Investment Advisory Representative (IAR): Definition and Duties

Investment advisory representatives (IARs) are licensed professionals who work for investment advisory companies and provide personalized investment advice and financial planning services to individuals and businesses. They play a crucial role in helping clients navigate the complex world of investing.

To become an IAR, candidates must pass licensing exams. These tests cover many topics, including investment strategies, risk management, and ethical practices. Once licensed, IARs must register with the U.S. Securities and Exchange Commission (SEC) or state securities regulators. Below, we guide you through the regulations and other duties that apply to these professionals.

Understanding Investment Advisory Representatives (IARs)

IARs are individuals employed by or associated with an RIA firm. They advise clients on securities, manage client accounts or portfolios, determine which recommendations or advice should be given, receive compensation, or supervise employees who perform these duties.

IARs serve as the face of investment advisory firms, working directly with clients as financial advisers and planners and using their expertise to help guide client portfolios.

Here are some of their key responsibilities:

• Recommendations: IARs analyze research produced by their firm and use their knowledge and judgment to suggest various securities to their clients.
• Managing client accounts: IARs handle all aspects of account management, from overseeing discretionary accounts to addressing administrative issues. For example, an IAR may request additional funds from a client to settle an outstanding trade.
• Providing advisory services: IARs offer general investment advice to the public, such as presenting daily market reports in the media.
• Supervising other IARs: Experienced IARs may be responsible for managing and training junior team members, ensuring they follow regulations and monitoring their investment advice.

RIA vs. IAR

Contrary to what many people think, a registered investment advisor (RIA) isn’t a person or profession. An RIA is a firm registered with the SEC or state securities administrators to provide advisory services to clients. The individuals who execute this service for this firm, the RIA, are the IARs.

As we see below, the number of IARs has more than doubled since 2000.

IAR Requirements

To ensure that IARs maintain the integrity of the industry and avoid significant fines, they must meet these key requirements:

• Registration: IARs must register with the appropriate state authorities in the states where they provide investment advice. In most states, this involves filing Form U4, the uniform application for securities industry registration, through the Central Registration Depository (CRD) system.
• Minimum qualifications: IARs can only offer advice on topics for which they have passed the relevant examinations. These exams may include the Uniform Investment Adviser Law Examination (Series 65) or the Uniform Combined State Law Examination (Series 66), depending on the specific requirements of the states in which they operate.
• Work with an RIA: IARs must be employed by or associated with an RIA firm that is registered with the SEC or the appropriate state authorities, depending on the firm's AUM and the number of clients it serves.
• Fiduciary duties: Investment advisers are bound to a fiduciary standard from the Investment Advisers Act of 1940. The act defines stipulates advisers have a duty of loyalty and care, which means that the adviser must put the client’s interests above their own.
• Disclosure: IARs must reveal any risks or potential conflicts of interest related to any transactions or investments they recommend to clients.
• Documentation: To comply with SEC record-keeping regulations, IARs must maintain detailed records of their interactions with clients, investment recommendations, and other relevant information, providing a clear audit trail.

IAR Qualifications

To expand their knowledge of financial products and principles and for career advancement, many IARs work to attain either the certified financial planner or chartered financial analyst designation. These are not required to be an IAR but provide more evidence of an IAR's expertise.

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.

The Bottom Line

Investment advisory representatives (IARs) are financial advisors who specialize in investing matters and offer investment advice to clients. In exchange for a fee, IARs, working on behalf of a registered RIA, can make recommendations, build investment portfolios, and manage clients' accounts.

Not just anyone can do this job. To be considered an IAR, you must pass various exams and obtain the required credentials. IARs can only offer advice on topics for which they have passed the appropriate examinations.