What Is an Investment Advisory Representative (IAR)?
Investment advisory representatives (IARs) refer to licensed and authorized personnel who work for investment advisory companies and are permitted to work with clients.
In order to become IARs, individuals must pass the appropriate licensing exam or exams and register with the appropriate regulatory bodies.
- Investment advisor representatives (IARs) are individuals employed by or associated with an investment advisor who makes any recommendations or otherwise gives financial or investment advice.
- IARs receive compensation by charging fees, either on a commission basis, as a flat or hourly fee, or as a percentage of assets under management (AUM).
- IARs must be properly registered, and, at a minimum, complete credentialing exams certified by FINRA and other required regulatory agencies as necessary.
Understanding Investment Advisory Representatives
Before proceeding, it may be helpful to clarify a few definitions. The Uniform Securities Act defines the term investment advisor representative (IAR) as:
"Investment advisor representative" means an individual employed by or associated with an investment advisor or federal-covered investment advisor 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:
1. Performs only clerical or ministerial acts
2. 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
3. Is employed by or associated with a federal covered investment advisor, unless the individual has a "place of business" in this State."
Investment advisory representatives, as the name suggests, are representatives of investment advisory firms. IARs are typically tasked with duties and roles that would cast them as financial advisors and/or financial planners. IARs often work with individual clients to help them achieve their financial goals and build investment portfolios.
More specifically, IARs commonly engage in the following:
- Make Recommendations: IARs use their skill and judgment to make recommendations about different securities. They may use research produced by their firm to make an investment decision. For example, an IAR might make a buy recommendation to a client after analyzing a research note.
- Manages Client Accounts: This includes all aspects of account management from managing discretionary accounts to following up on administration issues. For instance, an IAR may request additional funds from an investor to settle an outstanding trade.
- Advisory Services: IARs may provide general investment advice. For example, they may present a daily market report at a local television station or write a weekly investment column for a newspaper.
- Supervise Other IARs: An investment advisory representative may manage other IARs. For example, they may ensure new staff met all regulatory requirements. IARs may also help train junior team members and monitor the investment advice they give to investors.
An employee of an investment firm who does not directly engage in financial advice or investment recommendations to clients would not need to register as an IAR. This includes support staff, administrators, secretaries, etc.
According to regulatory terminology, the "registered investment advisor" or RIA is the firm. The IAR is the individual who represents the firm and must pass an exam.
Investment Advisory Representative Registration
The first step in the registration process is to create an account with the Investment Adviser Registration Depository (IARD), which is managed by FINRA on behalf of the SEC and states. There are a few states that do not require this, so advisors who only do business in those states do not have to use this system. Once the account is open, FINRA will supply the advisor or firm with a CRD number and account ID information. Then the firm can file Form ADV and the U4 forms with either the SEC or states.
According to regulations, IARs can only offer advice on topics for which they have passed the appropriate examinations. An IAR must also register with a registered investment advisor (RIA) firm. In addition to passing the appropriate exams, an investment advisory representative must be registered with the proper state authorities. To expand their knowledge of financial products and principles, many IARs hold either the Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations.
IARs register in the state in which they provide investment advice; they do not require Securities and Exchange Commission (SEC) registration. In the majority of states, IARs are required to file Form U4, which is the Uniform Application for Securities Industry Registration. The form then gets filed on the Central Registration Depository (CRD) system.
IARs in most states are typically required to pass the Series 63 and/or Series 65 exams. The Financial Industry Regulatory Authority (FINRA) administered exam consists of 130 scored questions in which candidates have 180 minutes to complete the exam. As an alternative to passing the Series 65 exam, IARs may pass the Series 66 and Series 7 exams.
Some states allow for the substitution of licensing credentials. For example, an individual may not have to pass the Series 65 exam if they hold a CFP designation. IARs may also have continuing education requirements depending on their jurisdiction. It is essential for RIA firms to ensure their IARs are registered correctly to avoid significant penalties.