The New York Attorney General announced on Dec. 1, 2020 amendments to the New YorkInvestment Advisory Act that willrequire many investment advisor representatives (IARs) to register with theState of New York. If you render investment advice within or from the Stateof New York, now is the time to beginreviewing the rule and your registrationobligations. This new law applies even ifyou previously filed a NY-IAQ on behalfof a state-registered investment advisor.
Beginning on Feb. 1, 2021, IARs of state-registered and Securities and ExchangeCommission-registered investment advisors are required to meet examinationand registration requirements with theState of New York. The rules will impactfirms with IARs and/or solicitors in NewYork, including firms principally locatedin other states but maintain a New Yorkbranch 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 personrepresenting an investment adviser orsolicitor in doing any of the acts thatdefine an investment adviser.” Those actsgenerally include engaging in the investment advisory business within or fromthe State of New York. In addition, allprincipals 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 businessin 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 invest-
ment advisors generally will need to be
registered as an IAR with an investment
advisor or will otherwise need to indi-
vidually file a Form ADV and Form U4
for their solicitation activities.
Solicitors of SEC-RegisteredAdvisors: “Affiliated solicitors” (solicitors under the supervision and controlof the advisor) only can be compelled toregister if they have a place of businessin New York and meet the definition ofIAR under the federal definition.
“Unaffiliated solicitors” (solicitorswho operate independent of the advisor)will generally need to be registered as anIAR with an advisor or will otherwiseneed to individually file a Form ADV andForm 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.
The rules contain an implementationperiod allowing those in an advisory business to continue without approved registration until Dec. 2, 2021, as long asthe U4 requesting the IAR’s New Yorkregistration is submitted on or before Aug.31, 2021. The rules also provide for anexamination waiver for those who havebeen IARs for at least two years priorto Feb. 1, 2021 so long as they are notsubject to a regulatory disqualification.
IARs also may request an examination waiver if they currently hold aprofessional designation and remain ingood standing.
The Office of the Attorney Generalprovided helpful information for financialprofessionals and compliance professionals that summarize what should be doneto apply or request an examination waiver.
Lastly, the Rules include a new booksand records obligation that requireIARs 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 theInvestment Management and SecuritiesPractice Group of Stark & Stark. He can bereached at firstname.lastname@example.org.
THE COMPLIANCE COACH
By Thomas D. Giachetti
New Registration Rules in New York
Could Have Far-Reaching Impact
Advisors working or providing advice from the Empire State must comply.