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 makes it unlawful to employ, supervise, or associate with an in-state IAR unless the representative is registered or exempt. The representative's own registration or exemption facts matter.
• When registration is required, the IAR must have effective registration with the new adviser before conducting activity that requires it. An exempt representative instead must satisfy the applicable exemption

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 of 1940)
• Even though the federal covered adviser itself is excluded from the state IA definition and does not register as a state IA, its IARs with an in-state office must still be registered with the state unless exempt
• 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, but not necessarily in States B and C.
• An IAR of a state-registered IA may also need to register in states where they have clients, even without a place of business there.

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:

Memory aid: the state-registered firm reports on its own registered personnel, while at a federal covered adviser, which notice-files rather than registers with the state, the Act puts the duty on the individual IAR.

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 individual currently is, or at termination was, under internal review for fraud, wrongful taking, or violations of investment-related laws or standards
• Customer complaints, arbitrations, and litigation only when the form's specific allegation, status, amount, timing, and prior-reporting conditions are met
• Whether a resignation, discharge, or permitted resignation followed allegations of investment-related violations, fraud or wrongful taking, or investment-related supervisory failure

The individual subject may provide a brief statement only for details of an affirmative internal-review answer, with the required acknowledgment and consent. Form U5 does not provide a general individual comment field for disputing the firm's termination reason or explanation.

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?

Apply the exemption separately to each investment adviser (IA) or investment adviser representative (IAR). A person with no place of business in the state qualifies if either client condition is met:

• (A) Institutional clients only: The person'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 person has had no more than 5 clients other than institutional investors in the state, regardless of physical presence when communicating

Important limitations:

• The exemption requires no place of business for the person claiming it. An IA's office defeats the IA's no-office exemption; assess the individual IAR's own place of business and clients separately.
• Even if exempt from registration, the IA and IAR remain subject to the antifraud provisions of the USA

Exam Tip: Gotchas

• The exemption requires both a location test and a client test. Check the particular IA or IAR's own place of business and clients. A firm's office alone does not establish that every representative has a place of business there.

Does an IAR Face a Financial or Bonding Requirement?

No, on both counts. The USA authorizes minimum capital for broker-dealers and minimum financial requirements for investment advisers. It authorizes bonds for broker-dealers, agents, and investment advisers that hold custody or discretionary authority.

An IAR appears in neither provision. The Act therefore gives an IAR no net worth floor and no bonding requirement of its own.

The employing adviser may carry both obligations. That duty belongs to the firm, not to the individual, and the IAR does not inherit it by working there.

Exam Tip: Gotchas

• An IAR with discretion over client accounts still has no personal bonding requirement. Custody or discretion can trigger a bond for the adviser, and separately for an agent of a broker-dealer. The bonding provision never names IARs.

What Should You Check on Exam Day?

• Registration runs both ways and requires sponsorship: a state IA may not employ an unregistered IAR; a federal covered adviser may not employ, supervise, or associate with an unregistered in-state IAR; state registration becomes ineffective when employment ends
• Place of business, not client location, drives registration for IARs of federal covered advisers; client location drives registration for IARs of state-registered IAs
• On hire or termination, the state-registered IA notifies; at a federal covered adviser, the IAR notifies. Form U5 uses "permitted to resign" as a 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
• Under the Act, an IAR has no capital, net worth, or bonding requirement. Capital and financial requirements reach broker-dealers and investment advisers; bonds reach broker-dealers, agents, and investment advisers