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FAQs to Supplement the IAA Webinar on New Registration of IARs Doing Business in New York

As of September 2, 2021

These FAQs supplement the recording of the IAA’s March 30, 2021, webinar on New Registration of IARs Doing Business in New York and have been prepared with the assistance of IAA Associate Member Seward & Kissel. These FAQs are intended to respond to questions asked during the webinar and address some general principles relating to New York’s registration and notice filing requirements for SEC-registered investment advisers and their supervised persons.

These FAQs focus primarily on the recent New York Revised Regulations under the New York Investment Advisory Act. Each state has its own regulations governing treatment of SEC-registered investment advisers and their supervised persons and requirements may differ. We do not specifically address any other state regulations in these FAQs. The IAA has created charts for members describing each state’s requirements. Links are provided in the Resource List at the end of these FAQs.

These FAQs and other IAA resources are not designed to, and do not, constitute legal advice and should not be relied on for that purpose. In addition, responses to specific questions may turn on particular facts and circumstances and may not be directly addressed by these FAQs, so you are encouraged to consult with counsel for advice on specific situations. The IAA undertakes no responsibility to update these FAQs or other resources.

 

A. State Requirements for SEC-Registered Investment Advisers – Firms

Q1: What is a federally covered investment adviser?

A1: Federally covered investment advisers are investment advisers that are registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940 (Advisers Act), referred to in these FAQs as “SEC RIAs.”

The requirements to register as an investment adviser in states differ depending on the state. Under New York state law, an investment adviser includes: any person who, for compensation, engages in the business of advising members of the public, either directly or through publications or writings within or from the State of New York, as to the value of securities or as to the advisability of investing in, purchasing, or selling or holding securities, or who, for compensation and as a part of a regular business issues or promulgates analyses or reports concerning securities to members of the public within or from the State of New York.

 

Q2: Do SEC RIAs have to register in states as investment advisers under state law?

A2: No. SEC RIAs do not register as investment advisers with any states because the federal registration requirements preempt the state registration requirements. However, most states require SEC RIAs to notice file if they have a place of business in the state or have a certain number and type of clients in the state. State requirements differ, but most states require notice filings from SEC RIAs that either have an office or six or more clients in the state (meaning natural persons who are not qualified clients). Some states may require notice filing when a firm has fewer clients in the state, e.g., Louisiana, New Hampshire, and Texas require notice filing with one or more clients in the state. Please refer to the IAA charts for notice filing requirements for SEC RIAs for each state in the United States.

 

Q3: What does it mean to notice file in a state?

A3: Notice filing means that the SEC RIA is providing notice to a state that it has an office in that state or has six or more natural person clients in that state. To notice file in a state, the firm must select that state on Item 2.C of the firm’s Form ADV, which is submitted via the Investment Adviser Registration Depository (IARD) system operated by FINRA. The firm must select each state where it is required to notice file. Each year the SEC deducts from the firm’s IARD account at FINRA sufficient monies to cover the filing fee for each state in which the firm claims to notice file.

 

Q4: Is notice filing the same as registering in a state?

A4: No. SEC RIAs notice file annually via the IARD system and are not subject to state registration.

 

Q5: When does an SEC RIA have to notice file?

A5: State requirements differ. Some states (e.g., California) require that a notice filing be made within 30 days of a firm having more than five clients in that state regardless of whether the firm would otherwise need to amend its Form ADV. Firms should consider having procedures that keep track of how many clients they have in each state and each state’s expectations relating to the timing of filing so that their notice filing on Form ADV is current.

 

State Requirements for Investment Adviser Representatives of SEC-Registered Investment Advisers – Individuals

Q6: How is an investment adviser representative (IAR) of an SEC RIA defined under the Advisers Act?

A6: Rule 203A-3(a) under the Advisers Act defines “Investment Adviser Representative” as a supervised person

(1) who has more than five clients who are natural persons, excluding a natural person who is a qualified client; and

(2) more than ten percent of whose clients are natural persons, excluding a natural person who is a qualified client.

Supervised persons are not IARs under the Advisers Act if they:

(1) Do not on a regular basis solicit, meet with, or otherwise communicate with clients of the investment adviser; or

(2) Provide only impersonal investment advice.

 

Q7: What is a “supervised person” under the Advisers Act?

A7: Section 2(a)(25) of the Advisers Act defines “supervised person” as any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser.

 

Q8: If an SEC RIA has to notice file in a state, are the IARs of that firm required to register with the state?

A8: It depends. Each IAR must independently satisfy the state’s requirement to register as an IAR in the state.

 

New York – Requirements for SEC IARs

Q9: What do the New York Revised Regulations change?

A9: The New York Revised Regulations require registration of “investment adviser representatives,” as described in Q11 below. Previously, New York was the only state that did not require registration of IARs (although New York did have an examination requirement).

 

Q10: Do the New York Revised Regulations affect notice filing of SEC RIAs in New York?

A10: No. Notice filing requirements are unchanged. SEC RIAs must still notice file in New York if they have an office in the state and/or have six or more natural person clients in the state.

 

Q11: Who is an IAR for purposes of the New York Revised Regulations?

A11: An IAR for purposes of the New York Revised Regulations is a natural person who:

  1. Works for a New York state-registered investment adviser as an investment adviser representative, a principal, or a supervisor, or
  2. Is a principal or representative of a solicitor, or
  3. Works for an SEC RIA from a place of business in New York (as defined in the Advisers Act) and who is an IAR under the Advisers Act, discussed above in Q6.

 

Q12: What is a place of business under the Advisers Act as it relates to IARs?

A12: A place of business under the Advisers Act means:

  1. An office at which the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, and
  2. Any other location that is held out to the general public as a location at which the IAR provides investment advisory services, solicits, meets with, or otherwise communicates with clients.

 

Q13: Are all employees of an SEC RIA who work from a place of business in New York covered by the New York Revised Regulations?

A13: Employees of an SEC RIA who engage in activities that qualify them as an IAR under the Advisers Act would be covered by the New York Revised Regulations. This means, for example, that an employee who provides investment advisory services only to institutional clients is not covered, even if that employee works out of the SEC RIA’s New York office.

 

Q14: If an IAR of an SEC RIA has a place of business in New York but has fewer than six natural person clients in New York, is that IAR covered by the New York Revised Regulations?

A14: Yes, if the IAR is doing business in New York and has more than five natural person clients anywhere (and more than 10 percent of whose clients are natural persons).

 

Q15: How does working from home affect the definition of “place of business”?

A15: As of the date of these FAQs, the SEC and New York have not taken a position that working from home due to the COVID-19 pandemic affects the definition of “place of business.” SEC staff have issued the following FAQ with respect to Item 1.F of Form ADV:

Q: My firm has employees who are temporarily conducting investment advisory business from a temporary location other than their usual place of business (their homes, for example) as part of the firm’s business continuity plan due to circumstances related to coronavirus disease 2019 (COVID-19). Item 1.F of Part 1A requires information about a firm’s principal office and place of business. Section 1.F of Schedule D requires information about “each office, other than your principal office and place of business, at which you conduct investment advisory business.” Is my firm required to update either Item 1.F of Part 1A or Section 1.F of Schedule D in order to list the temporary teleworking addresses of its employees?

A: No. As long as the employees are temporarily teleworking as part of the firm’s business continuity plan due to circumstances related to coronavirus disease 2019 (COVID-19), staff would not recommend enforcement action if the firm does not update either Item 1.F of Part 1A or Section 1.F of Schedule D in order to list the temporary teleworking addresses. For purposes of this FAQ, “temporarily teleworking” includes prolonged plans to telework, provided that the firm maintains a physical office location. (Updated April 6, 2021)

 

New York – Requirements for Solicitors

Q16: How does the Cash Solicitation Rule under the Advisers Act affect the New York rules regarding solicitors? 

A16: Under current Rule 206(4)-3, a solicitor is “any person who, directly or indirectly, solicits any client for, or refers any client to, an investment adviser.” Rule 206(4)-3 makes it unlawful for an SEC RIA to pay cash compensation to a solicitor unless several conditions under the rule are met. Beginning in November 2022, however, the SEC’s new Investment Adviser Marketing Rule will replace Rule 206(4)-3 and this definition of “solicitor” will no longer be in effect. Advisers should consider how the new Marketing Rule will impact their solicitation arrangements and relationships with current solicitors.

 

Q17: Who is a solicitor under the New York Revised Regulations?

A17: A solicitor under the New York Revised Regulations means 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 an investment adviser or a federally covered investment adviser, unless such person would be excluded from the definition of investment adviser.”

 

Q18: Are solicitors required to register in New York under the New York Revised Regulations?

A18: Generally, yes, unless they have an exemption or a waiver, but see Q19 below.

 

Q19: Are solicitors who are supervised persons of an SEC RIA required to register under the New York Revised Regulations?

A19: Supervised persons of an SEC RIA who act as solicitors would only be required to register in New York if they are IARs under the Advisers Act (see Q6 above), and otherwise meet New York’s requirements for registration.

 

Q20: Do the New York Revised Regulations require registration of a lawyer, accountant, engineer, or teacher as a solicitor if the performance of those activities for an SEC RIA is solely incidental?

A20: NYCRR Sec. 11.13(a)(2) excludes a “lawyer, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of this profession” from the definition of “investment adviser” under Sec. 11.12(f).

 

New York – Registration, Examinations, and Waivers

Q21: How does an IAR of an SEC RIA register in New York?

A21: The individual must file a Form U4 through the Central Registration Depository (CRD) at FINRA and pay a $200 filing fee.

 

Q22: May an IAR of an SEC RIA register on a voluntary basis if the IAR is not required to register?

A22: Yes.

 

Q23: Are there examination requirements for IARs of SEC RIAs who are required to or voluntarily register in New York?

A23: Yes, these persons must take the Series 65 exam, or the Series 7 and Series 66 exams, or be eligible for a waiver.

 

Q24: What are the waivers from the examination requirements?

A24: The examination requirements may be waived for IARs with:

  • Prior Registration
    • Continuously registered to provide investment advice in any jurisdiction for a period of at least two years prior to the date of the New York IAR application;
    • Has not had any lapse in registration to provide investment advice in any jurisdiction exceeding two years; and
    • Is not, and has not been, subject to any regulatory or civil action, proceeding or arbitration, either pending or in the preceding 10 years from the date of such application, that would require disclosure on Form U4.
  • Certification
    • Currently holds one of the following professional designations in good standing:
      • Certified Financial Planner (CFP)
      • Chartered Financial Consultant (ChFC)
      • Personal Financial Specialist (PFS)
      • Chartered Financial Analyst (CFA)
      • Chartered Investment Counselor (CIC)
    • Special Waiver category
    • Acted as an IAR from a place of business in New York “continuously and permissibly” for at least two years prior to February 1, 2021;
    • NOT available to persons who:
      • Ceased performing investment advisory activities from a place of business in New York for two or more continuous years in the four years preceding the filing of the New York application for IAR registration;
      • Limited investment advisory activities during the two years preceding December 2, 2020 to acting as solicitors;
      • Have disciplinary history; or
      • Submit an application for IAR registration after August 31, 2021

 

Q25: When must an IAR acting in a capacity that requires registration in New York prior to February 1, 2021 submit the registration application to the State of New York?

A25: Such person may continue providing investment advice without an approved registration until December 2, 2021, but a registration application must have been submitted by August 31, 2021.

 

Q26: What can an IAR acting in a capacity that requires registration in New York do if the IAR failed to submit a registration application to the State of New York by August 31, 2021?

A26: Such person may not continue providing investment advice until that person’s application is filed and approved by the State of New York. Persons in this situation are encouraged to consult with counsel for advice on their specific circumstances.

 

Resource List

IAA Resources (members must be logged in to the IAA website to access) available in the Resource Library.

  • IAA State and Blue Sky Resource Library – IAA Legal, Regulatory & Compliance State and Blue Sky Materials
  • State Filing Requirements/Blue Sky Update for Firms
  • State Filing Requirements/Blue Sky Update for Investment Adviser Representatives

New York Resources

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