The Minnesota Department of Commerce – Securities Unit recently announced that during the last legislative session a bill was passed that has now been signed into law, resulting in changes to investment adviser representative (“IAR”) registration requirements. One of the significant changes that will likely impact many federally and state registered investment advisers, located or conducting business in Minnesota, is the requirement to register investment adviser representatives through the Web CRD/IARD system. Prior to this recent legislation, Minnesota did not have registration requirements for investment adviser representatives. However, Minnesota Statute 80A.58 Section 403(a) has now been revised to state, “It is unlawful for a person to transact business in this state as an investment adviser or investment adviser representative unless the person is registered under this chapter or is exempt from registration. . . .”
According to a notice posted on the Minnesota Department of Commerce website, the effective date of the law is August 1, 2013. The new law will require investment adviser representatives to take and pass either the Series 65 examination or the Series 7 and Series 66 examinations prior to being registered. (While most states will grant a waiver of the examination requirements if the investment adviser representative has obtained and maintains in good standing certain designations [i.e., CFP, ChFC, CFA, PFS, CIC] it is unclear yet whether Minnesota will grant such a waiver.) The notice explains that a number of questions have arisen over the Minnesota Department of Commerce’s intention to enforce the testing provisions prior to registration given the short time frame from the announcement of the new requirements to the effective date of the law. Additionally, the notice indicates that FINRA has advised the Minnesota Department of Commerce that the IARD/CRD system will not be ready to accept the new investment adviser representative registration requests until sometime during the fourth quarter of this year. As a result, the Minnesota Department of Commerce believes “that the August 1st date will be extended as a logistical matter outside the control of the [Minnesota Department of Commerce].” The notice goes on to indicate that the Minnesota Department of Commerce is currently considering providing conditional investment adviser representative registration subject to taking and passing the examination(s) within a certain time frame.
Under Minnesota Statutes 80A.41 Section 102, “investment adviser representative” is defined as “an individual employed by or associated with an investment adviser or federal covered investment adviser and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing. The term does not include an individual who:
(A) performs only clerical or ministerial acts; (B) is an agent whose performance of investment advice is solely incidental to the individual acting as an agent and who does not receive special compensation for investment advisory services; (C) is employed by or associated with a federal covered investment adviser, unless the individual has a ‘place of business’ in this state as that term is defined by rule adopted underSection 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a) and is (i) an ‘investment adviser representative’ as that term is defined by rule adopted under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a); or (ii) not a ‘supervised person’ as that term is defined in Section 202(a)(25) of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(25)); or (D) is excluded by rule adopted or order issued under this chapter.”
When the IARD/CRD system is ready to handle the Minnesota investment adviser representative registrations, Minnesota will rely on the standard Form U4 which must be filed via the Web CRD system. The Minnesota Department of Commerce – Securities Unit has not yet announced if it will charge a licensing fee for investment adviser representative registration, which would be in addition to the $10 processing fee assessed by FINRA for new investment adviser representative registrations. Individuals that have a place of business in Minnesota or that conduct business in Minnesota that meet the definition of investment adviser representative will be required to register unless they qualify for an exemption under the new regulations. Many existing investment advisers may be wondering if there will be any sort of grandfather provision for investment adviser representatives of existing investment advisers. This issue does not appear to be addressed in any materials published by the Minnesota Department of Commerce to date, but when we contacted the Minnesota Department of Commerce – Securities Unit to inquire about a whether there will be a grandfather provision waiving the examination requirements for existing investment adviser representatives, we were informally advised that such a grandfather provision will not be granted.
It appears that there are still some issues that need to be addressed and clarified by the Minnesota Department of Commerce – Securities Unit. RIA Compliance Consultants will continue to monitor this situation and will provide updates as they become available. However, investment advisers located or conducting business in Minnesota should take heed to this warning and know that they will likely need to register their investment adviser representatives in Minnesota sometime this year. If the investment adviser representatives that will be required to register do not currently meet the minimum examination requirements, investment advisers may want to begin preparing these individuals to take the proper examination.
Posted by Bryan Hill
Labels: Examination, Form U4, How to become an RIA, How to Become RIA, IAR Licensing, IARD, Minnesota Investment Advisor, Series 65