Licensing Maze – Investment Advisor Representative Registrations

August 22, 2005

Where do investment advisor representatives (IARs) need to be licensed?

According to Section 203A(b)(1)(a) of the Investment Advisers Act of 1940, SEC registered investment advisor firms are only required to license their investment advisor representatives in states where the investment advisor representatives have a place of business.

(For purposes of this section, the SEC has defined the term “place of business” to mean “an office at which the investment adviser regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients; and any other location that is held out to the general public as a location at which the investment adviser provides investment advisory services, solicits, meets with, or otherwise communicates with clients.”)

In other words, an investment advisor representative (affiliated with an SEC registered investment advisor firm) may have more than 5 investment advisory clients in a state and not need to worry about being licensed in that state unless the investment advisor representative actually has a place of business or is actively holding himself out (i.e. advertising) in the state as an investment advisor. Of course, a firm may choose to still license the investment advisor representative. Also, the investment advisor firm must provide a notice filing in states where its investment advisor representatives exceed the de minimis exemption.

Despite the clarity of the Section 203A(b)(1)(a) of the Investment Adviers Act of 1940, the Texas Securities Board (among a handful of states) has taken a contrary position and requires all investment advisor representatives to provide a notice filing and pay a fee at just one client regardless of the representative’s place of business and affiliation with an SEC registered firm.

Although the Investment Advisers Act of 1940 reduces the IAR licensing burden for SEC registered advisor firms, it does not apply to firms registered at the state level. State registered firms need to refer to the specific rules of each in state in which its representatives have clients. You can then determine if your representatives must be licensed or if only the firm will need to be registered.

If you have any questions on a state’s licensing requirements, de minimis rules, exemptions, or just have a general concern about whether or not your firm is adhering to the registration rules, please give us a call.

Posted by Bryan Hill
Labels: IAR Licensing