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August 27, 2019 at 03:00 PM
One area that often presents a source of confusion, particularly 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 representative” 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 excepted persons). 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?
