What Is an Investment Advisory Representative (IAR)?

Investment advisory representatives (IARs) are licensed and authorized personnel who work for investment advisory companies and are permitted to work with clients. The primary responsibility of an IAR is to provide investment-related advice as a financial advisor or financial planner.

In order to become an IAR, individuals must pass the appropriate licensing exam or exams and register with the appropriate regulatory bodies.

Understanding Investment Advisory Representatives (IARs)

The Uniform Securities Act defines the term investment advisor representative (IAR) as:

"An individual employed by or associated with an investment advisor or federal-covered investment advisor 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."

IARs, as the name suggests, are representatives of investment advisory firms. They are typically tasked with duties and roles that would cast them as financial advisors and/or financial planners and often work with individual clients to help them achieve their financial goals and build investment portfolios.

More specifically, IARs commonly engage in the following:

• Make Recommendations: IARs use their skill and judgment to make recommendations about different securities. They may use research produced by their firm to make an investment decision such as making a buy recommendation to a client after analyzing a research note.
• Manages Client Accounts: This includes all aspects of account management, from managing discretionary accounts to following up on administration issues. For instance, an IAR may request additional funds from an investor to settle an outstanding trade.
• Advisory Services: IARs may provide general investment advice. Examples include presenting a daily market report at a local television station or writing a weekly investment column for a newspaper.
• Supervise Other IARs: An IAR might manage other IARs. This could include ensuring that new staff meet all regulatory requirements and helping to train junior team members as well as monitor the investment advice they give to investors.

An employee of an investment firm who does not directly engage in financial advice or investment recommendations to clients would not need to register as an IAR. This includes support staff, administrators, secretaries, etc.

IAR Requirements

It is essential for RIA firms to ensure their IARs are registered correctly to avoid significant penalties. The first step in the registration process is to create an account with the Investment Adviser Registration Depository (IARD). These accounts are managed by the Financial Industry Regulatory Authority (FINRA) on behalf of the Securities and Exchange Commission (SEC) and states. There are a few states that do not require this, so advisors who only do business in those states do not have to use this system.

Once the account is open, FINRA will supply the advisor or firm with a Central Registration Depository (CRD) number and account ID information. With this, the firm can then file Form ADV and the U4 forms with either the SEC or states.

According to regulations, IARs can only offer advice on topics for which they have passed the appropriate examinations. In addition to obtaining the minimum qualifications, they must register with a registered investment advisor (RIA) firm and the proper state authorities.

IARs register in the state in which they provide investment advice; they do not require SEC registration. In the majority of states, IARs are required to file Form U4, which is the Uniform Application for Securities Industry Registration. The form then gets filed on the CRD system.

IAR Qualifications

To expand their knowledge of financial products and principles, many IARs go above and beyond by acquiring either the Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations. These designations are not required to be an IAR or financial advisor but provide more legitimacy, opportunity, and knowledge to the charter holder.

IARs in most states are typically required to pass the Series 63 and/or Series 65 exams. The FINRA administered exam consists of 130 scored questions which candidates have 180 minutes to complete. As an alternative to passing the Series 65 exam, IARs may pass the Series 66 and Series 7 exams.

Some states allow for the substitution of licensing credentials. For example, an individual may not have to pass the Series 65 exam if they hold a CFP designation. IARs may also have continuing education requirements depending on their jurisdiction.