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Latest Registration Rules in New York May Have Far-Reaching Impact

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What You Need to Know

  • Now, any investment advisor rep doing business within and from New York State has to register with it.
  • Both state- and SEC-registered IARs need to comply.
  • Some exemptions do apply to those with five or fewer clients.

The New York Attorney General announced on Dec. 1, 2020, amendments to the New York Investment Advisory Act that will require many investment advisor representatives (IARs) to register with the State of New York. If you render investment advice within or from the State of New York, now is the time to begin reviewing the rule and your registration obligations.

This new law applies even if you previously filed a NY-IAQ on behalf of a state-registered investment advisor.

Beginning on Feb. 1, 2021, IARs of state-registered and Securities and Exchange Commission-registered investment advisors are required to meet examination and registration requirements with the State of New York. The rules will impact firms with IARs and/or solicitors in New York, including firms principally located in other states but maintain a New York branch office and/or solicitor(s).

IARs of State-Registered Advisors: Under the rules, an IAR of a state-registered firm is defined as “a natural person representing an investment adviser or solicitor in doing any of the acts that define an investment adviser.”

Those acts generally include engaging in the investment advisory business within or from the State of New York. In addition, all principals and supervisors of New York-registered advisors must be registered, unless a registration exemption applies.

IARs of SEC-Registered Advisors: For individuals acting on behalf of SEC-registered firms from a place of business in New York, the rules defer to the federal definition of IAR.

Solicitors of State-Registered Advisors: “Solicitors” are defined under the rules as: “…a person who as part of a regular business, engages in the business of providing investment advice to the limited extent that such person receives compensation for introducing a prospective investor or investors to [a state-registered] investment adviser or a federally covered investment adviser.”

Solicitors for state-registered investment advisors generally will need to be registered as an IAR with an investment advisor or will otherwise need to individually file a Form ADV and Form U4 for their solicitation activities.

Solicitors of SEC-Registered Advisors: “Affiliated solicitors” (solicitors under the supervision and control of the advisor) only can be compelled to register if they have a place of business in New York and meet the definition of IAR under the federal definition.

“Unaffiliated solicitors” (solicitors who operate independent of the advisor) will generally need to be registered as an IAR with an advisor or will otherwise need to individually file a Form ADV and Form U4 for their solicitation activities.

De Minimis Exemption (All Firms): A de minimis exemption to New York’s IAR registration requirements exists with respect to persons who acts as IAR or solicitors to five or fewer clients. For the purposes of this exemption, a person need not be counted as a client if no compensation is received for the IAR’s advisory services. This exemption is available to all IARs and solicitors of both state- and SEC-registered advisors.

Implementation Period

The rules contain an implementation period allowing those in an advisory business to continue without approved registration until Dec. 2, 2021, as long as the U4 requesting the IAR’s New York registration is submitted on or before Aug. 31, 2021. The rules also provide for an examination waiver for those who have been IARs for at least two years prior to Feb. 1, 2021 so long as they are not subject to a regulatory disqualification.

IARs also may request an examination waiver if they currently hold a professional designation and remain in good standing.

The Office of the Attorney General provided helpful information for financial professionals and compliance professionals that summarize what should be done to apply or request an examination waiver.

Lastly, the Rules include a new books and records obligation that require IARs to keep documentation that supports the designation of any client as an “accredited investor” or “qualified client,” as defined under federal law.

Thomas D. Giachetti is chairman of the Investment Management and Securities Practice Group of Stark & Stark. He can be reached at [email protected].

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(Photo: TierneyMJ/Shutterstock)