What just happened?
In the early days of the COVID-19 pandemic, many states announced that they would not require individuals working from their homes to register as investment adviser representatives (IARs) as the result of having a “place of business” in the state.
On July 31, 2020 the Pennsylvania Department of Banking and Securities sent an e-mail to PA registrants and notice filers stating that their COVID-19 grace period would end on August 31. This will impact investment advisers (and broker-dealers) with offices in the states bordering PA (DE, MD, NJ, NY, OH, WV).
Investment advisers with offices in NY (which does not register IARs) and OH (which has far more flexible IAR exam requirements than PA) should pay especially close attention, as individuals who had worked from offices in these states may now have to pass the Series 65 examination or otherwise meet PA’s qualifications for IAR registration. PA will consider “substantial long-term and continuous experience as a principal, agent or employee, other than in a clerical capacity, of a broker-dealer or investment adviser” in granting a waiver of their exam requirements.
Texas has announced that it has extended its COVID-19 grace period to September 30. NRS is working to determine if and when other states may end their grace periods.
What does this mean?
Section 203A of the Investment Advisers Act of 1940 preempts most state regulatory requirements for SEC-registered investment advisers and their supervised persons, but permits a state to license, register, or otherwise qualify an “investment adviser representative” (as defined by the Advisers Act) who has a place of business in the state. Each state promulgates its own rules for which persons must register as IARs, but most states require supervised persons of a state-registered investment adviser to register where the individual has a place of business if the individual provides advice, solicits clients, or supervises those who do provide advice or solicit.
With thousands of workers forced to work from home in the early spring of 2020 for reasons beyond their control, the various states determined (formally or informally) to forego determining whether or not a home office would constitute a “place of business” for registration purposes. At that time, it was widely anticipated that the displacement of workers would be temporary and that most IARs would be back at their offices in a matter of weeks or months.
Now that we are several months into the pandemic, it seems increasingly likely that not only will COVID-19 keep many workers at home for the foreseeable future, but that many persons will continue to work from home even after the crisis has passed.
In order to make sure their regulations are properly enforced (and, perhaps, to obtain much-needed revenue from registration fees), it seems likely that more states will require IAR registration for home workers as 2020 progresses.
What should firms do now?
Every adviser should:
- Compile a list of which of its supervised persons could be considered IARs under applicable SEC or state law;
- Determine where each person meeting the applicable definition of IAR is already registered;
- Determine which IARs are working from home offices in states where they are not registered; and
- Register those who are working from home offices in states in which they are not registered (or make plans to register based on the pronouncements of those states’ regulators).
While many states will waive examination requirements for individuals currently registered as an IAR in another state, some states (including PA) will not.
It is tempting to think of this as a choice between registering an individual at the state where the office is or the state where the IAR resides. However, if these individuals may regularly work from both home and the office, firms should consider registering them with both states.
How can NRS help?
We can assist in determining where individuals in your firm need to register, tell you what each state’s requirements are, provide exam preparation and study materials, prepare and file required documents, and follow through with the states until your registrations are complete.
Contact us for more information.