SEC Rule 203A-3(a) of the Investment Advisers Act defines an investment advisor representative ("IAR") as a supervised person who has more than five clients who are natural persons and more than 10 percent of whose clients are natural persons. The IAR licensing responsibility has been given to the individual states which can impose registration, licensing, or other qualification requirements on associated persons that fall under the SEC definition of investment advisor representative and who have a place of business in the state or hold themselves out as advisor representatives in the state. In other words, under the Advisers Act, and the far majority of state regulations as explained below, an investment advisor representative of an SEC registered firm can have an unlimited number of clients in a state, without being licensed, as long as the advisor firm is notice filed in the state and the advisor representative does not have a place of business within the state.
Of course, these licensing/registration rules under the Investment Advisers Act of 1940 apply to only SEC registered firms. State registered firms must look to each state’s specific registration requirements to determine which associated persons must be licensed. In general, if an advisor firm is registered in a state, at least one associated person must license as an advisor representative. According to the NASAA web site, “most states follow a definition of investment adviser representative (IAR) similar to that in the Uniform Securities Act. An IAR generally is a person who, for compensation (1) makes any recommendations or otherwise renders advice regarding securities; (2) manages accounts or portfolios of clients; (3) determines which recommendation or advice regarding securities should be given; (4) solicits, offers, or negotiates for the sale of or sells investment advisory services, or (5) supervises employees who perform any of the foregoing.”
This notice is written based on the general industry licensing requirements. Of course, not all states follow these general guidelines, and many have implemented their own unique requirements or do not even license IARs. Whenever an advisor firm begins to conduct business in a state, it is imperative for the firm to have a specific understanding of the state’s licensing requirements. If you are unsure as to which of your associated persons should be registered or need clarification on a particular state’s licensing requirements, please give us a call.
Labels: IAR Licensing