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Alert: Mandatory Registration for New York Based Investment Advisor Representatives

By Robert R. Boeche II, Esq. of Shustak Reynolds & Partners, P.C. posted on Tuesday, February 23, 2021.

On February 1, 2021, a new amendment to the New York Investment Advisory Act went into effect, now requiring investment advisor representatives (“IARs”) doing business in the state of New York to register themselves with the New York Attorney General. Registration is accomplished by filing a Form U4 application with state regulators via the Investment Adviser Registration Depository (“IARD”) after completing any required examinations.

Who Does this Impact?

State Registered Advisers

Any individual that represents a Registered Investment Advisor (“RIA”) in New York in performing investment advisory duties will now be deemed a “NY IAR” if he or she “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.” [1]

All new NY IARs will be required to meet examination and registration requirements with the state. Individuals seeking registration must (i) file a Form U4 application with state regulators via IARD, and (ii) complete either the Series 65 examination, or all three of the Securities Industry Essentials Examination, the Series 7 examination, and the Series 66 examination. However, several exceptions may permit experienced advisers to avoid the examination requirement if he or she has operated continuously for two years [2], or holds certain other professional designations. [3]

SEC Registered Advisers

Additionally, New York-based supervised persons of an SEC RIA will now be required to register with state regulators if he or she meets the definition of “Federal IAR,” [4] meaning he or she: (i) has more than five clients that are natural persons; and (ii) has a client base more than 10 percent of which is comprised of natural persons [5]. However, since advisory personnel must serve natural person clients to be considered a Federal IAR, the new requirements may not apply to advisory personnel that only manage private funds and/or managed accounts for institutional clients. [6]

Solicitor Registration

Solicitors are individuals whose regular business it is to “provide investment advice to the limited extent that such person receives compensation for introducing a prospective investor” [7] to an SEC Registered Adviser or a NY State Registered Adviser. Under the new regulations, solicitors are included in the definition of, and are now required to register as, a NY IAR if they have six or more clients in New York, excluding financial institutions and institutional buyers. [8]

Implementation Period

Existing advisory personnel that must register under the new rules have until December 2, 2021 to pass the required examinations. However, because the New York Attorney General expects a high volume of new Form U4 applications, it has set a hard deadline of August 31, 2021 for application submissions. Consider submitting applications, especially those including requests for an examination waiver, as soon as possible to prevent the expected delays in processing from negatively impacting your business.

Conclusion

The new rules bring New York in line with other states, which have long required separate registration by RIAs and IARs. Many previously unregistered investment advisory professionals will need to sit for examinations and register with the state during the relatively short implementation period. If you are unsure whether or how the new rules apply to you, do not wait to consult a securities attorney.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Attorney Robert R. Boeche, II can be reached in the firm’s San Diego office at (619) 696-9500. 

 



[1] 13 N.Y.C.R.R. § 11.12(f).

[2] Exemptions for existing IARs who (1) have operated “permissibly” for two years prior to February 1, 2021, and from a place of business in the state of New York; or (2) have been continuously registered for at least two years in another jurisdiction, and who have no pending or recent regulatory or civil action against them in the last 10 years. See 13 N.Y.C.R.R. § 11.7(b).

[3] Accepted professional designations include: Certified Financial Planner (CFP); Chartered Financial Consultant (ChFC); Personal Financial Specialist (PFS); Chartered Financial Analyst (CFA); and Chartered Investment Counselor (CIC). See 13 N.Y.C.R.R. § 11.7.

[4] Here, the term “federal investment adviser representative” is used as defined under the Investment Advisers Act of 1940 (the "Advisers Act"). Note that under the revised rules, the term is not defined the same way with respect to individuals associated with SEC Registered Advisers versus NY State Registered Advisers. 

[5] A “natural person” is a human being, as distinguished from a person (such as a corporation) created by operation of law.

[6] 13 N.Y.C.R.R. § 11.5.

[7] The definition of “solicitor” is intended by the OAG to be consistent with the SEC’s definition in the Solicitation Rule under Investment Adviser Act Rule 206(4)-3. See 13 N.Y.C.R.R. § 11.12(k).

[8] 13 N.Y.C.R.R. § 11.5(c).

 

 

 

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