Securities and Exchange Commission (SEC) adopted amendments to Investment Advisers Act rules in August 2016 that will result in significant changes to Form ADV for advisory firms working with SMA’s (Separately Managed Accounts). The additional data will help the SEC focus on examining firms more often that present the greatest risks.
The amendments require additional information about separately managed accounts, umbrella registration filing, and changes to the books and records rules of the Advisers Act. Compliance with these Investment Advisor Rules commence on October 1, 2017. Firms filing December 31 fiscal year end will report the changes on their annual amendment of March 2018.
Summary of Changes:
Branch Offices
Firms will need to provide a list of their 25 largest branch offices based on the number of employees. Previously, only the five largest had to be named. The SEC expects this will likely be a complete list of branches for nearly all advisory firms.
Social Media
Advisers will need to provide the address for every social media page where they control the content that’s posted. Previously, firms only had to report their website addresses, something that is still required. The SEC said its staff may use the new information to compare what advisers say on different platforms.
CCOs
Instead of just naming the firm’s chief compliance officer, advisers will have to report whether that person is compensated by an entity other than the adviser or a related party. The SEC said it has found a great range in the quality and effectiveness of outsourced CCOs.
Assets
Large advisory firms will have to get more specific than just checking a box if they have $1 billion or more in assets. They will need to identify which category they fall into: the $1 billion to less than $10 billion level, $10 billion to less than $50 billion, or $50 billion or more.
Client Details
Advisers will have to include on their ADVs how many clients they have among different categories and how much each of those categories have in combined assets under management. Currently, advisers only report within a range the percentage of clients they have who are individuals, banking institutions, charities, etc., and identify their AUM levels within a range.
Umbrella Registrations
Registered advisers to private funds whose entities operate as one advisory business can now file an umbrella registration.
SMAs
Advisers will have to get more specific about their separately managed accounts, such as including the type of assets held and the use of derivatives and borrowings in these SMAs.
Custody
Advisers who need to change their answers to the question about whether they custody client assets after they review new SEC staff guidance, will need to report new responses on all ADVs filed after Oct. 1.
Paper versions of current Form ADV Part 1A, Part 1B, and Part 2, General Instructions to Form ADV, Glossary, Instructions for Part 1A of Form ADV, and General Instructions for Part 2A of Form ADV can be found here: https://www.sec.gov/about/forms/formadv.pdf
A staff summary of changes adopted to Form ADV Part 1A that will be implemented on October 1, 2017 is available here: https://www.sec.gov/rules/final/2016/ia-4509-form-adv-summary-of-changes.pdf