Investment adviser representatives (IARs) are subject to essentially the same registration process as agents. Additionally, the registration exemptions applicable to investment advisers also apply to IARs. Let’s go over the details.
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:
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).
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
IAR of a federal-covered adviser
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.
IARs obtain three of the same exemptions afforded to investment advisers, which are:
These are the same exemptions we discussed previously. Click the link above for a complete refresher.
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
IAR Products and Practice Content**
*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.
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