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.

What Is 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.

What Is 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.
• The USA states this directly for a state-registered IA: an IAR's registration is not effective during any period the IAR is not employed by a state-registered IA. Leaving that IA makes the registration inactive.
• For a federal covered adviser, the USA instead makes it unlawful for the adviser to employ, supervise, or associate with an unregistered in-state IAR. The practical result is the same: an IAR needs a current sponsoring adviser to transact business.
• Either way, the IAR must associate with a new registered (or exempt) adviser 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 or Federal Covered Adviser: Which Rule Applies?

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)
• 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.

Who Notifies the Administrator When an IAR Begins or Ends Employment?

Who must notify the Administrator of an IAR's hire or termination depends on the type of adviser:

Why the difference? A state-registered IA is already registered with the state, so the firm handles notifications for its personnel. A federal covered adviser is not registered with the state, so the IAR notifies the Administrator directly.

In practice, that termination notice is filed on Form U5 (Uniform Termination Notice) through IARD, within 30 days of the IAR's termination. Form U5 is the industry filing mechanism that carries out the USA's "promptly notify" duty; it is not itself a separate USA requirement. Form U5 discloses:

• The reason for termination: voluntary, permitted to resign, discharged, deceased, or other
• Whether the termination relates to violations of investment-related laws, failure to supervise, fraud, or customer complaints
• Any internal review findings that contributed to the termination

The IAR may add a comment to the Form U5 if the IAR disagrees with the IA's characterization of the termination.

Exam Tip: Gotchas

"Permitted to resign" is NOT a clean voluntary resignation. If an IA lets an IAR resign rather than firing them for misconduct, the IA must disclose that circumstance on Form U5, not report it as an ordinary voluntary departure. This distinction is a common exam trap.

What Is 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, governmental agencies, or other institutional investors the Administrator designates by rule or order)
• (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, whether or not the IA or the clients receiving communications are physically present in the state at the time

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.

What Should You Check on Exam Day?

• The registration mandate runs both ways: an IA cannot employ an unregistered IAR, and a federal covered adviser cannot employ, supervise, or associate with an unregistered IAR who has an in-state place of business
• Tied registration means an IAR needs a current sponsoring adviser: the USA makes a state-registered IA's IAR registration ineffective the moment that employment ends, and separately bars a federal covered adviser from employing, supervising, or associating with an unregistered in-state IAR
• Place of business, not client location, drives registration for IARs of federal covered advisers; client location drives registration for IARs of state-registered IAs
• Notification duty on hire or termination falls on the IA firm for a state-registered IA, but on the IAR personally for a federal covered adviser
• A terminated IAR's Form U5 must disclose "permitted to resign" as its own category, distinct from a clean voluntary resignation
• The de minimis exemption needs BOTH no place of business AND (institutional-only clients OR 5 or fewer non-institutional clients in the past 12 months); antifraud provisions still apply even when exempt