Before you can understand registration requirements, you need to know exactly who qualifies as an IAR (and who does not).
Quick Answer
An investment adviser representative (IAR) is always an individual, never a firm, who recommends securities, manages accounts, decides which advice is given, solicits advisory services, or supervises anyone doing those things. Clerical staff who do none of those are not IARs. For a federal covered adviser, the SEC's separate test asks whether the person gives advice AND has more than 5 natural-person clients making up more than 10% of their client base.
Who Is an IAR Under State Law?
Under the Uniform Securities Act, an investment adviser representative (IAR) is any individual (never a firm) who is employed by or associated with an investment adviser and performs any of these activities:
- Makes investment recommendations or otherwise gives investment advice regarding securities
- Manages client accounts or portfolios
- Determines which recommendations or advice should be given to clients
- Solicits, offers, or negotiates the sale of advisory services
- Supervises any individual who performs the activities above
Key point: An IAR is always an individual person. Firms register as investment advisers, not as IARs.
Who Is NOT an IAR?
- Clerical and administrative personnel who do not perform any of the five qualifying activities listed above
- Receptionists, data entry staff, and office managers who handle purely operational tasks
Exam Tip: Gotchas
- Job title does not determine IAR status. A "financial consultant" who recommends securities IS an IAR, regardless of what the business card says.
- The line between IAR and clerical staff is about activity, not role. If someone merely schedules appointments or files paperwork, they are NOT an IAR. The moment someone recommends a specific security or solicits advisory clients, they cross into IAR status.
SEC Definition
For federal covered advisers (SEC-registered firms), federal rules answer two separate questions.
Is the person an IAR at all? A supervised person of a federal covered adviser is an IAR only if BOTH client-mix conditions are met:
- Has more than 5 clients who are natural persons, AND
- More than 10% of the person's clients are natural persons
Even if both conditions are met, the person is excluded from IAR status if EITHER of these applies:
- Does not, on a regular basis, solicit, meet with, or otherwise communicate with clients, OR
- Provides only impersonal investment advice (written material or oral statements that don't purport to meet the objectives or needs of specific individuals or accounts)
Which state can require registration? A state may require an IAR of a federal covered adviser to register only where the IAR has a place of business in that state. The client-count test defines who is an IAR; on its own it does not create a duty to register in a state where the IAR has no place of business. (This place-of-business rule is distinct from the USA's separate de minimis exemption, which applies to IARs of state-registered advisers.)
Think of it this way: The client-mix test decides whether someone is an IAR at all. Place of business decides which state gets to register them. A large in-state client base does not force registration without a place of business there.
- Certain natural persons are excepted from the natural-person count (e.g., "qualified clients" with at least $1.4 million under management with the adviser or more than $2.7 million net worth excluding the primary residence, plus the adviser's own executive officers and directors). These "excepted persons" are removed from the natural-person NUMERATOR in both prongs, but they still count as clients in the total-client DENOMINATOR used for the 10% calculation.
Exam Tip: Gotchas
- The 5-client / 10% natural-person test defines who is an IAR of a federal covered adviser. State-registered advisers follow their own state's IAR definition.
- A state can require an IAR of a federal covered adviser to register only where the IAR has a place of business. A person with no place of business in a state does not register there, no matter how many natural-person clients live there.
- Place of business, not client count, is the state-registration trigger for an IAR of a federal covered adviser. Do not treat a large in-state client count as an alternative that forces registration without a place of business.
Five Qualifying Activities at a Glance
| Activity | Example |
|---|---|
| Making recommendations | Suggesting a client buy a specific stock |
| Managing accounts | Rebalancing a client's portfolio |
| Determining advice | Deciding which model portfolio to recommend |
| Soliciting advisory services | Cold-calling prospects to sign advisory agreements |
| Supervising IARs | Branch manager overseeing advisory staff |
Key point: If someone performs ANY ONE of these five activities, they are an IAR, regardless of their job title.
What Should You Check on Exam Day?
- Can you name the five activities that make an individual an IAR under the USA, and explain why clerical staff who do none of them are excluded?
- Do you know an IAR is always an individual, never a firm?
- Can you state the SEC's federal-covered-adviser client-mix test (more than 5 natural-person clients AND more than 10% of clients are natural persons), and both independent exclusions from it (no regular client contact, OR impersonal advice only)?
- Do you know which persons are excepted from the natural-person client count, and their thresholds ($1.4 million under management or $2.7 million net worth excluding the primary residence)?
- Can you explain why place of business, not client count, is what triggers a state's authority to require registration for an IAR of a federal covered adviser?