that state. Once they open an office, they must register regardless of the number of clients.
Prohibited Practices: What You Cannot Do
This is the highest-yield subtopic in the Laws section. The USA and NASAA model rules define a long list of fraudulent, unethical, and prohibited business practices. Expect 8-12 questions on prohibited practices alone.
Prohibited Practices Table
| Practice | Description | Why It Is Prohibited |
|---|---|---|
| Churning | Excessive trading in a client account to generate commissions | Puts adviser/agent compensation ahead of client interests |
| Front-running | Trading in a personal account ahead of a client's pending order | Exploits knowledge of client orders for personal gain |
| Selling away | Conducting securities transactions outside the employing firm | Violates firm supervision requirements and exposes clients to unregistered activity |
| Commingling | Mixing client funds with the adviser's own funds | Creates risk of misappropriation and makes accounting impossible |
| Sharing in client gains/losses | Sharing in profits or losses of a client account disproportionately | Exception: proportional sharing is permitted with written client consent (the adviser's share must not exceed their proportional contribution) |
| Guaranteeing against loss | Promising a client that they will not lose money | No investment is risk-free; guarantees are inherently misleading |
| Unauthorized trading | Making trades without client authorization (absent discretionary authority) | Violates the client's right to control their own account |
| Misrepresentation | Making false or misleading statements about securities, services, or qualifications | Deceives clients and undermines informed decision-making |
| Omission of material facts | Failing to disclose information that a reasonable investor would consider important | Same as misrepresentation -- deception through silence |
| Borrowing from or lending to clients | Personal financial transactions between adviser and client | Creates conflicts of interest and potential for exploitation |
| Backdating records | Altering transaction dates or records | Fraud -- undermines regulatory oversight and client trust |
| Recommending unsuitable investments | Recommending securities that do not match the client's risk tolerance, objectives, or financial situation | Violates the duty of care and suitability obligations |
The Sharing Exception You Must Know
The prohibition on sharing in client gains/losses has one critical exception:
Proportional sharing is permitted if:
- The client provides written consent
- The adviser's share of gains/losses does not exceed their proportional contribution to the account
Example: If an adviser contributes 30% of the funds in a joint account and the client contributes 70%, the adviser may share in up to 30% of the gains or losses -- but not more. This must be documented in writing.
Memory Trick for Prohibited Practices: Think "FCGS-CUB" -- Front-running, Churning, Guaranteeing against loss, Selling away, Commingling, Unauthorized trading, Borrowing from clients. If you can remember these seven, you will catch most prohibited practices questions.
Investment Adviser Fee Structures
The Series 65 tests your knowledge of how advisers are compensated and which fee arrangements are permitted under the law.
Common Fee Structures
| Fee Type | Description | Key Rules |
|---|---|---|
| AUM-based (% of assets) | Adviser charges a percentage of client assets under management (typically 0.5%-2%) | Most common; aligns adviser and client interests (adviser earns more when client's portfolio grows) |
| Hourly fees | Adviser charges a fixed hourly rate for advisory services | Must be disclosed in advance; common for financial planning-only engagements |
| Flat/fixed fees | Adviser charges a set fee for a defined scope of services | Must be disclosed; used for financial plans, consultations |
| Wrap fees | Single fee covers advisory services, trading costs, and custodial services bundled together | Must disclose that trades are not individually commissioned; may create incentive for adviser to trade less |
| Performance-based fees | Adviser compensation tied to investment performance (e.g., percentage of capital gains) | Generally prohibited -- allowed only for qualified clients |
The Qualified Client Exception for Performance Fees
Performance-based fees are prohibited under the Investment Advisers Act of 1940 (Section 205) and the USA -- unless the client qualifies:
| Qualified Client Threshold | Amount (as of 2026) |
|---|---|
| AUM with the adviser | $1.1 million or more |
| Net worth | Exceeding $2.2 million (excluding primary residence) |
| Qualified purchaser | $5 million or more in investments |
| Company executives | Knowledgeable employees of the adviser |
Exam Tip: The qualified client thresholds are adjusted for inflation by the SEC. Know the current numbers. Also understand why the exception exists: sophisticated, wealthy investors are presumed to understand the risks of performance fee arrangements and do not need the same protections as retail investors.
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Custody and Disclosure Requirements
Custody and disclosure rules protect clients from adviser misconduct. These rules generate several exam questions because the requirements are specific and detail-oriented.
Custody of Client Assets
An investment adviser has custody when it directly or indirectly holds, has access to, or has authority over client funds or securities. Under the USA and SEC rules:
| Requirement | Details |
|---|---|
| Notification | Must notify the state administrator (or SEC) that the adviser has custody |
| Segregation | Client assets must be held in a separate account -- never commingled with adviser funds |
| Qualified custodian | Client assets must be maintained with a qualified custodian (bank, BD, etc.) |
| Account statements | Clients must receive account statements at least quarterly from the custodian or the adviser |
| Surprise audit | State-registered advisers with custody may be subject to an annual surprise examination by an independent public accountant |
| Balance sheet | An adviser with custody (or who requires prepayment of fees exceeding $500 for 6+ months) must include an audited balance sheet in Part 2A of Form ADV |
Form ADV: The Adviser's Registration Document
Form ADV is the primary registration and disclosure document for investment advisers. It has two main parts:
| Part | Contents | Delivered To |
|---|---|---|
| Part 1 | Organizational information, disciplinary history, business practices, AUM, number of employees | Filed with SEC or state (not delivered to clients) |
| Part 2A (The Brochure) | Services, fees, investment strategies, disciplinary information, conflicts of interest, education/experience | Must be delivered to clients |
| Part 2B (Brochure Supplement) | Information about specific individuals who provide advice (education, experience, disciplinary history) | Must be delivered to clients assigned to that individual |
The Brochure Rule (Rule 204-3)
The brochure rule requires delivery of Form ADV Part 2A under one of two methods:
- 48-hour rule: Deliver the brochure at least 48 hours before entering into the advisory contract, OR
- Right of rescission: Deliver at the time of entering the contract, and the client has 5 business days to terminate without penalty
Annual updates: Each year, the adviser must deliver either a summary of material changes or an updated brochure within 120 days of the end of the adviser's fiscal year.
Exam Tip: The balance sheet disclosure is required in two specific situations: (1) the adviser has custody of client assets, or (2) the adviser requires prepayment of fees exceeding $500 for 6 or more months in advance. If neither condition applies, no balance sheet is required.
Ethical Business Practices
Beyond prohibited practices, the Series 65 tests your understanding of affirmative ethical duties that advisers must follow.
Suitability and Best Interest
Every recommendation must be suitable for the client based on:
- Financial situation (income, net worth, liquidity needs)
- Investment objectives (growth, income, preservation, speculation)
- Risk tolerance (conservative, moderate, aggressive)
- Time horizon (short-term, intermediate, long-term)
- Tax status (bracket, tax-advantaged account availability)
- Other investments (existing portfolio, concentration risk)
- Special circumstances (age, health, dependent care, legal restrictions)
Best Execution
Investment advisers have a duty to seek the most favorable terms reasonably available for client transactions. This does not mean the absolute lowest price in every case -- it means considering the total cost, including:
- Commission or markup/markdown
- Speed of execution
- Likelihood of execution at the desired price
- Quality of research and other services provided by the executing broker
Soft Dollars (Section 28(e) Safe Harbor)
Soft dollars are credits or benefits that an adviser receives from a broker-dealer in exchange for directing client trades to that firm. Under Section 28(e) of the Securities Exchange Act:
| Permitted Soft Dollar Uses | NOT Permitted |
|---|---|
| Research reports and analysis | Office rent or utilities |
| Financial publications and data | Staff salaries |
| Trading and portfolio management software | Travel and entertainment |
| Market data and pricing services | Personal expenses |
| Quantitative analysis tools | Marketing materials |
Exam Tip: The key rule is that soft dollar benefits must provide a legitimate research or trading benefit to clients. If the benefit is for the adviser's general overhead or personal use, it violates the soft dollar safe harbor and must not be paid with client commissions.
Allocation of IPOs
When an investment adviser obtains shares in an initial public offering (IPO), the shares must be allocated fairly among client accounts. Prohibited allocation practices include:
- Allocating IPO shares only to the adviser's favored clients or personal accounts
- Giving disproportionate shares to fee-paying clients over others
- Front-running client allocations by purchasing IPO shares for the adviser's own account first
The rule: IPO shares must be allocated based on a written allocation policy that treats all eligible clients fairly and equitably.
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Administrator Powers: The ABCD Framework
The state securities administrator is the regulatory authority charged with enforcing the Uniform Securities Act within the state. Understanding the administrator's powers is essential -- expect 3-5 questions on this topic.
What the Administrator CAN Do
Use the DSRC memory trick: the administrator can Deny, Suspend, Revoke, or Cancel registrations.
| Power | Description | Hearing Required? |
|---|---|---|
| Deny | Refuse to grant a pending registration application | No prior hearing required (but applicant can request one) |
| Suspend | Temporarily halt a current registration | Yes -- prior hearing required |
| Revoke | Permanently terminate a registration | Yes -- prior hearing required |
| Cancel | Remove a registration when the registrant can no longer be located, is deceased, is mentally incompetent, or has ceased to exist | No hearing required (this is a non-punitive, administrative action) |
Other Administrator Powers
| Power | Details |
|---|---|
| Investigate | Can investigate potential violations within or outside the state |
| Subpoena | Can issue subpoenas for witnesses, documents, and records |
| Cease and desist | Can issue orders to stop violations without a prior hearing |
| Seek injunctions | Can apply to a court for injunctive relief |
| Administrative penalties | Can impose fines and conditions on registrations |
What the Administrator CANNOT Do
This is where exam questions get tricky:
- Cannot impose jail sentences -- only a court can impose criminal penalties
- Cannot make rules about margin requirements -- that is the Federal Reserve (Regulation T)
- Cannot grant judicial remedies -- must go to court for injunctions and criminal penalties
- Cannot grant exemptions for federal covered securities -- those are exclusively under SEC jurisdiction
Memory Trick -- ABCD of Administrator Powers:
- A = Administrator can Act (investigate, subpoena, cease and desist) without a hearing
- B = Before suspending or revoking, a hearing is required
- C = Cancel is non-punitive and requires no hearing
- D = Deny a pending application without a prior hearing (but must provide opportunity to request one)
Grounds for Denial, Suspension, or Revocation
The administrator can take action based on:
- Filing an incomplete, misleading, or false application
- Conviction of a securities-related felony within the past 10 years
- Conviction of any felony within the past 10 years
- Being subject to an order from another securities regulator (SEC, another state, SRO)
- Being enjoined by a court from engaging in securities business
- Engaging in dishonest or unethical business practices
- Being insolvent (not merely having liabilities exceed assets, but inability to meet obligations as they come due)
- Failure to supervise agents or IARs
- Lack of qualification (but this applies only to the applicant, not to successors)
Exam Tip: A withdrawal of registration becomes effective 30 days after filing (or later if the administrator begins proceedings). The administrator can institute proceedings against a withdrawn registration for up to one year after the withdrawal becomes effective.
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Recent 2026 Updates: What Is New for Series 65 Candidates
NASAA and state regulators regularly update their model rules. Here are the developments that 2026 Series 65 candidates should be aware of:
Continuing Education for IARs
NASAA has implemented a continuing education (CE) program for investment adviser representatives that includes:
- Products and Practice: Annual training on current regulatory developments, compliance best practices, and investment product knowledge
- Ethics and Professional Responsibility: Annual training on fiduciary duty, conflicts of interest, and ethical decision-making
- Reporting: IARs must complete CE requirements and report compliance through the IARD system
Exam Tip: While the Series 65 exam itself has not historically tested CE in depth, expect questions on the general principle that IARs must maintain current knowledge and stay up to date on regulatory changes.
Protection of Seniors and Vulnerable Adults
NASAA has adopted model rules that address the financial exploitation of seniors and vulnerable adults:
- Mandatory reporting: Financial professionals may be required to report suspected financial exploitation to state securities regulators and/or Adult Protective Services
- Temporary holds: Broker-dealers and investment advisers may place a temporary hold on disbursements from an account if there is a reasonable belief that financial exploitation is occurring
- Trusted contact person: Firms may request that clients designate a trusted contact person who can be notified in cases of suspected exploitation or diminished capacity
- Safe harbor: Firms and individuals who report suspected exploitation in good faith are generally protected from liability
Digital Assets and Cybersecurity
State securities regulators are increasingly focused on:
- Digital asset securities: Tokens and digital assets that meet the definition of a security must comply with existing registration requirements
- Cybersecurity policies: Investment advisers must implement written cybersecurity policies covering data protection, incident response, and client notification
- Custody of digital assets: Advisers who have custody of digital asset securities must comply with the same custody rules that apply to traditional securities
NASAA Model Rules and Modernization
NASAA continues to update its model rules to address:
- Remote work and virtual offices: Clarification on what constitutes a "place of business" for registration and de minimis purposes
- Electronic delivery: Updated guidance on electronic delivery of brochures, account statements, and other required documents
- Form ADV updates: Ongoing amendments to require more detailed disclosure about adviser operations, conflicts, and risk management
Exam Strategy: How to Master the Laws Section
Step 1: Learn the Framework First
Before memorizing details, understand the overall structure:
- Who must register? (IAs, IARs, BDs, Agents)
- Who is excluded or exempt? (LATE professionals, federal covered advisers, de minimis)
- What is prohibited? (Churning, front-running, commingling, etc.)
- What must be disclosed? (Form ADV, brochure rule, conflicts)
- What can the administrator do? (DSRC, investigate, cease and desist)
Step 2: Use Comparison Tables
The exam tests distinctions. Build tables comparing:
- IA vs. BD (fiduciary vs. suitability)
- Excluded vs. Exempt (not an IA vs. IA but exempt from registration)
- State vs. Federal registration ($100M AUM threshold)
- Deny vs. Suspend vs. Revoke vs. Cancel (hearing requirements)
- Exempt securities vs. Exempt transactions (different concepts)
Step 3: Practice 100+ Laws Questions
Do not stop at reading -- active recall through practice questions is the most effective study method. Aim for at least 100 questions specifically on Laws, Regulations, and Guidelines before exam day.
Step 4: Use Memory Tricks
| Concept | Memory Trick |
|---|---|
| Excluded professionals | LATE -- Lawyers, Accountants, Teachers, Engineers (advice incidental + no special compensation) |
| Administrator powers | DSRC -- Deny, Suspend, Revoke, Cancel |
| Prohibited practices | FCGS-CUB -- Front-running, Churning, Guaranteeing, Selling away, Commingling, Unauthorized trading, Borrowing |
| Brochure delivery | 48 hours before OR at signing + 5-day rescission |
| Performance fee exception | Qualified clients: $1.1M AUM or $2.2M net worth |
| Custody statements | Quarterly minimum |
| Withdrawal effective | 30 days after filing |
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Key Takeaways
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The Laws & Regulations section (30%) is the #1 reason candidates fail the Series 65. Give it disproportionate study time -- at least 30-40% of your total preparation.
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Fiduciary duty is the foundation. Investment advisers must act in the client's best interest at all times. Broker-dealers are held to suitability/Reg BI. Know the distinction cold.
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Master the Uniform Securities Act. Registration requirements, the $100M AUM threshold, the LATE exclusion, and the de minimis exemption are tested from every angle.
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Memorize prohibited practices. Churning, front-running, commingling, selling away, guaranteeing against loss, and unauthorized trading are the most commonly tested violations.
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Know the administrator's powers and limits. The administrator can deny, suspend, revoke, and cancel -- but cannot impose jail time. Suspension and revocation require a prior hearing; denial and cancellation do not.
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Understand fee structures and the qualified client exception. Performance fees are prohibited unless the client has $1.1M+ AUM or $2.2M+ net worth.
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Custody and disclosure rules are detail-heavy. Quarterly statements, surprise audits, the brochure rule (48 hours or 5-day rescission), and balance sheet requirements all generate exam questions.
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Use memory tricks. LATE, DSRC, FCGS-CUB, and the other mnemonics in this guide will save you on exam day when you are under time pressure.
The Laws & Regulations section is not inherently harder than other sections -- it is just different. It rewards precision, attention to detail, and disciplined memorization of specific rules. With the right approach, it can become your highest-scoring section and the competitive advantage that gets you past the 72.31% passing threshold.
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Good luck with your Series 65 exam!