Definition of an IAR
Before you can understand how investment adviser representatives (IARs) are regulated, you need to know exactly who qualifies as one. The Uniform Securities Act (USA) defines "investment adviser representative" in Section 401(g) using a two-part test: the individual must be associated with an investment adviser (IA) and perform at least one of five specific functions.
The Statutory Definition
An investment adviser representative (IAR) is any partner, officer, director (or a person occupying a similar status or performing similar functions), or other individual who is employed by or associated with an IA that is:
- Registered (or required to be registered) under the USA, or
- A federal covered adviser where the individual has a place of business in the state
Both elements must be present: (A) the individual must be associated with or employed by a registered IA or federal covered adviser, and (B) the individual must perform at least one of the five enumerated functions.
The Five Functions
An individual becomes an IAR by performing any one of the following five functions:
| Function | Description |
|---|---|
| (1) Makes recommendations | Makes any recommendations or otherwise renders advice regarding securities |
| (2) Manages accounts | Manages accounts or portfolios of clients |
| (3) Determines advice | Determines which recommendation or advice regarding securities should be given |
| (4) Solicits advisory business | Solicits, offers, or negotiates for the sale of investment advisory services |
| (5) Supervises | Supervises employees who perform any of the other four functions |
Only one function is needed. A person who performs function (4) alone (soliciting advisory clients without ever giving advice or managing money) is still an IAR.
Exam Tip: Gotchas
- A person who ONLY solicits advisory clients (function 4) IS an IAR, even if that person never gives investment advice or manages accounts. The solicitation function alone is sufficient.
- NASAA notes that states have discretion about whether to include the solicitor function, so this is a state-by-state determination. The exam tests the general principle that solicitors CAN be IARs.
Key Elements of the IAR Definition
Several important principles flow from this definition:
- Must be an individual: Only natural persons can be IARs. Firms, corporations, and partnerships cannot be IARs.
- Must be associated with an IA: There is no free-standing IAR registration. An IAR cannot register independently without being employed by or associated with a registered IA or federal covered adviser.
- IARs of state-registered IAs: Must register in each state where the IA is registered and where the IAR has clients or a place of business
- IARs of federal covered advisers: Must register in each state where the IAR has a place of business (regardless of where their clients are located)
Who IS an IAR: Examples
| Role | IAR? | Reason |
|---|---|---|
| Financial planner at an IA firm who recommends securities | Yes | Makes recommendations regarding securities (function 1) |
| Portfolio manager who selects investments for client accounts | Yes | Manages accounts or portfolios (function 2) |
| Research analyst who decides which securities to recommend | Yes | Determines which advice should be given (function 3) |
| Salesperson who solicits new advisory clients | Yes | Solicits for the sale of advisory services (function 4) |
| Compliance officer who supervises advisory employees | Yes | Supervises employees who perform advisory functions (function 5) |
Who Is NOT an IAR: Exclusions
Not everyone who works at an IA firm is an IAR. Individuals who perform solely clerical or ministerial functions are excluded:
- Receptionists answering phones and scheduling appointments
- Data entry clerks processing paperwork
- Bookkeepers managing the firm's accounts
Additionally:
- Individuals who provide advice only about non-securities products (insurance, real estate, tax preparation) are not IARs, because their advice does not involve securities
- Partners, officers, and directors of an IA who do not perform any of the five functions are not IARs. Their title alone does not automatically make them IARs.
Exam Tip: Gotchas
- A partner or officer of an IA firm is NOT automatically an IAR. They must actually perform at least one of the five enumerated functions. If a partner only handles administrative duties and never advises on securities, manages accounts, solicits clients, or supervises those who do, that partner is not an IAR.
Solicitors and the IAR Definition
The solicitor question is a frequent exam topic:
- Subdivision (4) includes persons who solicit, offer, or negotiate for the sale of investment advisory services
- A third-party solicitor who refers clients to an IA and receives referral compensation may qualify as an IAR and must register accordingly
- NASAA recognizes that some states may choose not to include solicitors in their IAR definition, leaving it to administrator discretion
- The exam tests the general principle: solicitors CAN be IARs where the state has adopted this provision