The Dodd-Frank financial reform bill, signed into law by President Obama on July 21, 2010, has left behind an odd but important ambiguity for investment advisers located in New York state.  The law requires most investment advisers with less than $100 million in assets under management to register with the securities commissioner of the state where the adviser maintains its principal office and place of business, provided that the adviser “would be subject to examination as an investment adviser” by such commissioner.  Unlike most other states, however, New York has never conducted examinations of investment advisers and currently its General Business Laws provide no specific authority for such examinations.

The Investment Adviser Association (the “IAA”), a not-for-profit association representing the interests of federally registered investment advisers, has estimated that approximately 350 New York-based advisers would be forced to de-register with the SEC as a result of the Dodd-Frank law.  David Tittsworth, the executive director of the IAA, has commented that “the answer about where they register is unclear.  It’s highly likely that the SEC will, in time, issue some sort of transitional rules that will deal with this and other questions.”

In order to avoid leaving these New York advisers in “no man’s land”, one of two responses is likely before the law takes effect in July of next year: either the SEC will bring these advisers back within its jurisdiction or New York will adopt an examination program to meet the requirements of the law.  New York advisers affected by the law will have to sit tight for the time being until guidance is released.