What it means
An investment adviser is a firm that gives advice about securities in return for a fee, while an investment adviser representative is a person working for that firm. The representative may meet clients, recommend portfolios and review their progress.
Firms are registered with regulators, and the individuals who deal with clients are registered or licensed as well. In the United States, most representatives must pass a qualifying examination, commonly the Series 65 or the Series 66, unless they hold a recognised professional designation that provides an exemption.
Registration is generally handled by state securities regulators and renewed each year. Other countries use their own systems, with different names such as authorised person or approved individual.
Advisers are usually held to a fiduciary duty, which is a legal obligation to act in the client's best interest. That means disclosing conflicts of interest, such as commissions or in-house products, and recommending options that suit the client rather than the adviser.
This is a higher standard than the one that applies to someone who merely sells products. Representatives are paid in different ways.
Some charge a percentage of the assets they manage, others charge a flat or hourly fee, and some receive commissions through a separate brokerage role. Clients should ask how the person is paid, because the method affects incentives and total cost.
Checking credentials is easy and sensible. Regulators run public databases where anyone can look up an adviser's registration, employment history and any disciplinary record.
A business owner choosing an adviser for a company retirement plan should always run this check before signing an agreement. Not every title means registration.
Terms such as financial planner, wealth manager or consultant are sometimes used loosely, and a person using them may or may not be a registered representative. The safest approach is to ask directly whether the person is an investment adviser representative and to confirm the answer with the regulator.
In practice
Real-world examples.
Example
A founder who has sold her company for $5,000,000 hires a registered adviser to manage the proceeds. She asks to see the adviser's registration in the regulator's public database and confirms that he holds the required licence before sending money. She also reads the adviser's disclosure document, which lists fees, services and any past complaints.
Example
A small business owner wants advice on investing company retirement savings. The firm's representative explains that she is paid a fee of 1% of assets, not commissions, and gives him a written disclosure of her conflicts of interest. He compares this with a second adviser's quote before deciding, and the fee difference over ten years on $400,000 of assets is clear to him.
Example
A recent graduate joins an advisory firm as a junior associate. Before he can give advice to clients, he must pass the required exam and have his registration processed. Until then he can help with research and paperwork but cannot recommend investments to clients.
Case study
Seen in the real world.
Greystone Advisory is an illustrative, fictional investment advisory firm with 12 staff. When a new associate, Tomas, was hired from a bank, the firm assumed that his banking experience made him ready to advise clients straight away.
The compliance officer, Fiona, pointed out that Tomas had not yet passed the exam or been registered. For six weeks he supported senior advisers by preparing reports and attending meetings as an observer, without recommending anything to clients himself. The firm recorded this arrangement in writing so that it could show regulators how it had managed the gap.
In this illustrative story Tomas passed his exam and completed his registration, and from then on advised clients under supervision. Fiona also updated the firm's onboarding checklist so that registration is confirmed for every new hire before any client contact. The lesson is that regulation attaches to the individual as well as the firm, and the paperwork must be in place first. A short delay at the start is far cheaper than a regulatory penalty later.
Watch out
Common mistakes.
- Assuming anyone who talks about investments is licensed to give advice.
- Confusing an investment adviser representative with a broker, when the two roles carry different legal duties.
- Skipping a check of the regulator's public database before hiring an adviser, which takes only a few minutes and shows any past complaints or sanctions.
Questions
People also ask.
What does IAR stand for?
It stands for Investment Adviser Representative, a person associated with a registered investment adviser who gives advice to clients.
How do I check if someone is an IAR?
Search the regulator's public adviser database and confirm the person's registration, employer and disciplinary history, then compare it with what the person has told you.
Are all IARs fiduciaries?
Registered advisers generally owe a fiduciary duty to clients, but you should ask for it in writing and read the firm's disclosure document.
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