Investment adviser representatives (IARs)

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Investment adviser representatives (IARs) are subject to essentially the same registration
process as agents. Additionally, the registration exemptionsapplicable to investment
advisers also apply to IARs. Let’s go over the details.
Disclosures and fees
The disclosures and fees related to an agent’s registration are the same for IARs. Click the
previous link for a full refresher, but here’s a summary of the information requested on Form
U4 (IARs use the same form) and general requirements:
 Name and any nicknames
 Current address
 List of all current registrations
 Employment & residential history
 Criminal events
 Regulatory events
 Court actions
 Financial disclosures
 Payment of filing fee
Effective registration
When the proper disclosures are made and the filing fee is paid, the state administrator grants
effective registration (usually on the 30th day after filing). Similar to broker-dealers, agents,
and state-registered investment advisers, IARs cannot allude to administrator approval when
discussing their registration.
IAR registration is unique in two ways. First, the state administrator does not require surety
bonds for IARs. However, surety bonds may be required for broker-dealers, agents, and state-
registered investment advisers.
Second, IARs of federal-covered advisers only register in the state they maintain an office. For
example, assume an IAR works for a covered adviser with an office in Florida, but calls hundreds
of potential retail clients in Alabama. The IAR is subject to registration in Florida only (no
Alabama registration required). Keep in mind this is drastically different* than agents and IARs
of state-registered advisers. Both would be required to register in Florida and Alabama in that
scenario.
*Agents and IARs of state-registered advisers must register in any state they do business in
unless an exemption exists (e.g., the institution exemption).
Sidenote
Dual registration
Many workers in the securities industry are dual registered as IARs and agents. Maintaining
both registrations allows an individual to provide advice for compensation (IAR registration) and
execute transactions (agent registration).
Firms that employ dual-registered employees must be dual-registered as broker-dealers and
investment advisers.
Termination
We learned the notification process followed when an agent’s employment is terminated in
a previous chapter. The process for IARs is similar, with a few key differences. Form U5 is still
used to notify the state administrator, but the parties submitting the form differ. Here are the
general rules:
IAR of a state-registered adviser
 Investment adviser’s (the firm’s) responsibility to notify the state administrator
IAR of a federal-covered adviser
 IAR’s responsibility to notify the state administrator
Unlike the dynamic between broker-dealers and agents (where both notify), it’s always one or
the other with investment advisers and IARs.
When a termination occurs, the state administrator must be notified by the appropriate parties
“promptly.” The administrator will then cancel the IAR’s registration within 30 days of
notification. Although the individual is no longer registered at this point, the state administrator
may pursue punitive actions (e.g. a suspension or revocation*) up to a year after the
withdrawal. For example, assume an unethical action was performed by an IAR during their
employment, but the state administrator didn’t discover it until after they were terminated. The
individual can be punished up to one year after their registration was withdrawn even though
they’re no longer registered. The punitive action imposed would likely hinder the individual’s
ability to rejoin the industry in the future.
*A suspension is a temporary loss of registration, while a revocation is a permanent loss of
registration. These punitive actions are covered in detail in a future chapter.
Exemptions
IARs obtain three of the same exemptions afforded to investment advisers, which are:
 Vacation (snowbird) rule
 Institution rule
 De minimis rule
These are the same exemptions we discussed previously. Click the link above for a complete
refresher.
Continuing education
Registered individuals (agents and IARs) must continually demonstrate adequate industry-
related knowledge. Not only are they required to pass difficult licensing exams, but they must
stay up-to-date on continuing education (CE).
The North American Securities Administrators Association (NASAA) imposes annual CE
requirements for IARs. The requirements are:
IAR Regulatory and Ethics Content
 6 total credits*
 At least 3 credits dedicated to ethics
IAR Products and Practice Content**
 6 total credits
*NASAA defines a credit as at least 50 minutes (roughly 1 hour) of educational instruction.
**IAR Products and Practice Content is not required for IARs dual-registered as agents because
this information is covered in agent-based CE (discussed below).
IAR CE requirements are facilitated by training-based organizations, referred to by NASAA as
‘authorized providers.’ The chosen authorized provider reports the completion of CE, but IARs
are required to confirm the report was received. CE must be completed annually; if not, an IAR
becomes ineligible to renew their registration.
Agents are also subject to annual CE requirements, but they are imposed by the Financial
Industry Regulatory Authority (FINRA), not NASAA. You’re preparing for an NASAA exam, so you
are unlikely to encounter test questions on agent CE requirements.
Key points
Form U4
 Registration form for IARs
IAR registration disclosures
 List of all current registrations
 Employment & residential history
o 10 years of employment history
o 5 years of residential history
 Criminal events
o Any charges, guilty pleas, no contest pleas, or convictions must be disclosed
o Guilty pleas, no contest pleas, and convictions of felonies or securities-related
misdemeanors in the past 10 years may prevent registration
 Regulatory events
 Court actions
 Financial disclosures
o Bankruptcy filings
o Compromises with creditors
 Payment of filing fee
Effective registration
 Must submit the proper paperwork, disclosures, and fees
 IARs of federal-covered advisers only register in states where an office exists
 Typically granted on the 30th day after filing
Financial requirements for IARs
 No minimum financial requirements
 Insolvency may affect registration status
Form U5
 Terminates IAR’s registration status
 Filed when an IAR quits or is terminated
 Responsibility of:
o Investment adviser if the firm is state-registered
o IAR if the firm is federal-covered
 Administrator may institute disciplinary actions up to a year after withdrawal
IAR exemptions
 Snowbird/vacation rule
o No place of business in the state
o Only engaging investors temporarily in that state
 Institution rule
o No place of business in the state
o Only engaging institutional investors in that state
 De minimis rule
o No place of business in the state
o Engaging no more than 5 retail clients in a 12-month period in that state
IAR continuing education (CE)
 Must be completed annually
 Ineligible for registration renewal if not completed
 Facilitated by authorized providers
 1 credit = roughly 1 hour of educational material
IAR CE courses
 IAR Regulatory and Ethics Content (6 credits)
o At least 3 ethics credits
 IAR Products and Practice Content (6 credits)
o Not required for IARs dual-registered as agents
Agent continuing education
 Imposed and facilitated by FINRA