One area that often presents a source of confusion, particular- ly for Securities and Exchange
Commission-registered firms, is investment advisor representative registrations.
Unlike firms, where registration and oversight responsibilities are split between the
states and the SEC, individuals are registered exclusively with the various states.
There is no individual registrations at the
SEC level (at this point), even for representatives of SEC-registered advisors.
My colleague Ryan Walter explained
how a firm should evaluate whether an
individual is subject to state registration. He started with reference to Section
203A(b) of the Advisers Act that provides:
( 1) No law of any State or political subdivision thereof requiring the registration,
licensing, or qualification as an investment adviser or supervised person of
an investment adviser shall apply to any
person — (A) that is registered under
section 80b– 3 of this title as an investment adviser, or that is a supervised
person of such person, except that a State
may license, register, or otherwise qualify
any investment adviser representative who has a place of business located
within that State.” (emphasis added).
As indicated above, the Advisers Act
only preempts state registration requirements to the extent the supervised person
is not also an “investment advisor representative.” In other words, if a supervised
person falls within the Advisers Act definition of an investment advisor representative, then the state, subject to the below
analysis, can license, register, or otherwise
qualify that individual.
An “investment advisor represen-
tative” generally means a supervised
person of the investment advisor:
• Who has more than five clients
who are natural persons (other than
excepted persons); and
• More than 10% of whose clients are
natural persons (other than except-
An “excepted person,” for the purposes of the above definition, generally
aligns with the definition of a “high net
worth individual” for Form ADV reporting purposes.
If the individual has not yet been
exempted from the definition of investment advisor representative per the
above, then we move on to the final stage
of the analysis: Does the individual have a
place of business located within that State?
“Place of business” of an investment
advisor representative means:
• An office at which the investment
advisor representative regularly pro-
vides 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 advisor repre-
sentative provides investment advi-
sory services, solicits, meets with, or
otherwise communicates with clients.
For the purposes of rule 203A- 3(b), an
advisor representative generally would
be considered to hold him/herself out to
the general public as having a location at
which he conducts advisory business by,
for example, publishing information in
a professional directory or a telephone
listing, or distributing advertisements,
business cards, stationery, or similar
communications that identify the loca-
tion as one at which the advisor repre-
sentative is or will be available to meet
or communicate with clients.
Investment advisor representatives can
only be compelled to register in states in
which they maintain a place of business.
If an SEC-registered investment advisor
only has a place of business in New Jersey,
then New Jersey is the only state (subject
to potential limited exceptions) that can
require registration of that firm’s investment advisor representatives, regardless
of the number of clients served or amount
of assets managed in any other state.
Once an advisory firm has determined
that a state is permitted to require registration, it is then a matter of examining the
laws of that state or states per the above
to ascertain whether investment advisor
representative registration is required.
Although the analysis of various state
licensing requirements is a job better left
to attorneys, the above analysis can serve
as a helpful guide in winnowing down the
number of possible states for review.
Thomas D. Giachetti is chairman of the Securities
Practice Group of Stark & Stark, a law firm with
offices in Princeton, New York and Philadelphia
that represents investment advisors, financial
planners, BDs, CPA firms, registered reps
and investment companies, and is a regular
contributor to Investment Advisor. He can be
reached at firstname.lastname@example.org.
THE COMPLIANCE COACH
By Thomas D. Giachetti
Demystifying RIA/IAR Legal Requirements
Confused about the different state and federal registration needs for RIAs
and their advisor reps? Here’s a guide.