MN Regulation of Investment Adviser Representatives
In 2013, Minnesota enacted new regulatory statutes (prior coverage here, here, and here) that require “investment adviser representatives” to register with the department of commerce and meet certain other requirements unless an exemption is available. However, the system of exemptions is non-intuitive and requires some background knowledge on the current state of the investment adviser regulatory framework in Minnesota.
Minnesota has for many years regulated investment advisers who do business in the state, generally requiring them to register with the department of commerce unless the investment adviser fits within a statutory exemption. One of the major exemptions applies to “federal covered investment advisers” – that is, those investment advisers who are subject to the federal registration regime. Aside from the registration requirement, the state imposes many other regulations on investment advisers relating to brochure contents, custody rules, financial reporting, and the like. One of those requirements is supplied by 2876.4120 of the Minnesota Rules, which requires that every supervisory or control person of a state registered investment adviser must have passed the Uniform Investment Adviser State Law Examination (S65) or the Uniform Combined State Law Examination (S66). However, the exam rule also contains exemptions for those persons who have a certified professional designation that is currently in good standing, such as Certified Financial Planner, Chartered Financial Consultant, Chartered Financial Analyst, Personal Financial Specialist, or Chartered Investment Counselor.
In 2013 the Minnesota legislature passed amendments to Chapter 80A of the Minnesota Statutes to require, for the first time, that “investment adviser representatives” must register with the department of commerce and comply with an exam requirement similar to the exam requirement applicable to supervisory or control persons. See Minn. Stat. 80A.58(a). The term “investment adviser representative,” which has been present in the Minnesota Statutes since major revisions to Chapter 80A in 2006, is broadly defined to include “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.” Minn. Stat. 80A.41(17). The new statutory provisions do include exemptions from the investment adviser representative registration requirements, but those registration exemptions do not include exemptions from the exam requirement for persons who hold financial professional certifications in good standing.
In other words, a person who is a Certified Financial Planner but who has not passed the Series 65 or Series 66 exam would be qualified to serve as a supervisory or control person of an investment adviser under Minnesota law (by reason of the exam requirement exemption), but would not, counterintuitively, be qualified to be an “investment adviser representative” – a typical employee of an investment adviser who provides more than purely clerical services.
Thankfully, the Minnesota Department of Commerce was receptive to the input of the investment advisory community and recognized this discrepancy in the regulatory framework. However, rather than formally amend the statute or engage in a time consuming and resource-intensive rulemaking process, the Commissioner of Commerce instead issued an Order on October 31, 2013 that, among other things, provides exemptions from the investment adviser representative exam requirement similar to the exam requirement exemptions contained in Rule 2876.4120 applicable to supervisory or control persons. As a result, despite the express language of the Minnesota Statutes and the absence of an applicable exemption in the Statutes or the Rules, a person who holds one of the listed professional designations in good standing need not take the Series 65 or Series 66 in order to register as an investment adviser representative in Minnesota.
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