IAR Registration Triggers & De Minimis Rules
Examines when an Investment Adviser Representative (IAR) must register in a state, the 5-client retail de minimis safe harbor, and the physical place of business rule.
- State IAs and their IARs qualify for de minimis exemption if they have NO place of business in the state and have 5 or fewer retail clients there in 12 months.
- IARs of Federal Covered IAs register ONLY in states where the IAR maintains a physical 'Place of Business'.
- Broker-Dealer agents NEVER get a retail de minimis exemption; contacting even one retail customer requires BD agent registration.
An Investment Adviser Representative (IAR) is any partner, officer, director, or individual employed by an investment adviser who: (1) makes recommendations or gives advice regarding securities, (2) manages client accounts or portfolios, (3) determines which recommendations should be given, (4) solicits advisory clients, or (5) supervises employees performing any of these functions.
Under the Uniform Securities Act, an IAR representing a state-registered adviser must register in any state where the IAR maintains a place of business, OR in any state where the IAR provides services to more than 5 non-institutional retail clients in a 12-month period.
For IARs employed by SEC-registered Federal Covered Advisers, NSMIA established that state registration can only be required in states where the IAR has a physical 'Place of Business.' If a federal IAR has no physical office in State B, State B cannot require registration, even if the IAR has 50 clients residing in State B.
- Do not confuse the IAR de minimis rule (5 retail clients allowed) with BD agents (0 retail clients allowed).
- If an IAR opens a physical office (or home office holding out to clients) in a state, the de minimis exemption evaporates immediately.
An Investment Adviser Representative (IAR) affiliated with a state-registered investment adviser has her sole physical office in Michigan. Over the course of the past 12 consecutive months, she provides personalized investment advice to four wealthy individual retail clients who are permanent residents of Ohio. The IAR has no physical place of business in Ohio. Does the IAR have to register in Ohio?