Are Maryland CPAs, lawyers, engineers, insurance agents, or teachers exempt from registering as investment advisers?

Plain-English summary

A 1989 Maryland law (Chapter 805, House Bill 712) expanded the definition of "investment adviser" to reach the growing financial-planning industry and, for the first time, required investment advisers to register with the Securities Division. During the legislative process, certified public accountants lobbied for and won a new exemption, codified at CA §11-401(b)(4), for anyone who is not already an investment adviser under the older securities-law definition, is subject to a Maryland licensing board with disciplinary authority over "financial counseling and advice," doesn't take referral commissions, and doesn't hold client funds. A legislative oversight committee asked the Attorney General which professions actually qualify: certified public accountants, lawyers, engineers, insurance agents and brokers, or teachers.

The Attorney General concluded that whether a profession qualifies turns on whether its own licensing board has made clear, through a rule or ruling, that its disciplinary authority actually reaches financial counseling and advice, not just general professional misconduct. Applying that test, the opinion found CPAs qualify, because the Board of Accountancy's regulations already define the "practice of accountancy" to include advisory and consulting services, and lawyers qualify, because Maryland's attorney discipline rules reach dishonesty or incompetence regardless of the specific context. Engineers, insurance agents and brokers, and teachers did not qualify: their governing bodies had general anti-fraud or anti-dishonesty rules, but none had stated that those rules specifically reach financial planning activity, and teachers have no general disciplinary body at all. The opinion stressed that the exemption only ever excuses a qualifying professional from registering; it does not excuse anyone from the Act's separate anti-fraud and disclosure requirements.

Common questions

Does being a CPA or lawyer automatically exempt someone from Maryland's investment-adviser registration law?
No. The opinion required a CPA or lawyer to also meet the exemption's other three conditions: not accepting commissions or fees for referring clients to other products, and not taking custody of client funds or securities. Meeting the licensing-board condition alone is not enough.

Why did engineers and insurance agents not qualify even though their boards can discipline dishonest conduct?
Because the opinion required more than a generic anti-fraud or anti-dishonesty rule; it required the profession's regulatory body to have made clear, by rule or declaratory ruling, that its disciplinary authority specifically extends to financial counseling and advice. Neither the engineering board nor the Insurance Commissioner had done so.

If a CPA or lawyer is exempt from registering, are they exempt from everything in the Securities Act?
No. The opinion was explicit that the exemption in CA §11-401(b)(4) is only an exemption from the registration requirement. CPAs and lawyers remain subject to the Act's anti-fraud provisions, and, unless they also qualify for a separate "incidental practice" exclusion, its disclosure requirements too.

Could a lawyer or CPA who is exempt under Maryland law still have to register with the SEC?
Yes, according to the opinion. If a CPA or lawyer holds out as a financial planner or does more than incidental financial-counseling work, federal law can independently require SEC registration if that person meets the federal definition of "investment adviser," regardless of the Maryland exemption.

Background and statutory framework

Maryland first regulated investment advisers in 1962, adopting anti-fraud and contract-disclosure rules modeled on the federal Investment Advisers Act of 1940 and the Uniform Securities Act of 1956, but without a registration requirement. Chapter 805 of the Laws of Maryland 1989 responded to the rise of the unregulated "financial planning" industry by broadening the definition of "investment adviser" beyond securities-specific advice, adding new anti-fraud and disclosure rules, and, for the first time, requiring registration with the Securities Division.

During the bill's progress, an "incidental practice" exclusion already covering lawyers, accountants, engineers, and teachers (later expanded to include insurance agents and brokers) was narrowed to also require that the professional not "hold himself out" as an investment adviser. Separately, and at the urging of CPA representatives, the bill was amended in committee to add the registration exemption at CA §11-401(b)(4), which requires a person to (1) not already be an investment adviser under the older securities-specific definition, (2) be subject to a Maryland licensing body with disciplinary authority over financial counseling and advice, (3) not accept referral commissions, and (4) not hold client funds or securities.

The opinion's central interpretive question was how specific a licensing board's disciplinary authority must be to satisfy condition (2). Applying ordinary tools of statutory construction (Cunningham v. State; Kaczorowski v. City of Baltimore), the opinion reasoned that a generic professional-misconduct rule is not enough; the board's authority must be understood, by both the profession and the public, to reach financial counseling specifically, or the legislature's goal of protecting consumers through licensing-board oversight would not be achieved. Applying that standard: the Board of Accountancy's regulations already define "practice of accountancy" to include "advisory or consulting services" (COMAR 09.24.01.01A(7)), so CPAs qualify; Maryland's attorney discipline rules (former Rule BV6a.1; Rules of Professional Conduct 1.1 and 8.4(c)) reach dishonesty or incompetence regardless of context, following Attorney Grievance Commission v. Silk's holding that misconduct outside the practice of law still bears on fitness to practice, so lawyers qualify; but the engineering board's code of ethics, the Insurance Commissioner's general fraud and trustworthiness authority, and the complete absence of any general disciplinary body for teachers did not meet the standard, because none of those bodies had specifically addressed financial counseling by rule or ruling.

Citations and references

Statutes:

• §11-401(b)(4) of the Corporations and Associations Article (registration exemption and its four conditions)
• §11-101(f) of the Corporations and Associations Article (definition of "investment adviser" and "incidental practice" exclusion)
• §2-315(a) of the Business Occupations and Professions Article (Board of Accountancy discipline for fraud or gross negligence)
• Chapter 805 (House Bill 712), Laws of Maryland 1989 (the underlying 1989 investment-adviser legislation)

Cases:

• Cunningham v. State, 318 Md. 182 (1989) (statutory construction looks first to the words in context, then legislative history)
• Attorney Grievance Commission v. Silk, 279 Md. 345 (1977) (misconduct outside the practice of law still bears on fitness to practice)
• SEC v. W. J. Howey Co., 328 U.S. 293 (1946) (the term "security" is applied case by case to the economic reality of a transaction)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 400-414 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

SECURITIES ACT

Investment Advisers -- Scope of Exemption From Registration Requirement

June 18, 1990

The Honorable Joel Chasnoff
Presiding Chairman
Joint Committee on Administrative,
Executive and Legislative Review

On behalf of the Joint Committee on Administrative, Executive, and Legislative Review, you have requested our opinion on the scope of an exemption contained in 1989 legislation that amended the Maryland Securities Act to provide for stricter regulation of investment advisers. This legislation is Chapter 805 (House Bill 712) of the Laws of Maryland 1989. Specifically, you have asked whether certified public accountants are exempt from any portion of the Act by reason of the exemption codified at §11-401(b)(4)(ii) of the Corporations and Associations Article ("CA" Article); and whether the same provision accords a similar exemption to lawyers, engineers, insurance agents and brokers, or teachers.

Because the statutory scheme is complex, even the summary of our response to your request must be rather lengthy. At the outset, we point out that no member of the professions identified in your inquiry is exempt from any portion of the Act by virtue of membership in the profession alone. That is, whether an individual is exempt from a portion of the statute will depend upon that person's particular activities, assessed in light of the requirements of the particular exemption.

One provision, which we will refer to as the "incidental practice" exclusion, is set out in CA §11-101(f)(2)(iii) and potentially applies to lawyers, accountants, engineers, insurance agents and brokers, and teachers. A member of any of these professions who provides investment advice "solely incidental[ly] to the practice of his profession" and "[w]ho does not hold himself out as an investment adviser" is excluded from the provisions of the statute regulating investment advisers as such. These professionals, however, like all other persons, are subject to the anti-fraud and related provisions of the Securities Act.

The provision that is the focus of your inquiry, CA §11-401(b)(4), which we will refer to as the registration exemption, is not limited to members of the professions eligible for the "incidental practice" exclusion. Any person who meets all four of the criteria in CA §11-401(b)(4) is exempt from the registration requirements of the Act.[1]

A person's membership in a regulated profession is essential to one of the four criteria of the registration exemption; CA §11-401(b)(4)(ii) requires that the person be "subject to regulation by a Maryland State agency, board, or commission that has disciplinary authority relating to financial counseling and advice." Of the professions identified in your inquiry, we conclude that certified public accountants and lawyers currently are subject to such regulation. Hence, if an individual CPA or lawyer meets the remaining three criteria in CA §11-401(b)(4), that CPA or lawyer will be exempt from the registration provisions of the Act. However, unless a CPA or lawyer also meets the test for the "incidental practice" exclusion in CA §11-101(f)(2)(iii), a CPA or lawyer exempt from registration is not exempt from compliance with other applicable provisions of the Act, in particular its disclosure requirements.

Although licensed professional engineers and certified insurance agents and brokers are subject to regulation by agencies that may have the power to impose discipline for misconduct with regard to "financial counseling and advice," neither of these regulatory bodies has expressly indicated that its disciplinary rules treat the subject. Until they have done so by rule or declaratory ruling, no licensed professional engineer or certified insurance agent or broker is exempt from the registration requirements of Chapter 805 by virtue of the registration exemption in CA §11-401(b)(4).

Finally, teachers, accountants who are not CPAs, and engineers who are not licensed professional engineers are not subject to regulation by bodies that have the power to impose discipline for misconduct with regard to "financial counseling and advice." Hence, no member of these professions is exempt from the registration requirements of Chapter 805 by virtue of the registration exemption in CA §11-401(b)(4).

I

Applicable Law Prior to the 1989 Legislation

Ever since 1962, when Maryland adopted various provisions of the Uniform Securities Act of 1956, the State has regulated investment advisers to some degree. See Chapter 1, Laws of Maryland 1962.[2] The 1962 statute prohibited certain fraudulent or deceitful activities by any person who receives consideration from another "primarily for advising the other person as to the value of securities or their purchase or sale," former Article 32A, §14(a), now CA §11-302(a);[3] required investment advisory contracts to include certain provisions relating to adviser compensation, assignment, and notice of partnership changes, former Article 32A, §14(b), now CA §11-302(b); and made it unlawful under certain circumstances for an adviser to take control of client securities or funds, former Article 32A, §14(c), now CA §11-302(c).

The 1962 statute contained a definition of "investment adviser" largely identical to that found in the federal Investment Advisers Act of 1940, 15 U.S.C. §80b-2(a)(11), and the Uniform Securities Act of 1956, §401(f). Former Article 32A, §25(b), now CA §11-101(f)(1)(i), stated as follows:

    "Investment adviser" means a person who, for compensation, ... [e]ngages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities.

Prior to the 1989 amendment, CA §11-101(f)(2)(ii) contained the following "incidental practice" exclusion, mirroring that in federal law:

    "Investment adviser" does not include ... [a] lawyer, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his profession....[4]

However, unlike the federal Investment Advisers Act and the Uniform Securities Act of 1956, the Maryland law did not require the registration of investment advisers.[5]

II

1989 Legislation

Responding to complaints about the mushrooming "financial planning" industry, the Securities Division of the Attorney General's Office proposed legislation at the 1989 Session of the General Assembly to regulate financial planners.[6] According to a floor report on the legislation in the files of the House Economic Matters Committee, the measure had three primary provisions:

    (1) It strengthens existing anti-fraud provisions governing investment advisers; (2) It subjects financial planners to certain disclosure requirements by including them in the definition of investment adviser; and (3) It requires investment advisers, including financial planners, to register with the Securities Commissioner.[7]

Specifically, the bill amended the existing definition of "investment adviser" in CA §11-101(f) to add, in paragraph (1)(ii), the regulation of one who:

    1. Provides or offers to provide, directly or indirectly, financial and investment counseling or advice, on a group or individual basis;

    2. Gathers information relating to investments, establishes financial goals and objectives, processes and analyzes the information gathered, and recommends a financial plan; or

    3. Holds himself out as an investment adviser in any way, including indicating by advertisement, card, or letterhead, or in any other manner indicates that he is a financial or investment 'planner', 'counselor', 'consultant', or any other similar type of adviser or consultant.

Thus, the term "investment adviser" is no longer limited to one who advises about or analyzes securities.

The measure also altered the "incidental practice" exclusion in CA §11-101(f)(2) to exclude the following persons from the definition of "investment adviser":

    A lawyer, accountant, engineer, insurance agent or broker, or teacher:

    1. Whose performance of these services is solely incidental to the practice of his profession; and

    2. Who does not hold himself out as an investment adviser; ....

This change both broadened the exclusion, by adding "insurance agent or broker" to the list, and narrowed it, by adding the "holding out" limitation.[8]

While House Bill 712 was pending in the House Economic Matters Committee, a controversial amendment was proposed to the "registration" subtitle of the legislation. At the urging of representatives of the certified public accountants, new CA §11-401(b), which would make it unlawful for any person to transact business in this State as an investment adviser without being registered, was amended to add the following exemption for a person who:

    (i) Is not an investment adviser as defined in §11-101(f)(1)(i) of this subtitle;

    (ii) Is subject to regulation by a Maryland State agency, board, or commission that has disciplinary authority relating to financial counseling and advice;

    (iii) Does not accept a commission, fee, or other remuneration for a referral to a client of products of others; and

    (iv) Does not take or have custody of any securities or funds of any client to whom financial counseling or advice is provided.

CA §11-401(b)(4) (emphasis added).[9]

When the bill was amended in committee to incorporate this exemption, the title of the measure was altered to read that only "certain" investment advisers were being required to register and that the legislation was "expanding the class of individuals exempt from certain filing and registration requirements." 1989 House Journal at 1810.[10] In committee documents, the new language was described as an amendment solely to the legislation's filing and registration requirements.[11]

The amendment advanced by the CPAs was approved by the full House. 1989 House Journal at 7811. The measure was passed by the Senate without change. It was signed by the Governor as Chapter 805 of the Laws of Maryland 1989, with its registration provisions originally intended to take effect July 1, 1990, although the remainder of the bill became effective July 1, 1989.[12]

III

Disciplinary Authority of Other Agencies Over Financial Planners

A. Introduction

"In attempting to determine legislative intent, we look first to the words of the statute, read in light of the full context in which they appear, and in light of external manifestations of intent or general purpose available through other evidence." Cunningham v. State, 318 Md. 182, 185, 567 A.2d 126 (1989). See Kaczorowski v. City of Baltimore, 309 Md. 505, 514-15, 525 A.2d 628 (1987).

The language of CA §11-401(b)(4)(ii) assumes that one or more State agencies, boards, or commissions has disciplinary authority "relating to financial counseling and advice." The provision does not make clear, however, how explicitly the regulatory body must have addressed the matter. Is it enough that a member of a profession could, under some broadly worded rule, be disciplined for misconduct in connection with financial advice that he or she might give?

To take a random example, a dentist who "[b]ehaves dishonorably or unprofessionally" is subject to discipline. §4-314(a)(16) of the Health Occupations Article. A dentist who touted some fraudulent investment scheme to patients might well be disciplined under this provision. One could find similar language under many other professional licensing statutes. Is language of this kind, standing alone, enough to satisfy CA §11-401(b)(4)(ii)?

We think not. When the General Assembly added this registration exemption at the urging of CPAs, presumably it did so mainly to relieve CPAs and other professionals who might be similarly situated from the perceived burdens of dual oversight of their financial counseling activities, by both the licensing body and the Securities Division (the latter through the new registration requirement). But it must also have intended that the oversight of financial counseling by the licensing body be effective, in the sense that the licensing body can impose discipline for the kinds of fraudulent or grossly negligent practices most likely to injury investors. Cf. CA §11-412(a)(7) and (9). Moreover, a regulation cannot be said to "relat[e] to financial counseling and advice" unless its scope is so perceived by both members of the public and of the profession. Otherwise, the overall purpose of the legislation, to protect the recipients of financial counseling, would be compromised.

In other words, we understand the General Assembly to have concluded that the regulatory oversight of the licensing body for CPAs and potentially others would be sufficient protection for the public without registration with the Securities Division.[13] But if the licensing body has never stated, by rule or declaratory ruling, whether or how its disciplinary authority applies to financial counseling, this legislative objective would not be served. The members of the profession would not perceive themselves to be subject to discipline for misdeeds or incompetence in the rendering of financial planning services, and members of the public would be unaware of the protection afforded them by the licensing body.

In considering the scope of CA §11-401(b)(4)(ii), we examine the degree of specificity in the licensing law for CPAs, for this profession was foremost in the General Assembly's understanding of the impact of the exemption. Then we turn to the law applicable to the other professions about which you inquire, to see if those provisions are similar.

B. Certified Public Accountants

Section 2-301 of the Business Occupations and Professions Article ("BOP" Article) requires a license for an individual to practice "certified public accountancy" in Maryland, a term narrowly defined to refer to the conducting of certain audits and the rendering of certain opinions. See BOP §2-101(f). However, under BOP §2-315(a), the State Board of Accountancy may deny, suspend, or revoke a license or reprimand a licensee who is guilty of fraud or other dishonesty in "the practice of accountancy" or is guilty of gross negligence "in the practice of accountancy." BOP §2-315(a)(4) and (5).

The practice of accountancy is not defined in State law. However, by rule, the Board of Accountancy has defined the "practice of accountancy" as:

    [O]ffering to perform or performing for a client one or more types of services involving the use of accounting skills, or one or more types of management, advisory or consulting services, or the preparation of tax returns or the furnishing of advice on tax matters.

COMAR 09.24.01.01A(7) (emphasis added). Board regulations also contain a code of professional conduct for CPAs which, among other things, provides that "[a] licensee may not in the performance of professional services knowingly misrepresent facts." COMAR 09.24.01.04A(2) (emphasis added). And COMAR 09.24.01.01A(9) defines "[p]rofessional services" as "any services performed or offered to be performed by a licensee for a client in the course of the practice of accountancy." (Emphasis added.)

Because "accountancy" includes "advisory or consulting services," a CPA who engages in misconduct or incompetence in the provision of financial counseling and advice is subject to the Board of Accountancy's "disciplinary authority relating to financial counseling and advice." Despite the lack of detail in the Board's regulations, the Board should construe them in light of the modern practice of certified public accounting, which includes financial planning as part of a CPA's "advisory or consulting services."[14] CPAs ought to recognize that this aspect of their professional practice is as much subject to the disciplinary authority of their licensing board as any other.[15]

Our conclusion takes into account the background of the exemption, particularly the advocacy for it; the adoption of the exemption strongly implies the General Assembly's belief that the Board of Accountancy's regulatory regime is sufficient. Cf. State v. Burning Tree Club, Inc., 315 Md. 254, 298-99, 554 A.2d 366 (1989) (legal advice to General Assembly about effect of legislation, whether or not correct, pertinent to assessment of legislative intent). Thus, if a CPA also satisfies the remaining three criteria in CA §11-401(b)(4), that CPA will be exempt from the registration requirements of Chapter 805.

C. Lawyers

Under Maryland Rule BV6a.1, a lawyer can be disciplined for misconduct or incompetence. Rule BV1k defines "[m]isconduct" as "an act or omission by an attorney, individually or in concert with any other person or persons which violates the Disciplinary Rules of the Code of Professional Responsibility ...., whether or not the act or omission occurred in the course of an attorney-client relationship." Rule 1.1 of the Rules of Professional Conduct mandates "competent representation [of] a client." In addition, Rule 8.4(c) provides that "[i]t is professional misconduct for a lawyer to ... engage in conduct involving dishonesty, fraud, deceit or misrepresentation."

We have no doubt that if a lawyer were dishonest or incompetent in offering financial advice to a client, the lawyer would be subject to discipline by the Court of Appeals. The Court has made it clear that improprieties committed outside a lawyer's practice of law bear on the lawyer's fitness to practice and therefore are subject to the same sanctions. Attorney Grievance Commission v. Silk, 279 Md. 345, 369 A.2d 70 (1977). Cf. In re Weiner, 586 P.2d 194 (Ariz. 1978); In re Smyzer, 108 N.J. 47, 527 A.2d 857 (N.J. 1987).

Hence, we conclude that the standard of CA §11-401(b)(4)(ii) is satisfied. If a lawyer also satisfies the other criteria in CA §11-401(b)(4), the lawyer will be exempt from registration.

D. Engineers

The statutory definition of the practice of engineering appears to include no activity that would relate to financial planning. See BOP §14-101(f) (definition of "practice engineering"). The State Board for Professional Engineers may suspend, revoke or deny a license or reprimand a licensee for gross negligence or misconduct while practicing engineering or knowing violation of the code of ethics adopted by that board. BOP §14-317(5) and (7). The latter code of ethics provides, among other things, that an engineer may not be untruthful, deceptive or misleading in any professional report, statement, or testimony. COMAR 09.23.03.05C.

In our view, language of this kind is insufficient, standing alone, to constitute a regulation embodying "disciplinary authority relating to financial counseling and advice." Perhaps an engineer who engaged in dishonesty or grossly negligent practices while providing financial counseling and advice could be disciplined by the board for doing so. However, if a regulatory body's disciplinary rules are to provide protection to the public paralleling that of the registration requirement of Chapter 805, those rules must put both the profession and the public on notice of the nature of the protection. Engineers are not subject to such regulation.

E. Insurance Agents and Brokers

The Insurance Commissioner may discipline a certified insurance agent or broker who has "committed fraudulent or dishonest practices in the business of insurance" or has "otherwise shown lack of trustworthiness or lack of competence to act as agent or broker." Article 48A, §175(6) and (12). The Insurance Commissioner has not by rule or declaratory ruling indicated whether he views either of these statutory grants as sufficient to reach the financial planning activities of agents and brokers.

For the reasons stated in Part IIID above, this regulatory authority does not suffice under CA §11-401(b)(4)(ii).

F. Teachers

Unlike the other business occupations and professions that might be investment advisers or financial planners, teachers as a class have no general State disciplinary body. Private school teachers are not subject to intensive regulation or governmental discipline. And teachers at institutions of higher education, those most likely to have some involvement in financial planning, are similarly unregulated.

Hence, the registration exemption in CA §11-401(b)(4) does not apply to teachers.

G. Accountants and Engineers

Accountants who are not certified public accountants and engineers who are not licensed professional engineers are not "subject to regulation by [an] agency ... that has disciplinary authority relating to financial counseling and advice." Therefore, they do not meet one criterion of the registration exemption.

IV

Effect of Exemption

As explained in Part II above, the language of the 1989 legislation, its title, and its legislative history all make clear that the exemption in CA §11-401(b)(4) is only an exemption from registration.[16] All persons, including CPAs and lawyers, are subject to the statute's prohibition against fraud and misrepresentation. See CA §11-302(a). Moreover, CPAs and lawyers who do not fall within the "incidental practice" exclusion of CA §11-101(f)(2)(iii) are also subject to the statute's disclosure requirements and implementing regulations. See CA §11-302(d).

Further, when CPAs or lawyers hold themselves out as financial planners or engage in more than an incidental practice in this area, they are subject to registration under federal law if they meet the federal definition of "investment adviser," regardless of the applicability of the State registration requirement. See 15 U.S.C. §80b-2(a)(11). See generally Bloomenthal, Securities Law Handbook §22.02, at 738-39 (1989). Under 15 U.S.C. §80b-3(a), it is unlawful for any investment adviser unless registered with the SEC "to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser."

IV

Conclusion

In summary, it is our opinion that a certified public accountant or a lawyer is exempt from the registration requirements of Chapter 805 of the Laws of Maryland 1989, if that individual meets all of the requirements of CA §11-401(b)(4). At present, no member of the other professions identified in your inquiry qualifies for this exemption.

                                          J. Joseph Curran, Jr.
                                          Attorney General

                                          Jack Schwartz
                                          Chief Counsel
                                            Opinions & Advice

                                          Robert A. Zarnoch
                                          Assistant Attorney General

Editor's Note:

The exemption language in the definition of "investment adviser" was modified by Chapter 502 (Senate Bill 691) of the Laws of Maryland 1992.

[1] CA §11-401(b)(2) and (3) contain other, narrower grounds for exemption that are outside the scope of your inquiry and will not be discussed in this opinion.

[2] Securities legislation prior to the 1962 statute did not deal specifically with investment advisers. See Chapter 348, Laws of Maryland 1937; Chapter 552, Laws of Maryland 1920.

[3] The term "security" is very broadly defined in CA §11-101(p). The Supreme Court has observed that the term is to be applied case by case "to meet the countless and variable schemes devised by those who seek the use of the money of others ..." SEC v. W. J. Howey Co., 328 U.S. 293, 299 (1946). Courts look to the "economic reality" of a transaction in applying the term. Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).

[4] This paragraph contains additional exemptions from the definition of "investment adviser," but they are not relevant to the issues you have raised.

[5] The Uniform Securities Act of 1985, §203, requires the "licensing" of investment advisers.

[6] As introduced, the bill substantially tracked the model investment adviser legislation drafted by the North American Securities Administrators Association.

[7] Another Committee document, "Highlights of House Bill 712," said that the bill, among other things: Expands existing law, which currently regulates only investment advisers who give advice with respect to securities, to include the new breed of financial planners who provide financial advice regarding a broader range of investments. Expands existing anti-fraud provisions governing all investment advisers, including the disclosures an investment adviser must make in soliciting clients. Requires that investment advisers register with the Securities Division before doing business in this state. The Committee document also describes the reasons for House Bill 712 as the following: Financial Planning has changed with the expansion and diversity of financial products available to individual investors. A new occupational group has emerged: financial planners. This new group is not licensed, as are the more traditional groups which provided investment advice, such as accountants, attorneys, or insurance agents. Unlike the more traditional investment advisers, the new financial planners generally rely on commissions for their compensation, increasing the risk of abuse and conflicts of interest. This new group of financial planners is currently unregulated, yet is composed of almost 60% of all financial planners....

[8] The new "holding out" language is a codification of a well-established position of the staff of the Securities and Exchange Commission. In the SEC's staff's view, "holding out" as an investment adviser is antithetical to the notion of "incidental practice." This language was added to the Maryland statute to avoid confusion about what might constitute "incidental practice" under Maryland law.

[9] The amendment was opposed by the Securities Division; brokers and dealers, see letter to the Delegate Casper R. Taylor, Jr. from Ira C. Cooke (Feb. 28, 1989); and representatives of organized financial planner groups, see memorandum to committee members from Dennis M. Gurtz (Feb. 24, 1989).

[10] The phrase "filing ... requirement" in the bill's title refers to the filing of an application for registration and the payment of a filing fee. CA §11-404(b).

[11] The House Economic Matters Committee Floor Report on House Bill 712 stated that the amendment: Exempts from the registration requirements an investment adviser who: 1. Satisfies the definition of a financial planner under the bill, but is not providing advice with respect to securities; 2. Is subject to regulation by a Maryland state agency, board, or commission with disciplinary authority relating to financial planning; 3. Does not accept a fee or commission for the referral to clients of the products of others; and 4. Does not retain custody of client funds. And the Committee's paper entitled "Highlights of House Bill 712" said that: You are exempt from registration if: 1. You are a lawyer, accountant, engineer, insurance agent or broker, or teacher who provides financial advice solely incidental to the practice of your profession, and 2. You do not hold yourself out as a financial planner. You are also exempt from registration if: 1. You are subject to the jurisdiction of a Maryland State Board or agency that has disciplinary authority relating to financial planning; and 2. You don't accept commissions or have custody of funds; and 3. You are a "new" financial planner, not a "traditional" investment adviser who is already required to register under existing law.

[12] Chapter 331 (House Bill 518) of the Laws of Maryland 1990 delayed the effective date of the registration provisions until October 1, 1990.

[13] To be sure, the Securities Division has tools for oversight of registrants, for example, examination of records (CA §11-411(e)) and summary suspension powers (CA §11-413), that other regulatory bodies now lack. We think, however, that the General Assembly made a judgment about the overall capacity of the licensing bodies to punish and thus deter improper practices and did not view the availability of one or another particular enforcement tool as critical.

[14] Numerous CPA informational and training materials recognize the role of that profession in "personal financial planning." See, e.g., A Guide to Understanding and Using CPA Services (Institute of Certified Public Accounting ("AICPA") 1984); What Does a CPA Do? (AICPA 1986); Personal Financial Planning: The Team Approach (AICPA 1987). The AICPA Professional Liability Insurance policy also insures for claims made with respect to a CPA's activities in personal financial planning.

[15] We nevertheless recommend that the Board of Accountancy consider amending its regulations to make explicit the duty of a CPA to adhere to proper professional standards when the CPA provides financial planning services. In this way, one who obtains such services from a CPA will have clear notice of the possibility of recourse to the Board if the CPA breaches those standards.

[16] See note 11 above and accompanying text.