Form ADV and Investment Advisers Act Rules

A Small Entity Compliance Guide[1]

Introduction

The Securities and Exchange Commission (“Commission”) adopted amendments to Part 1A of Form ADV and the related instructions on August 25, 2016. These amendments: (a) require advisers to provide additional information on Form ADV, including information about their separately managed account business; (b) incorporate a method for private fund adviser entities operating a single advisory business to register using a single Form ADV; and (c) make clarifying, technical and other amendments to certain Form ADV items and instructions.

The Commission also adopted amendments to the Advisers Act books and records rule on August 25, 2016. These amendments require advisers to maintain additional materials related to the calculation and distribution of performance information.

Finally, the Commission adopted technical amendments to several Advisers Act rules on August 25, 2016. These amendments remove transition provisions that are no longer necessary.

Amendments to Form ADV Part 1A

Information Regarding Separately Managed Accounts

To enhance the Commission's ability to effectively carry out its risk-based examination program and other risk assessment and monitoring activities, the Commission amended Form ADV to collect more specific information about the separately managed accounts that advisers manage. For purposes of reporting on Form ADV, the Commission considers advisory accounts other than those that are pooled investment vehicles to be separately managed accounts.

Advisers filing Form ADV will have to provide new data on separately managed accounts, including, on an aggregate basis:

  • The approximate percentage of separately managed account regulatory assets under management that are invested in twelve broad categories of assets (e.g., exchange-traded equity securities and U.S. government/agency bonds).
    • Advisers with less than $10 billion in regulatory assets under management attributable to separately managed accounts will report only end of year percentages.
    • Advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts will report, on an annual basis, both mid-year and end of year percentages.
  • Information regarding the use of borrowings and derivatives in the adviser’s separately managed accounts.
    • Advisers with at least $500 million but less than $10 billion in separately managed account regulatory assets under management will be required to report the amount of separately managed account regulatory assets under management and the dollar amount of borrowings attributable to those assets that correspond to three levels of gross notional exposures only as of the date the adviser used to calculate its regulatory assets under management for purposes of its annual updating amendment.
    • Advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts will be required to report the amount of separately managed account regulatory assets under management and the dollar amount of borrowings attributable to those assets that correspond to three levels of gross notional exposures as well as the derivative exposures across six derivatives categories. These advisers will be required to report this information as of the date they used to calculate their regulatory assets under management for purposes of their annual updating amendments and six months before that date.
  • The identity of any custodians that account for at least ten percent of the adviser’s separately managed account regulatory assets under management.

Additional Information Regarding Investment Advisers

The Commission adopted several new questions and amended existing questions on Form ADV regarding certain identifying information, information about an adviser’s advisory business, and information about an adviser’s affiliations. These items, developed through the staff’s experience in examining and monitoring investment advisers, are designed to enhance the Commission’s understanding and oversight of investment advisers and to assist the staff in its risk-based examination program. Examples of these amendments include, but are not limited to, requiring advisers to report:

  • additional information about their accounts on social media platforms;
  • information about their 25 largest offices other than their principal office and place of business;
  • whether their chief compliance officer is compensated or employed by any person other than the adviser (or a related person of the adviser) for providing chief compliance officer services to the adviser; and
  • additional information about their participation in wrap fee programs.

Umbrella Registration

The Commission adopted amendments to Form ADV to codify umbrella registration for certain advisers to private funds. Form ADV was designed to accommodate the registration request of an adviser structured as a single legal entity. However, for a variety of tax, legal and regulatory reasons, advisers to private funds may be organized as a group of related advisers that are separate legal entities but effectively operate as — and appear to investors and to regulators to be — a single advisory business.

In 2012, the staff of the Commission provided guidance that enumerated conditions under which the staff believed one adviser (the “filing adviser”) could file a single Form ADV on behalf of itself and other advisers that were controlled by or under common control with the filing adviser (each, a “relying adviser”), provided that they conducted a single advisory business (collectively an “umbrella registration”).

To codify umbrella registration, the Commission adopted amendments to Form ADV’s instructions and glossary to: (1) incorporate conditions for umbrella registration that are designed to limit eligibility for umbrella registration to groups of private fund advisers that operate a single advisory business, and (2) define new terms related to umbrella registration.

Under the amendments, advisers must report information on Form ADV for both the filing and relying advisers, unless the instructions provide otherwise. For example, advisers must report disciplinary information for both filing and relying advisers. The Commission adopted a new Schedule R to Part 1A that requires information about each relying adviser, including certain identifying information for the relying adviser, the basis for the relying adviser’s eligibility to register with the Commission, the form of the relying adviser’s organization, and information about the relying adviser’s control persons.

The Commission’s amendments to Form ADV will make the availability of umbrella registration more widely known to advisers. Uniform filing requirements for umbrella registration on Form ADV also will provide additional and more consistent data about, and create a clearer picture of, groups of private fund advisers that operate a single advisory business through multiple legal entities. Additionally, uniform filing requirements will allow for greater comparability across private fund advisers.

Clarifying, Technical and Other Amendments to Form ADV

The Commission adopted amendments to Form ADV that are designed to clarify the form and its instructions. These amendments were identified through questions the Commission received from advisers and through analysis of Form ADV data. The amendments to Form ADV are designed to make the filing process clearer and therefore more efficient for advisers, and increase the reliability and the consistency of information provided by investment advisers.

Amendments to Advisers Act Books and Records Rule

The Commission adopted amendments to the Advisers Act books and records rule (rule 204-2) requiring advisers to maintain additional materials related to the calculation and distribution of performance information. The amendments will be useful in examining and evaluating adviser performance claims.

The books and records rule currently requires advisers to make and keep underlying data and methods used to calculate performance and rate of return information for performance information that is distributed to 10 or more persons. The amendments will require investment advisers to make and keep performance information whenever it is sent by the adviser to any person (other than persons connected with the investment adviser). In addition, the amendments will require any written communications received by or sent by the adviser relating to performance or rate of return to be kept in accordance with the books and records rule.

Technical Amendments to Advisers Act Rules

The Commission also adopted technical amendments to several rules under the Advisers Act and withdrew rule 203A-5 in order to remove transition provisions of rules where the transition process is complete.

Other Resources

The final adopting release and related rules can be found on the Commission’s website at: https://www.sec.gov/rules/final/2016/ia-4509.pdf. The proposing release can be found on the Commission’s website at: https://www.sec.gov/rules/proposed/2015/ia-4091.pdf. The text of the amended rules can be accessed through the “Laws and Rules” section of the Division of Investment Management page of the Commission's website at: http://www.sec.gov/divisions/investment.shtml. The Amended Form ADV can be accessed through the following links on the Commission’s website:

Contacting the Commission

The Commission's Division of Investment Management is happy to assist with questions regarding the amendments to Form ADV and the Advisers Act rules. The Division's Investment Adviser Regulation Office answers questions submitted by e-mail and telephone. You can submit a question by e-mail to iarules@sec.gov and a staff member of the office will call or email you to discuss your question. In addition, you can contact the Investment Adviser Regulation Office at (202) 551-6999. Questions on other investment management matters may be directed to the Division’s Chief Counsel’s Office by e-mail at IMOCC@sec.gov, or by telephone at (202) 551-6825.


[1] This guide was prepared by the staff of the U.S. Securities and Exchange Commission (“Commission”) as a “small entity compliance guide” under section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the Commission, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.