Remote work has created new compliance complexity for fund managers. If your investment team works from multiple states, each state where an employee is located may trigger state investment adviser registration or notice filing requirements. What was once a straightforward analysis based on one or two office locations now requires tracking the physical locations of every person involved in your advisory business.
The Issue
State investment adviser laws are based on the concept of "place of business." If an adviser has a place of business in a state, the adviser is generally subject to that state's registration or notice filing requirements. An employee working from a state may establish a place of business in that state, even if the firm's principal office is elsewhere.
Some states define "place of business" broadly enough to include a home office. If an investment professional makes investment decisions, communicates with investors, or conducts advisory activities from a home office in a state, the firm may be deemed to have a place of business there. The analysis is fact-specific, and states differ in how aggressively they interpret the concept.
This is a relatively new area of regulatory focus. Before widespread remote work, most fund managers had one or two offices, and the state registration analysis was straightforward. Now, a fund manager with five remote employees may have obligations in five different states.
De Minimis Exemptions
Many states offer de minimis exemptions that allow advisers to have a limited number of clients in the state without registering. However, these exemptions are based on client or fund presence in the state, not on employee presence. Having an employee in a state triggers a separate "place of business" analysis that is independent of the de minimis exemption.
In other words, even if you have no investors in a particular state, having an employee working there may still require you to register or file a notice in that state. The de minimis exemption does not protect against place-of-business triggers.
Practical Approach
Managing state registration obligations for remote employees requires a systematic approach:
- Map your state footprint. Identify every state where you have an employee, office, or any physical presence related to your advisory business. Include part-time employees, contractors who perform advisory functions, and employees who split time between states.
- Check each state's requirements. Each state has its own rules regarding place of business, registration thresholds, and notice filing requirements. There is no uniform standard. Some states are more aggressive about asserting jurisdiction over remote employees than others.
- File as required. Once you have identified the states where filing is required, make the necessary registrations or notice filings. For SEC-registered advisers, this typically involves a state notice filing through IARD. For ERAs, the requirements vary by state.
- Monitor employee moves. Employees relocate. A remote employee who moves from one state to another can create a new filing obligation in the destination state and may eliminate the obligation in the departing state. Build a process for tracking and responding to these changes.
- Check for remote work accommodations. Some states have adopted specific accommodations for remote work, recognizing that a home office does not necessarily create a place of business. These accommodations vary and may be temporary or subject to conditions.
Cost and Burden
Each state registration or notice filing carries its own costs and administrative burden:
- Filing fees. State fees vary from a few hundred dollars to over $1,000 per state. A firm with obligations in five states could face $5,000 to $15,000 annually in state fees alone.
- Form ADV updates. Each state where you file must be listed on Form ADV. Adding states requires amending your filing and may trigger additional disclosure obligations.
- State-specific requirements. Some states impose additional requirements beyond the standard notice filing, including state-specific compliance obligations, examination authority, or additional disclosure documents.
- Legal and administrative costs. Analyzing state requirements, preparing filings, and monitoring ongoing obligations requires time and often legal counsel. The administrative burden scales with the number of states involved.
The costs are manageable for most firms, but they are not trivial, and they must be budgeted for and managed proactively. Failing to file in a state where filing is required can result in fines, enforcement action, or the inability to conduct business in that state.
This article is for informational purposes only and does not constitute legal advice. Consult qualified professionals for guidance specific to your situation.