IAR Registration Requirements

Now that you understand who qualifies as an investment adviser representative (IAR), the next question is: where must an IAR register? The answer depends on whether the IAR works for a state-registered investment adviser (IA) or a federal covered adviser.

The Registration Mandate

Under the Uniform Securities Act (USA), it is unlawful for:

• Any IA required to be registered to employ an IAR unless the IAR is registered under the USA
• A federal covered adviser to employ, supervise, or associate with an IAR having a place of business in the state unless the IAR is registered or exempt

The obligation runs both ways. Both the IA and the IAR face liability if the IAR conducts advisory business while unregistered.

Tied Registration

An IAR's registration is always tied to a specific investment adviser:

• There is no free-standing IAR registration. You cannot register as an IAR without being associated with a registered IA or federal covered adviser.
• If the IAR terminates employment with the IA, the IAR's registration becomes inactive
• The IAR must associate with a new registered IA and have a new registration become effective before conducting any advisory business

This is exactly like agent registration for broker-dealers: the individual's registration depends on having a sponsoring firm.

State-Registered IA vs. Federal Covered Adviser

The "place of business" rule is the most tested distinction in IAR registration:

Key points:

• A federal covered adviser is an IA registered with the SEC (generally $100 million or more in assets under management under the Investment Advisers Act Section 203A)
• Even though the federal covered adviser itself is exempt from state IA registration, its IARs with an in-state office must still register with the state
• IARs of federal covered advisers who do not have a place of business in the state are generally not required to register in that state

Exam Tip: Gotchas

• Place of business is the key for federal covered advisers. An IAR who works from a home office in State A and has clients in States A, B, and C must register in State A (where the place of business is), but NOT necessarily in States B and C (no place of business there). Compare this with an IAR of a state-registered IA, who may need to register in each state where they have clients.

The De Minimis Exemption

An IA (and by extension its IARs) with no place of business in the state is exempt from registration if either condition is met:

• (A) Institutional clients only: The IA's only clients in the state are institutional investors (investment companies, other IAs, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of at least $1,000,000, or governmental agencies)
• (B) Five or fewer clients: During the preceding 12-month period, the IA has had no more than 5 clients (other than institutional investors) in the state

Important limitations:

• The exemption applies only when the IA has no place of business in the state. If the IA has an office in the state, no de minimis exemption applies, and both the IA and IAR must register.
• Even if exempt from registration, the IA and IAR remain subject to the antifraud provisions of the USA

Exam Tip: Gotchas

• The de minimis exemption requires TWO conditions. (1) No place of business in the state, AND (2) either only institutional clients or 5 or fewer non-institutional clients. If the IA opens a satellite office in the state, the de minimis exemption is lost entirely, regardless of the number of clients.