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News January 25, 2010 Issue

Adviser Reps Take Note – Michigan IARs To Register

This story has been slightly modified from its original version to improve accuracy.

If you are, or have, an adviser representative with a place of business in Michigan, listen up.

Michigan recently adopted the Uniform Securities Act, and under that act, certain adviser representatives (IARs) must register with the state by July 1.

Adviser reps of state-registered firms are included in the registration requirement. Adviser reps of SEC-registered firms may or may not be required to register.

If the SEC-registered firm is not required to submit notice filings in Michigan, adviser reps of that firm do not need to register. For the SEC-registered firm to qualify for exemption from notice filing, it must have no place of business in Michigan, and generally serve only large institutional clients, other SEC-registered advisers or broker-dealers, and have fewer than five retail clients in the state. (See the Michigan Code, MCL 451.2405, on Michiganís web site, www.michigan.gov/ofir.)

If the SEC-registered firm is required to submit notice filings in Michigan however, and the adviser rep has a place of business in the state, it may be time to register. An adviser rep meeting the federal definition of investment adviser rep in Rule 203A-3 would be exempt from registration. So, too, would an individual meeting Michigan's adviser rep definition, but who is not a "supervised person" under Section 202(a)(25) of the Advisers Act. All other adviser reps of an SEC-registered firm that notice files in Michigan, however, must register.

Registration isnít quite as easy as filling out a form and paying a fee, however. The new law in Michigan requires adviser reps to have passed the Series 65 within the past two years - or the Series 66 and Series 7 within the past two years - BEFORE submitting a registration application. Applications, which are submitted on form U-4 through the IARD, will not be forwarded to Michigan for processing until the examination requirement is met.

Michigan provides exceptions to the recent examination requirement if the adviser rep has been registered within the past two years in a state that requires adviser rep registration, as long as that state also required the applicant to pass the Series 65 (or Series 66 and Series 7), or if the adviser rep currently holds in good standing a Certified Financial Planner, Chartered Financial Consultant (or Masters of Science and Financial Services awarded by the American College), Chartered Financial Analyst, Personal Financial Specialist, or Chartered Investment Counselor professional designation.

Michigan is not allowing any exceptions to the examination requirement based on experience, and where an examination is required, no examination waivers will be granted.

And thereís more.

To provide enough time for background and criminal checks, Michigan is requiring all adviser rep applications under the new law to be submitted 60 days ahead of the deadline, or they "cannot guarantee that your application will be processed and your registration approved" in time.

So letís do a little backwards counting:

Compliance is required by July 1.

Sixty days ahead of the compliance deadline is May 2.

Therefore, your completed U-4 examination and state registration application must be submitted to Michigan by May 2 to ensure timely processing and approval of an application by the compliance deadline.

But wait - your application is not complete until a passing score on the Series 65 (or Series 66 and Series 7) is reported. According to Pearson Professional Centers, who, along with Prometric Testing Centers administers the examinations for FINRA nationwide, it can take up to four weeks after the exam for the official results to reach FINRA.

To be on the safe side, adviser reps should have scheduled and taken the relevant exam of choice by sometime in the first week of April.

And donít forget you need a little advance study time, because you want to pass. We hear the prep course for the Series 65 can be self-taught in as little as a few days. The Series 7 however, requires 80 hours of prep time and a week of classroom training.

Certain of an adviserís other employees and associated persons must also register. In an FAQ published on Michiganís web site, the state notes that, unless otherwise excluded or exempt, persons performing the following duties for an adviser must register:

  • Providing investment advice or holding out as doing so;
  • Managing client accounts or portfolios;
  • Soliciting and/or offering investment advisory services;
  • Deciding which securities advice should be given;
  • Receiving compensation to solicit, offer or negotiate for the sale of or for selling investment advice;
  • Supervising employees who perform any of the foregoing.