The New York State Department of Law (the “Department”) recently adopted new regulations, effective February 1, 2021, imposing registration and exam requirements on investment adviser representatives, principals and supervisors of investment advisers, solicitors, and principals and representatives of solicitors. The regulations provide an implementation period to certain persons who are currently permissibly engaged in the investment advisory business, so long as such persons submit an application for registration by August 31, 2021. The newly adopted regulations also impose a new recordkeeping requirement for investment advisers; and require state-registered investment advisers to verify the “accredited investor” and “qualified client” status of its clients, effective February 1, 2021. The new regulations do not impact the requirement to register as an investment adviser in New York.

This memorandum summarizes certain notable aspects of the new regulations. The new regulations:

• Exclude federally-registered investment advisers from the definition of the term “investment adviser.”
• Define the term “investment adviser representative”¹ to include certain natural persons who:
  • work for an investment adviser² that has more than five (5) New York clients who are not financial institutions or institutional buyers;
  • work for a federally-registered investment adviser that has more than five (5) New York clients who are not financial institutions or institutional buyers; work from a place of business located in New York; and satisfy the federal definition of “investment adviser representative,” as that term is defined under the Investment Advisers Act of 1940;
  • are principals;³
  • are supervisors;⁴ or
  • represent a solicitor.⁵
• Require persons who satisfy the definition of “investment adviser representative” to:
  • register through the Central Registration Depository/Investment Adviser Registration Depository; and
  • comply with exam requirements.
• Impose investment adviser registration obligations on certain solicitors;
• Require certain single-person solicitor firms to comply with exam requirements and register as both an investment adviser and an investment adviser representative;
• Provide a new exam waiver category for persons currently serving as investment adviser representatives and having two (2) years of experience in that capacity prior to February 1, 2021.
• Include an implementation period allowing persons who permissibly operated under the rules in existence prior to February 1, 2021 to continue to do so until December 2, 2021, so long as they submit an application for registration by August 31, 2021.
• Require investment advisers to file any records required to be maintained upon the Department’s request; and
• Require state-registered investment advisers to make and maintain documents evidencing reasonable steps to verify any “accredited investor” or “qualified client” designation of its clients

S&K Observations 

Certain principals of state-registered investment advisers, as well as their investment adviser representatives and solicitors, are now required to register and comply with exam requirements in New York. With respect to persons associated with federally registered investment advisers, the registration and exam requirements will be imposed only on certain persons who (1) fall under the federal definition of “investment adviser representative,” as that term is defined under the Investment Advisers Act of 1940; and (2) have a place of business in New York.

Persons who were permissibly engaged in the investment advisory business prior to February 1, 2021 must submit their application for registration to New York by August 31, 2021 in order to be eligible under the implementation period, which ends on December 2, 2021. Eligible persons may continue to provide investment advisory services during the implementation period without an approved registration.