Minnesota law requires both investment advisers (IAs) and investment adviser representatives (IARs) to register with the Minnesota Department of Commerce, unless a registration exemption applies. Some confusion persists in the industry as to who must register as an IAR. This article provides a quick update on Minnesota’s requirements pertaining to IARs and addresses some frequently asked questions.
Who is an IAR?
The Minnesota Securities Act defines an IAR to be:
an individual employed by or associated with an investment adviser or federal covered investment adviser 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.
Anyone meeting this definition that is not otherwise excluded or exempt under the law must register as an IAR in Minnesota.
What about IARs of SEC Registered Investment Advisers?
Generally speaking, individuals associated with an SEC-registered IA must register in Minnesota as an IAR if the individual has a place of business in Minnesota and meets the federal definition of investment adviser representative. A “place of business” includes an office at which the investment adviser regularly provides investment advice or solicits, meets with, or otherwise communicates with customers or clients. A place of business also includes any other location that is held out to the general public as a location at which the investment adviser provides investment advice or solicits, meets with, or otherwise communicates with customers or clients. Individuals associated with an SEC-registered IA that do not have a place of business in Minnesota do not need to register as an IAR in Minnesota.
What about Sole Proprietors?
Minnesota law does not distinguish sole proprietor IAs from IAs with multiple employees, nor does it exempt sole proprietors from either IA or IAR registration requirements. The Commerce Department has generally taken the position that sole proprietors meeting both the IA and IAR definitions must register as both.
What About Solicitors?
The Minnesota Securities Act’s definition of IAR, cited above, includes: “an individual employed by or associated with an investment adviser or federal covered investment adviser and who […] receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice.” The Commerce Department has generally taken the position that individuals compensated by an investment adviser for soliciting clients must register as an IAR of that adviser.
How do I Register as an IAR?
Generally, any IAR planning to do business in Minnesota must first have passed the Uniform Investment Adviser State Law Examination (Series 65), or the General Securities Representative Examination (Series 7) and Uniform Combined State Law Examination (Series 66), within two years prior to applying for registration in Minnesota. The Series 65 and Series 66 examinations are created by the North American Securities Administrators Association (NASAA) and administered by the Financial Industry Regulatory Authority (FINRA). More information on NASAA exams, including information on where to take the exams, is included here: http://www.nasaa.org/industry-resources/exams/exam-faqs/
The Commerce Department has the authority to waive these exam requirements; however, the Department is unlikely to exercise this authority unless, at minimum, the applicant can demonstrate he/she has previously passed the exam, has substantial experience in the industry and/or holds one or more of the following professional designations at the time the waiver is requested: Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC); Chartered Financial Analyst (CFA); Personal Financial Specialist (PFS); or Chartered Investment Counselor (CIC).
To apply for registration, an IAR should submit a Form U-4 through the IARD database, or amend an existing U-4 to indicate his/her intention to register as an IAR in Minnesota. Instructions to the Form U-4, and the Form itself, are available at the IARD website, here: https://www.iard.com/formfil_ia
Can I be “Grandfathered” in as an IAR Without Taking an Exam?
Prior to August 1, 2013, Minnesota law did not include an IAR registration requirement. Soon after the law changed, the Minnesota Commerce Commissioner issued an order permitting individuals to become IAR registered during a limited time period without taking an exam. However, that “grandfathering period” has long since lapsed. Anyone currently acting as an IAR in Minnesota that is not registered risks being penalized by the Commerce Department.