Investment Adviser Representative Regulation

The whole unit on one sheet: who is an IAR, where and how they register, and the ongoing obligations that keep them registered.

The One-Liners That Win Points

• An IAR is always an individual person, never a firm; firms register as investment advisers (IAs), not as IARs.
• Job title does not determine IAR status; the qualifying activity does. A "financial consultant" who recommends securities IS an IAR.
• If someone performs any ONE of the five qualifying activities (recommends, manages accounts, determines advice, solicits advisory services, or supervises those who do), they are an IAR.
• Clerical and administrative staff (receptionists, data entry, office managers) who do none of the five activities are NOT IARs.
• IARs register at the state level only; there is no federal registration for an IAR, and there is no such thing as a "federal covered IAR."
• The firm registers "up" (with the Securities and Exchange Commission (SEC)); the people register "down" (with the states).
• An IAR of a federal covered adviser must still register with the state; the firm's federal registration does not exempt its representatives.
• Consent to service of process is automatic upon filing Form U4: no separate form, filing itself constitutes consent.
• The state administrator regulates the IAR as an individual, regardless of which firm employs them.

Definition: State vs SEC Test

• State law (Uniform Securities Act): an IAR is any individual employed by or associated with an IA who makes recommendations or gives advice, manages accounts or portfolios, determines which advice is given, solicits or negotiates advisory services, or supervises anyone doing those things.
• SEC test (for federal covered advisers): a supervised person is an IAR only if BOTH prongs are met:
  • Activity test: makes recommendations or has contact with clients to give advice.
  • Nexus test: has a place of business in the state, OR has more than 5 clients who are natural persons AND more than 10% of clients are natural persons.
• Place of business is an alternative path: having one in the state satisfies the nexus test by itself, regardless of natural-person client count.
• The 5-client / 10% natural-person threshold applies only to IARs of federal covered advisers; state-registered advisers follow different rules.
• Excepted persons do not count toward the 5-client or 10% prongs (individuals with at least $750,000 under management with the adviser, individuals whose net worth exceeds $1.5 million, and executive officers or directors of the adviser).

Registration Requirements

• Register in each state where the IAR has a place of business OR meets with clients.
• File Form U4 (Uniform Application for Securities Industry Registration or Transfer) through the electronic Investment Adviser Registration Depository (IARD) / Web Central Registration Depository (CRD) system.
• Qualifying exams: Series 65 alone, OR Series 66 plus Series 7.
• Professional designation waivers excuse the exam (not the registration) for holders in good standing: Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), Personal Financial Specialist (PFS), Chartered Investment Counselor (CIC), Certified Investment Management Analyst (CIMA).

Numbers to Lock In

Post-Registration Requirements

• Comply with all state securities laws in every state of registration; submit to examination and inspection by the administrator at any time.
• Promptly update Form U4 for material changes: address, disciplinary events, customer complaints, employment or affiliation changes, criminal charges or convictions, financial disclosures.
• Duration: registration stays effective until withdrawn, revoked, suspended, or cancelled; it does NOT expire on its own.
• Renewal: typically annual, most states on a calendar-year basis; failure to renew lapses the registration and the IAR can no longer act.
• Withdrawal: IAR or employer files Form U5 to terminate registration; a lapsed IAR must re-register before advising.
• The administrator can deny, suspend, or revoke for cause, and can issue cease-and-desist orders without a hearing (stop conduct first, hearing afterward).

Top Gotchas

• Professional designation waivers excuse the exam, NOT the registration; a CFA or CFP still files Form U4 and registers with the state.
• Continuing education does not waive the initial exam, and it is not universally required (only states that adopt the NASAA model rule impose the 12-hour annual CE).
• Both SEC prongs must be met for a federal-covered-adviser IAR to owe state registration; give advice but lack both the place of business and both natural-person prongs, and no registration is owed in that state.
• Failing to update Form U4 promptly is itself a violation; the obligation is ongoing, not just at renewal.
• Federal covered status of the firm does not shield the individual IAR from state oversight; the administrator can still act against the person.

One-Breath Recap

An IAR is always an individual (never a firm) who does at least one of five things: recommends securities, manages accounts, decides which advice is given, solicits advisory services, or supervises those who do; clerical staff who do none of these are not IARs. For a federal covered adviser, the SEC test adds two prongs (gives advice AND has a place of business or exceeds the more-than-5 and more-than-10% natural-person thresholds), but IARs always register at the state level only, file Form U4, and consent to service of process automatically. Waivers exist for designations like CFA and CFP but excuse the exam, not the registration, and states that adopt the NASAA rule require 12 hours of annual CE. Registration never expires on its own, so material changes must be updated on Form U4 promptly and renewals kept current. The state administrator regulates the IAR as an individual regardless of the firm, and can examine, deny, suspend, revoke, or issue cease-and-desist orders even without a hearing.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Investment Adviser Representative Regulation unit for the complete lesson.