In August of 2016, the SEC adopted the proposed amendments to the Investment Advisers Act, in addition to the investment adviser registration and reporting form, commonly known as Form ADV. These changes were designed to provide the public with additional information and disclosures, help investment advisers have more efficient reporting, and allow the SEC to better monitor industry risk. In addition, these changes will better reflect changes from the Fixing America’s Surface Transportation Act (FAST) of 2015, which had already amended the Advisers Act. These amendments became effective October 1, 2017.
Form ADV
Currently, investment advisers register with the SEC through filing Form ADV, which the SEC uses in turn to protect investors and regulate the industry. This form is accessible to both the public and investors. These amendments focused specifically on Part 1A of Form ADV, by requiring additional information regarding investment advisers, incorporating private fund adviser entities, and clarifying several areas of Form ADV to help advisers better complete the form.
Form ADV will now require advisers to include information on separately managed accounts including:
- The use of borrowings and derivatives
- Identity of any custodians that make up at least ten percent of the regulatory assets under management
- The percentage of separately managed accounts under regulatory assets under management for each of the new 12 broad asset categories
Advisors will also need to provide information to help the SEC better oversee advisers and regulate the industry that includes, but is not limited to:
- Social media accounts
- The 25 largest offices, other than their primary office
- Participation in wrap fee programs
- Whether their chief compliance office is employed by anyone other than the adviser
Umbrella Registration
The SEC limits umbrella registrations to “private fund advisers that operate as a single advisory business”. These amendments include conditions for qualifying for an umbrella registration including, but not limited to:
- The adviser’s principle office is in the United States
- Each adviser is subject to the Advisers Act and can be regulated by the SEC
- The private fund advisers only advise private funds
Investment Advisers Amendments
These amendments to Rule 204-2(a)(7) and Rule 204 -2(a)(16) were designed to help prevent fraudulent activities, and require that advisers maintain additional records regarding performance information.
Rule 204-2(a)(7) currently requires that advisers who are registered with the SEC maintain certain received written communications in addition to copies of written communications sent by advisers. The amendments will now require that advisers keep originals of all written communication received or sent by an investment adviser that relates to the performance of all managed accounts or securities.
Rule 204-2(a)(16) currently requires that advisers who are registered with the SEC maintain records regarding performance information in communications distributed to 10 or more people. The amended rule removed the ten person requirement, and now requires that investment advisers maintain records regarding performance calculation or rate of return that are sent, directly, or indirectly, to any person.
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