A bank officer sells her bank's own notes to the public and never registers. A credit union officer selling his credit union's notes must register. Both securities are exempt, so the difference has to come from the agent rules, and that is where this lesson starts.
You are training to be an investment adviser representative (IAR), but you will work beside broker-dealer agents, and many representatives hold both registrations. The Uniform Securities Act (USA) of 1956, the version the exam tests, treats selling and advising differently. The Administrator is the state securities regulator, and it decides who needs which registration. You need to know where selling ends and advising begins.
Under USA Section 401(b), an agent is any individual other than a broker-dealer who represents a broker-dealer or an issuer in effecting or attempting to effect purchases or sales of securities. Each phrase in that definition does work:
- Individual: An agent is always a human being. A corporation or partnership is never an agent.
- Represents a broker-dealer or an issuer: The agent acts for someone else. A broker-dealer is a firm in the business of effecting securities trades.
Common mistakes
- Calling the firm the agent: Only individuals are agents. "ABC Brokerage, Inc." is a broker-dealer in every answer choice.
- Letting any exempt security excuse the seller: An exempt security does not automatically excuse its seller (see the short list above), and a broker-dealer's agent selling municipal bonds always registers.
- Dropping a commercial paper condition: Paper due in 10 months, issued in $25,000 pieces or rated in the fourth category fails 402(a)(10), so the issuer's seller registers.
Bottom line
- An agent is an individual, never a firm, who represents a broker-dealer or issuer in effecting or attempting securities sales; partners, officers and directors are agents only if they sell.
- An issuer's representative is excluded when selling government, municipal, foreign government, bank, qualifying commercial paper (under 9 months, $50,000 minimum, top-three rating) or benefit plan securities, in exempt transactions, to qualified purchasers or in Rule 506 deals, or to existing...
- Issuer representatives selling savings and loan, insurance company, credit union, utility, listed or nonprofit securities must register, and broker-dealer agents register whatever they sell.
- Federal room needs: account open 30 days, agent (or backup) assigned 14 days, agent registered with FINRA and where the customer lived or stayed 30 straight days last year, eligibility, registered firm.
Exam shortcut
For "agent or not" stems, run three questions in order. First, is it a human? If not, stop, because firms are broker-dealers. Second, whom does the person represent? A broker-dealer's salesperson registers no matter what she sells. Third, for an issuer's representative, ask what is being sold and to whom, and match it to the short excluded list.
The full lesson (about 4,598 words, 31 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- D33
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