There is a subtle but important difference between an exclusion and an exemption. When the exam talks about investment advisers who are "exempt," they are referring to investment advisers who are not required to register.
In other words, these entities are definitely investment advisers because they provide financial planning services or manage portfolios or act as consultants. They simply don't have to register. For example, if you're an investment adviser in Wauwatosa, Wisconsin, a few of your financial planning clients might one day wake up on a cold February morning and in a moment of clarity move the hell out of the upper Midwest. Let's say that five of your clients move to Arizona--do you have to register in Arizona to keep serving them?
No. You would claim the "de minimis" exemption that says you're exempt from Arizona registration requirements based on two important facts: 1) you have no place of business in the state of Arizona and 2) you have no more than 5 non-institutional clients in the state.
On the other hand, there are entities that simply do not meet the definition of "investment adviser." They are excluded from the definition, in other words. A bank is not an investment adviser. Neither is a bank holding company. Many bank holding companies and banks are related to an investment advisory subsidiary (Wells Fargo/Wells Capital Management), but the bank is not the adviser, and neither is the bank holding company that sits above the other entities. A lawyer who talks about the value of securities only so far as his profession requires him to is not an investment adviser.
It probably seems hard to believe that this difference between exemptions and exclusions could actually matter, but it actually does. When the Investment Advisers Act of 1940 says that something is prohibited of "any investment adviser," it means that if you meet the definition of "investment adviser," this is a prohibition for you, even if you don't have to register. In other places, "the Act" uses language like "it shall be prohibited for any investment adviser registered or required to be registered under this Act," which means exactly what it implies--if you're exempt from registration, this rule does not apply.
Anyway, fun stuff to be sure, which is why I decided to share it with the community so early on a Friday morning. On another note, today's Friday Free Broadcast covers FINRA/SRO rules and reg's, which is actually a big topic on the Series 65 and 66 exams--pull down a Friday Free Broadcast schedule on the home page of our websites under Get Free Stuff.