Investment adviser representatives chapter recap

Ch 4-8 Exam Essentials — Regulation of IARs

IAR definition (USA §401(g)). Any individual associated with an IA who recommends, manages, determines, solicits, or supervises — the five activities. Functional, not titular.

Clerical/ministerial exception. Receptionists, file clerks, IT, accountants who do not give advice or recommend securities are NOT IARs. The exception is about activities, not job titles.

IAR vs IA distinction. The IA is the firm (legal entity providing advice for compensation). The IAR is an individual employee, officer, or partner of the IA who performs advisory activities. Different registration regimes apply.

State-firm IAR. IAR registers in each state where they have a place of business. State law fully applies.

Federal-firm IAR (NSMIA preempts firm-level state registration). IAR still registers with the state(s) where the IAR personally has a place of business. NSMIA preempts firm registration only, not IAR registration.

Qualifying exams. Series 65 (standalone) OR Series 66 + Series 7 co-requisite. Series 7 alone does NOT qualify. NASAA waivers for CFA, CFP, ChFC, PFS, CIC in good standing.

Form U4. Initial registration document. Required disclosures: personal info, 10-year employment history, 5-year residential history, criminal/regulatory/civil/financial disclosures, fingerprints. Material amendments within 30 days.

NASAA CE rule. 12 hours per year, split 6 products + 6 ethics. Approved-provider content. Failure leads to CE-inactive status; extended noncompliance to suspension/revocation.

EVEP. NASAA program; extends IAR qualifying-exam validity from default 2 years to up to 5 years after leaving the industry, with annual CE completion. Preserves the Series 65 (or 65 component of a 66) exam credit only, not active registration. FINRA's separate MQP covers Series 7 maintenance.

Fiduciary standard. Loyalty + care + suitability + best execution. IAR is held to same fiduciary duty as the IA firm. Higher than BD agent standard.

Prohibited practices. Selling away, borrowing from clients (except institutional lenders), sharing in profits/losses without consent, undisclosed conflicts, failing to update Form U4 within 30 days.

IAR regulation exam traps — consolidated

1. "A Series 7 alone qualifies someone as an IAR." Wrong. Series 7 plus Series 66 OR Series 65 alone. Series 7 does not cover state IA law.
2. "An IAR at a federal covered firm only registers federally." Wrong. NSMIA preempts firm registration; the IAR still registers at the state level where they have a place of business.
3. "An IAR with clients in 50 states must register in 50 states." Wrong. IAR registration follows the IAR's place of business, not the firm's national client footprint.
4. "A receptionist at an IA firm is an IAR because she is an employee." Wrong. Clerical/ministerial employees are excluded; only those who recommend, manage, determine, solicit, or supervise are IARs.
5. "NASAA CE is 4 hours of ethics and 8 hours of products." Wrong. The split is 6 ethics + 6 products = 12 total; 8 products + 4 ethics does not satisfy it.
6. "Ethics CE hours can be substituted with product hours." Wrong. The 6-hour ethics component is a separate, non-substitutable category.
7. "EVEP keeps an IAR's active registration valid after leaving a firm." Wrong. EVEP preserves only the qualifying-exam credit, not active registration. The IAR is still terminated until re-associating.
8. "Without EVEP, exam credit lapses after 5 years." Wrong. Default is 2 years. EVEP extends to up to 5 years.
9. "An exam-waiver designation remains valid even after revocation." Wrong. The waiver requires good standing. Revocation or suspension of the designation eliminates the waiver.
10. "Form U4 disciplinary disclosures must be amended within 90 days." Wrong. Material amendments are required within 30 days.
11. "An IAR can borrow money from a long-time client." Wrong. Borrowing from clients is prohibited unless the client is an institutional lender (bank, etc.). Personal-friendship clients do not qualify.
12. "An IAR can engage in outside business activities without disclosing them to the firm." Wrong. Outside business activities must be disclosed via Form U4 and approved by the firm.
13. "An IAR is held to a suitability-only standard." Wrong. IARs (like the IA firm) are held to the fiduciary standard — loyalty, care, suitability, best execution. Higher than the BD agent suitability/best-interest standard.