As I described in a prior article, the duality of the state and federal registration regime for investment advisers has resulted in a bit of a regulatory maze – especially for new advisers seeking registration at the state level. Determining when and where registration is required is not always intuitive, and state investment adviser regulations can vary rather dramatically from state to state.
Yet one state stands out as perhaps the quirkiest: New York.
First of all, New York does not register investment adviser representatives. This means that it does not participate in the Form U4 filing process administered by the Financial Industry Regulatory Authority on behalf of the Securities and Exchange Commission, which is a key data source that the SEC uses to populate its Investment Adviser Public Disclosure or IAPD website. Therefore, an individual associated with a New York state-registered investment adviser will not be searchable from the IAPD website unless that individual happens to be registered in another state besides New York.
In addition to creating a public disclosure void, the lack of an investment adviser representative registration regime also creates a unique registration obligation for “mid-sized” advisory firms in New York that have between $25 million and $100 million in regulatory assets under management. Such obligation is described in Form ADV Part 1 Item 2(A)(2), and it essentially shortcuts the $100 million RAUM threshold that is ordinarily required before qualifying to register with the SEC instead of a particular state.
Advisers normally have to hit $100 million in RAUM before qualifying to register with the SEC instead of one or more states, but New York-based advisers are required to register with the SEC when they cross just $25 million. The Form ADV Part 1 specifically calls out New York and Wyoming advisers for this special treatment, but even Wyoming plans to fall in line as it is set to adopt its Uniform Securities Act on July 1. This should leave New York as the sole holdout.
Though the Empire State does not utilize the Form U4, it does have its own “Investment Adviser Qualification” or NY-IAQ form that is used to collect information from individuals seeking to provide investment advice within its borders. The NY-IAQ is a very brief one-pager that simply asks for the adviser’s name and CRD number, advisory firm’s name, address, and CRD number, and the means by which the adviser is either qualified to act as an investment adviser or entitled to a waiver to such qualification requirement. If the adviser has passed either the Series 65 or the Series 7 and Series 66 within the last two years, simply check the appropriate box and sign.
The last notable quirk is that New York does not require registration of an in-state advisory firm until it has more than five clients residing within the state (refer to Section 11.4(a)(1)(c) of the New York Code of Rules and Regulations). As long as the adviser maintains five or fewer clients and less than $25 million in RAUM (triggering SEC registration), no investment adviser registration is required. This is in stark contrast to many other states (as well as the model Uniform Securities Act), which require an advisory firm with a place of business in that state to register before taking on its first advisory client. Importantly, don’t confuse New York’s rule with the infamous “de minimis” exemption, which only applies to situations in which the advisory firm has no place of business in the state for which an exemption is sought.
The best analogy I can come up with is to think of investment adviser registration decisions like one big “if this, then that” chain, with New York bifurcating from the norm early in the analysis. Who knows if it will ever get in line and conform to the rest of the states, but don’t hold your breath … that isn’t exactly what New York is known for.
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This article originally appeared on April 18, 2017 in ThinkAdvisor.