With hopes of dispelling some persistent confusion in the industry, this article addresses some frequently asked questions on investment adviser representative registration requirements in Minnesota.
Who qualifies as an investment adviser representative (IAR) in Minnesota?
Section 80A.41(17) of 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.
Do IARs of SEC-registered
investment advisers need to register in Minnesota?
As a general rule, IARs of SEC-registered firms must register in Minnesota if they are doing business out of an office in Minnesota. Don't buy it? Compare the federal and state laws on this issue:
1. What does Federal Law Say?
The Investment Advisers Act of 1940, as amended (the “Advisers Act”) provides that “a State may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State” (See 15 U.S. Code § 80b-3a(b)(1)(A)). Federal law defines “place of business” to include:
(1) An office at which the investment adviser representative regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients; and
(2) Any other location that is held out to the general public as a location at which the investment adviser representative provides investment advisory services, solicits, meets with, or otherwise communicates with clients.
(See 17 CFR 275.203A-3(b)).
2. What does State Law Say?
Minnesota’s definition of IAR (quoted above) includes an “individual employed by or associated with [a] federal covered investment adviser.” However, the definition also excludes an individual who:
is employed by or associated with a federal covered investment adviser, unless the individual has a "place of business" [emphasis added] in this state as that term is defined by rule adopted under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a) and is
an "investment adviser representative" as that term is defined by rule adopted under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a); or
not a "supervised person" as that term is defined in Section 202(a)(25) of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(25))
Pursuant to Minn. Stat. 80A.58(a), “it is unlawful for a person to transact business in Minnesota as an investment adviser or investment adviser representative unless the person is registered under [the Minnesota Securities Act] or is exempt from registration[.]”
What about sole proprietors?
Minnesota law does not distinguish sole proprietor IAs from IAs with multiple representatives, nor does it exempt sole proprietors from either IA or IAR registration requirements. In recent years Commerce has taken the position that sole proprietors meeting both the definitions of IA and IAR must register as both.
What about solicitors?
The Minnesota Securities Act’s definition of IAR, quoted above, includes an individual who “receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice.” Commerce 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/
An individual meeting these exam requirements may apply for registration by submitting a Form U4 through the CRD/IARD system.
Do I really have to take another exam?
If you have never taken the S65 or S66, you will probably need to take one of those exams now. Commerce has the authority to waive these exam requirements; however, Commerce is unlikely to grant a waiver unless the applicant, at minimum:
can demonstrate he/she has previously passed the exam;
has substantial experience in the industry; and
has a clean disclosure history on his/her Form U4.
Minn. Rule 4120 Subp. 4 also waives the exam requirements for applicants holding one or more of the following professional designations at the time of registration: Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC); Chartered Financial Analyst (CFA); Personal Financial Specialist (PFS); or Chartered Investment Counselor (CIC).
Can I be “grandfathered” in as an IAR without taking an exam?
Not anymore. 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.
It’s my firm’s fault for not getting me registered during the grandfather period. Now can I be grandfathered in without taking an exam?
Nope. Though you may want to share this article with your registration/compliance team!
Brian Edstrom is a Shareholder and Attorney at Avisen
Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having
spent several years working for federal and state regulators in Washington D.C.
and Saint Paul, MN before entering private practice. Brian assists
clients in all aspects of working with securities regulators, whether it be to
obtain a license or registration, prepare for an audit, or respond to an
enforcement investigation. Brian also regularly advises clients on their
general business needs, particularly surrounding raising money through