A new state law requires Minnesota-based investment adviser representatives (IARs) that are affiliated with SEC-registered investment advisers to register with the state. The Minnesota Department of Commerce recently published guidance indicating that all IARs will need to become registered during the 90-day period from November 1, 2013 to January 31, 2014.
An IAR is generally defined by the SEC as an employee (or contractor):
- who has more than five natural person clients, and
- whose client base is more than 10 percent natural persons, and
- who regularly meets with or communicates with such clients.
For example, if an adviser employee has six natural person clients, but also has 54 or more institutional clients, the employee does not meet the definition of an IAR because she does not have natural person clients greater than 10 percent of her client base.
The natural person client test is measured with respect to all of an IAR's clients residing within the U.S. A natural person client and certain relatives, such as any minor children of the person and any spouse or other relative living in the same residence, are considered a single client.
Certain natural person clients can be excluded from the above threshold calculation, including the following: any natural person (i) with at least $1,000,000 under the adviser's management; (ii) who has a net worth of greater than $2 million (not including such person's primary residence); (iii) who owns at least $5 million in investments; (iv) who in the aggregate owns and invests on a discretionary basis at least $25 million; or (v) who is a director, executive or other advisory employee of the adviser.
To register in Minnesota pursuant to the new legislation, an IAR is generally required to:
- Pass a qualifying exam (either the Uniform Investment Adviser Law Examination (the Series 65) or both the Series 7 and Series 66 exams), or have a current professional designation (such as the CFP, CHFC, CFA, PFS, and CIC) in good standing; and
- File FINRA's Form U4, the Uniform Application for Securities Industry Registration or Transfer, through FINRA's IARD system. The current version of the Form U4, along with instructions for completing the form, is available on FINRA's website.
However, the Minnesota Department of Commerce has indicated that it intends to adopt a grandfather provision under which the qualifying exam (or professional designation equivalent) requirement will be waived for individuals who were employed as IARs as of August 1, 2013. If you were already employed as an IAR as of August 1, 2013, you will only need to file the Form U4 to register.
Individuals who miss the 90-day registration window ending on January 31, 2014 will need to take the qualifying exam, or have a professional designation in good standing, regardless of whether they were previously employed as an IAR.
The Minnesota Department of Commerce intends to issue orders formally adopting these measures in the next few weeks.