Use of Solicitors – What Investment Advisers Should Consider

Registered investment advisers (“RIAs”) commonly engage accountants, attorneys, banks, broker-dealers and other third parties to solicit new investment advisory clients on the RIA’s behalf. Rule 206(4)-3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), provides requirements that must be met in order for a RIA to pay a solicitor who in exchange for compensation directly or indirectly, solicits any client for or refers any client to the RIA. Under this Rule, the solicitor-RIA relationship must be evidenced by a written agreement. Accordingly, RIAs that engage solicitors should be sure to enter into a written agreement which:

1. Describes the solicitor’s activities and compensation for those activities;
2. Requires the solicitor to adhere to the RIA’s instructions and the Advisers Act; and
3. Requires the solicitor to provide the solicited client with a copy of the RIA’s client disclosure brochure, Form ADV Part 2, and a separate solicitor disclosure statement.

When providing these documents, the solicitor must ask the client to sign and date the solicitor’s disclosure statement, which must be maintained and made available to the RIA. Importantly, each state has different requirements for solicitor arrangements. Next week’s blog will focus on the stark differences between three of those states’ requirements: New York, Florida and California.