Individuals looking to be in the business of giving investment advice for compensation will most likely need to register as an investment advisor representative (“IAR”). There are a couple of differences between becoming an IAR and a registered investment advisor(“RIA”). Most notably, only a natural person (a human being and not an entity) can be considered and IAR, and IARs never register with the SEC, only with the individual states. For an example of how to register with a state, check out the process for registering as an IAR with the state of Georgia on the Georgia Secretary of State’s website.

Definition of an Investment Advisor Representative

An individual is considered an IAR if they:

  • Make any recommendations or otherwise renders advice regarding securities;
  • Manages accounts or portfolios of clients;
  • Determines which recommendations or advice regarding securities should be given;
  • Solicits, offers, or negotiates for the sale of or sells investment advisory services; or
  • Supervises employees who perform any of the foregoing.

An individual who performs any of the aforementioned duties will be defined as an IAR and be required to register with an RIA as well as each state they perform those duties in. While IARs can register with both the Firm and the states, an IAR’s state registration is only effective during the time they are registered with a federally covered RIA, or a state registered RIA that is also registered in the same states. This means that IARs who are not registered with an RIA for more than two years will lose all of their state registrations. To register with a RIA, the Firm must include all of their IARs in part 1 of their Form ADV, which automatically registers all partners, officers, and directors functioning as IARs where the RIA’s Form ADV is approved.

IARs who are not official employees, but are instead hired contract workers, are still required to be registered with the Firm. They are also required to add the Firm to their business card, either with or without their personal information.

There are no financial requirements for an individual to register as an IAR, but an insolvency/bankruptcy would be grounds for denial or revocation of registration.

Exclusions from IAR Registration

Not every instance of an individual working for an RIA or providing investment advice will require them to be an IAR. For instance, employees of an RIA that do not perform any of the duties that would classify them as an IAR are exempt from registration. These duties are limited to clerical duties or activities are solely incidental to the investment advisory services offered.

Also excluded for registration are individuals that only provide impersonal investment advice or do not on a regular basis solicit, meet with, or otherwise communicate with clients of the RIA. Impersonal investment advice is defined as means investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts.

State registration is not required for an IAR who does not have a place of business in that state and has had no more than 5 clients in that state in the last 12 months.

Termination of an IAR Registration

When an IAR leaves a Firm, the administrator must be notified for each state they are registered in. If the Firm they were registered with was a state registered advisor, then it is the Firms responsibility to notify the applicable state administrators. If the Firm they were registered with was a federally covered advisor, then it is the IARs responsibility to notify the applicable state administrators.

MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities. If there are any areas where you would like to explore additional assistance or services, please contact us.