Published on Aug 31st, 2017 |

Back in August 25, 2016, the Securities and Exchange Commission (the “SEC”) adopted rules to modernize and enhance the disclosure requirements promulgated under the Advisers Act and to amend Form ADV.

The intention of the SEC is to improve the quality of information that clients and the SEC receive, fill data gaps that the SEC has identified and facilitate the SEC’s risk monitoring initiatives. For all SEC registered investment advisers, depending on the nature of your business, there will likely be additional disclosures you will be required to make for ADV amendments following October 1, 2017. 

The amendments modify the requirements under Part 1A of Form ADV to require (among other things):

  • Increased disclosures of Separately Managed Accounts (“SMAs”): Item 5 of Form ADV with respect to SMAs, additional questions were added, such as (1) the type of asset(s) held by the SMAs; (2) the use of derivatives and borrowing; and (3) the role of custodians. The amount of information requested varies based upon an investment adviser’s total regulatory assets under management (“RAUM”) attributable to SMAs, with threshold levels set at $0, $500 million and $10 billion.
  • Umbrella registration amendments: The amendments facilitate and standardize Umbrella Registration by codifying the requirements as set out in the existing SEC guidance, while updating certain portions of Form ADV to require additional disclosure. As per prior guidance, only relying advisers where their advisory business involves only private funds, may use umbrella registration. In addition, there are five preconditions that much bet met as well.
  • Additional Information on Form ADV:
    • Adviser’s Internet Presence: Item 1.I, will now require all websites of the adviser and all publicly available Social media platforms of the Adviser that it controls the content (e.g., Twitter, Facebook, and LinkedIn).
    • Adviser’s Physical Office Locations: Item 1.F will now require additional disclosures about all additional offices where the Adviser conducts business, such as; (1) CRD or Branch # (if applicable), (2) number of employees performing advisory functions, (3)identify from categorical list of securities-related activities that are conducted from such office, and (4) a narrative description of any other investment-related business conducted from such office.
    • Chief Compliance Officer: Item 1.J will now require confirmation of whether the chief compliance officer is employed by someone other than the investment adviser or a related person of the adviser.
    • Financial Industry Affiliations; Private Fund Updates: Amendments will require investment advisers to (i) provide identifying numbers of their related persons listed in Section 7.A of Schedule D (e.g., CIK numbers and Public Accounting Oversight Board registration numbers); and (ii) with respect to any private fund listed in Section 7.B.(1) of Schedule D that is relying on the exemption set forth in Section 3(c)(1) of the Investment Company Act of 1940, confirm whether sales of the private fund are limited to “qualified clients”.

What does this mean to RIAs?

  1. Additional time required to gather information and complete Form ADV Filings; and
  2. Depending on your type of business, an increased likelihood of an SEC Examination.
    1. OCIE’s Office of Risk Assessment and Surveillance (RAS) aggregates and analyzes data from SEC filings (including Form ADV) from registrants and individuals to identify activity that may warrant examination.[1]

If you have any questions on the above release or need any assistance with administering your compliance program, please contact your Vigilant representative or team member at Vigilant Compliance.