Definition of an Investment Adviser Representative

This section covers who qualifies as an investment adviser representative (IAR), the five functions that trigger IAR status, the difference between state and federal definitions, and the place of business concept.

What Makes Someone an IAR?

An investment adviser representative (IAR) is any individual employed by or associated with an investment adviser who performs any of the following functions:

Performing any one of these functions makes an individual an IAR and requires registration (unless excluded or exempt).

Exclusion: Clerical or ministerial personnel are NOT investment adviser representatives, even if employed by an investment adviser. Processing account paperwork and maintaining client records are examples of clerical functions: they support the advisory business but do not themselves involve giving advice, managing accounts, or soliciting clients.

Exam Tip: Gotchas

• Soliciting alone triggers IAR registration. Cold calling for new advisory accounts = IAR.
• Supervising IARs makes you an IAR too. Anyone who supervises employees performing IAR functions is themselves an IAR.
• Recordkeeping is clerical, not advisory. Maintaining client files or processing transfers does not trigger IAR status, even though both tasks touch client accounts.
• "Scheduling appointments" can be either clerical or solicitation, depending on what's said. Booking a calendar slot for a prospect who was already referred, with no pitch involved, is clerical. Describing or promoting the firm's advisory services while reaching out to prospects is soliciting, even if that employee only sets up the meeting and hands the actual consultation off to an adviser.

How Do the State and Federal Definitions Differ?

The definition of IAR differs depending on whether the adviser is state-registered or SEC-registered:

Exam Tip: Gotchas

• The federal definition uses a narrower test with numerical thresholds (more than 5 natural-person clients AND more than 10%). A supervised person of a federal covered adviser who has only 4 natural-person clients is NOT an IAR under the federal definition, even if they give advice.
• Clearing the 5-client threshold does not by itself make someone an IAR. A supervised person with 8 natural-person clients out of 208 total clients passes the "more than 5" prong but fails the "more than 10%" prong: 8 is only about 3.8% of 208. Both prongs must be exceeded.
• The state definition has no numerical threshold. Anyone performing advisory functions qualifies (except clerical staff).

The client-mix test and place of business answer two different questions:

• The client-mix test decides whether someone is an IAR at all.
• Place of business decides which state can require that IAR to register, once IAR status is already established.

A large in-state client base, or even a place of business in a state, does not substitute for the client-mix test. A supervised person with only 4 natural-person clients is not an IAR under the federal definition, regardless of where they have an office.

What Counts as a Place of Business?

Place of business determines which state has registration authority once someone is already an IAR. It means any office at which an IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients.

• Includes any location held out to the general public as a place where advisory services are provided
• A home office from which an IAR regularly emails or videoconferences with clients counts as a place of business
• This concept determines which state has registration authority over the IAR

Exam Tip: Gotchas

• A home office where an IAR regularly communicates with clients IS a place of business under the federal IAR definition. Do not assume "home office" means it is not a place of business.

What Applies to Independent Contractor IARs?

An IAR can work as an independent contractor instead of an employee. Employment status does not change the core obligations:

• Still must register as an IAR, exactly like an employee IAR
• Does not need to register separately as an investment adviser firm; the independent contractor is still an individual associated with the registered IA, not the IA itself
• Still must be supervised by the registered IA
• Still must complete the same continuing education requirements as an employee IAR

Exam Tip: Gotchas

• Independent contractor status changes nothing about registration, supervision, or CE. The sponsoring IA firm remains responsible for supervising the contractor, and the contractor's registration and continuing education obligations are identical to an employee IAR's. The only thing independent contractor status changes is that the contractor does not register separately as an IA firm.

What Should You Check on Exam Day?

• Any one of the five functions (recommends, manages accounts, determines advice, solicits advisory services, or supervises those who do) makes a person an IAR under the state definition; only clerical or ministerial work is excluded. The federal definition adds its own exclusions: supervised persons who don't regularly solicit, meet with, or communicate with clients, and persons giving only impersonal advice.
• The state definition has no numerical threshold. The federal definition (for IARs of federal covered advisers) requires a supervised person to have more than 5 natural-person clients AND more than 10% of clients who are natural persons, and excludes qualified clients from that count.
• A home office used regularly to email or videoconference with clients counts as a place of business, and place of business is what determines which state has registration authority.
• An independent contractor IAR has the same registration, supervision, and continuing education obligations as an employee IAR, and is not required to register separately as an investment adviser firm.