ADV Regulatory Changes For Investment Advisers

On October 1, 2017, regulatory changes go into effect for investment advisers. The amended Form ADV will require investment advisers to expand the information they report on Form ADV about separately managed accounts and other important aspects of their advisory business. The SEC also adopted a number of other amendments to the Form ADV and certain rules under the Investment Advisers Act of 1940 that include permitting consolidated investment adviser registrations for certain private fund advisers that operate a single advisory business through multiple entities, amending the Advisers Act books and records rule to require investment advisers to maintain additional information supporting performance claims, and making certain other clarifying and technical amendments to the Form ADV and Advisers Act rules.

Investment advisers are not required to revise and file their Form ADV on that date solely to reflect the changes. Instead, an investment adviser will be required to use the new Form, and provide all of the newly requested information, in any initial filing or amendment of its Form on or after October 1, 2017. As a practical matter, investment advisers will generally not use the new Form until filing their next annual updating amendments (January 1, 2018 and April 2, 2018 (March 31, 2018 is a Saturday) or until they are filing an other-than-annual amendment due to material changes.

Compliance Risk Concepts suggest that investment advisers review the new requirements in detail to ensure that if an earlier amendment must be made, the required information can be gathered in a timely manner.

Highlights of the Form changes and material changes that would require filing an other-than-annual amendment are outlined below. In addition, a PDF version of the new Form ADV can be downloaded by clicking here. This highlights in yellow, section by section and question by question the changes that were made to the ADV. Those changes are indicated in the color red.

Form-ADV---Changes-effective-

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As always, Compliance Risk Concepts is available to answer any questions regarding these changes or assist your firm with the completion of the amended Form.

Highlights of the amendments to Form ADV include the following: 

  • Umbrella Registration for Private Fund Managers: The revised Form includes instructions and a new schedule (Schedule R) for the reporting of relying advisers.
  • Separately Managed Accounts: The revised Form requires disclosure regarding separately managed accounts.  Separately managed accounts are those advisory accounts over which an investment adviser has continuous and regular supervisory authority (and therefore that count towards “regulatory assets under management”) that are not pooled investment vehicles.
  • Other: The revised Form also now requires new or additional information regarding (among others):
    • the breakdown of “regulatory assets under management” among categories of clients;
    • accounts on social media platforms (including, but not limited to, Twitter, Facebook and LinkedIn);
    • branch offices;
    • parallel managed accounts; and
    • outsourced chief compliance officers.

Books and Records Rule Amendments (Look out for an additional memo regarding this rule change)

The amendments to the books and records rule will now require registered investment advisers to maintain the following:

  • the records listed in SEC Rule 204-2(a)(16) supporting performance claims in communications that the investment adviser circulates or distributes, directly or indirectly, to any person (as opposed to the current rule, which only applies to communications which are distributed to ten or more persons); and
  • originals of all written communications received and copies of written communications sent by an investment adviser relating to the performance or rate of return of any or all managed accounts or securities recommendations.

The amendments to the books and records rule will apply to any communication circulated or distributed on or after October 1, 2017.

Material Changes:

If you are registered with the SEC or a state securities authority, you must amend your Form ADV, including corresponding sections of Schedules A, B, C, and D, by filing additional amendments (other-than-annual amendments) promptly if:

  • information you provided in response to Items 1, 3, 9 (except 9.A.(2), 9.B.(2), 9.E., and 9.F.), or 11 of Part 1A or Items 1, 2.A. through 2.F., or 2.I. of Part 1B becomes inaccurate in any way;
  • information you provided in response to Items 4, 8, or 10 of Part 1A or Item 2.G. of Part 1B becomes materially inaccurate; or
  • information you provided in your brochure becomes materially inaccurate (see note below for exceptions)

Notes:

Part 1: If you are submitting an other-than-annual amendment, you are not required to update your responses to Items 2, 5, 6, 7, 9.A.(2), 9.B.(2), 9.E., 9.F., or 12 of Part 1A or Items 2.H. or 2.J. of Part 1B even if your responses to those items have become inaccurate.

Part 2: You must amend your brochure supplements (see Form ADV, Part 2B) promptly if any information in them becomes materially inaccurate. If you are submitting an other-than-annual amendment to your brochure, you are not required to update your summary of material changes as required by Item 2. You are not required to update your brochure between annual amendments solely because the amount of client assets you manage has changed or because your fee schedule has changed. However, if you are updating your brochure for a separate reason in between annual amendments, and the amount of client assets you manage listed in response to Item 4.E or your fee schedule listed in response to Item 5.A has become materially inaccurate, you should update that item(s) as part of the interim amendment.

• If you are an SEC-registered adviser, you are required to file your brochure amendments electronically through IARD. You are not required to file amendments to your brochure supplements with the SEC, but you must maintain a copy of them in your files.

• If you are a state-registered adviser, you are required to file your brochure amendments and brochure supplement amendments with the appropriate state securities authorities through IARD.


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