Series 66

AAA

Regulation of Investment Advisors and Investment Advisor Representatives - Investment Advisor Representatives: Exclusions

The term investment advisor representative DOES NOT include an individual who:

  • performs only clerical or ministerial acts.
  • 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.
  • is a federal covered investment advisor representative (however, if a federal covered investment advisor has a place of business in a state where a representative conducts business, the representative may be required to register with the Administrator). Do not confuse federal covered with an investment advisor that is required to file on a state level.

If you are listed as a partner, officer or director of an IA at the time of initial registration, you do not need to register separately as an IAR. If not, you must register as an IAR through your state. Your employing firm will supply the necessary information for registration. IA employees who perform any of these functions must register as IARs:

  • Making investment recommendations or giving securities advice
  • Managing client accounts or portfolios
  • Soliciting or offering investment advisory services
  • Supervising employees who perform any of the above

Example 1
If John calls Excellent Money Managers, Inc. to speak with someone about his portfolio and ends up talking to Kathy Kash, is he talking to the investment advisor representative or to the investment advisor?

Answer
John is talking to the investment advisor representative (Kathy Kash), an employee of the investment advisor: Excellent Money Managers, Inc.

Example 2
Big Bubba Bob is an investment advisor representative of Kamikaze Portfolio Managers, a federal covered investment advisor (meaning it is registered with the SEC). Bob has clients in California, New York, Colorado and Alaska. The company's offices are located in Georgia. In which states must he register with the Administrator to work as an investment advisor representative?

Answer
None, except Georgia if he does any business there. However, because Kamikaze Portfolio Managers is a federal covered investment advisor (registered with the SEC), he does not have to register in the state where his firm has no physical address.

Watch out for questions that ask if an office manager who supervises account managers or solicitors has to register as an IAR. While those who have only clerical duties do not need to register, those who supervise IAR employees must do so.

Watch out for the distinction between an IA and an IAR when you are reading exam questions, since there may be differences in registration requirements. You will likely find a number of questions that refer to both IAs and IARs, such as these two examples:

All of the following statements regarding individuals who transact business in the state are true EXCEPT:

  1. investment advisor representatives must register in the state.
  2. investment advisors must register in the state.
  3. representatives of federal covered advisors must register in the state.
  4. federal covered advisors must register in the state.

The correct answer is "d", since federal covered advisors are not required to also register with the state.

  1. The "consent to service of process" must accompany which of the following?
    1. advisor's initial registration application
    2. Investment advisor representative's initial registration application
    3. Investment advisor representative's renewal registration application
    4. Non-criminal complaint filed against an investment advisor
    1. II & III
    2. I & IV
    3. I & II
    4. I, II & III

The correct answer is "c": the consent to service of process is only necessary at the time of initial registration for both investment advisors and investment advisor representatives.

Introduction
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