Effective October 1, 2017, investment advisers must adhere to amended requirements regarding the investment adviser public disclosure form (Form ADV). The Securities Exchange Commission (the SEC) announced these amendments in 2016. The new Form ADV disclosure requirements apply to both initial and amended Form ADV filings. The amendments can be grouped into three categories: (i) additional information requirements for investment advisers’ separately managed account business; (ii) additional information requirements about an investment adviser’s business, including changes to information on office locations and social media practices; and (iii) the introduction of “umbrella” registration, whereby private fund advisers that operate as a single business are able to file a single Form ADV if certain conditions are met. The following outlines the details surrounding these changes.
- Separately Managed Account Business. The amendments to Form ADV require advisers to include certain additional information on separately managed account business in Schedule D. For purposes of reporting on Form ADV, the SEC includes in its definition of “separately managed accounts” all advisory accounts other than those that are pooled investment vehicles (i.e., registered investment companies, business development companies, and pooled investment vehicles that are not registered (including but not limited to, private funds)). The amendments require advisers to include, among other things, the following information in Schedule D:
- the types of assets held (including whether derivatives and borrowings are used);
- the adviser’s regulatory assets under management attributable to separately managed accounts (SMA RAUM);
- the approximate percentage of SMA RAUM in 12 broad categories; and
- any custodians that hold ten percent (10%) or more of the adviser’s SMA RAUM.The exact additional information requirements – and the timing of data collection – depends on SMA RAUM. Advisers with more than $500 million RAUM but less than $10 billion SMA RAUM will be required to collect year-end data, while advisers with more than $10 billion of SMA RAUM will be required to collect the same – plus additional – information at mid-year and year-end points.
- Business Practices. The amendments also require additional identifying and advisory business information in Part 1 and Schedule D Form ADV. Under the requirements, an adviser must:
- include in Schedule D the total number of its offices that conduct investment advisory business;
- include in Schedule D contact information for the adviser’s 25 largest offices;
- include in Part 1A of Form ADV the number of clients and regulatory assets under management attributable to each category of clients during the last fiscal year; and
- include in Part 1A of Form ADV certain information tied to an adviser’s technological presence – e.g., whether the adviser maintains a website or presence on social media platforms where either is used to promote the adviser’s business and the adviser retains control over the content. This will impact any advisers using Twitter, LinkedIn, and Facebook.
- Umbrella Registration. The amendments to Form ADV codify umbrella registration and allow a filing adviser to file a single Form ADV on behalf of itself and other relying advisers. Form ADV’s General Instructions list five conditions that must be met in order to qualify for umbrella registration:
- The filing adviser and each relying adviser advise only private funds and clients in separately managed accounts that are qualified clients and are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds.
- The filing adviser has its principal office and place of business in the United States and, therefore, all of the substantive provisions of the Advisers Act and the rules thereunder apply to the filing adviser’s and each relying adviser’s dealings with each of its clients, regardless of whether any client of the filing adviser or relying adviser providing the advice is a United States person.
- Each relying adviser, its employees and the persons acting on its behalf are subject to the filing adviser’s supervision and control and, therefore, each relying adviser, its employees, and the persons acting on its behalf are “persons associated with” the filing adviser (as defined in section 202(a)(17) of the Advisers Act).
- The advisory activities of each relying adviser are subject to the Advisers Act and the rules thereunder, and each relying adviser is subject to examination by the SEC.
- The filing adviser and each relying adviser operate under a single code of ethics and a single set of written policies and procedures administered by a single chief compliance officer in accordance with that rule.
The SEC has also adopted a new Schedule R for the filing adviser to list each relying adviser. After completing the umbrella registration, the filing adviser will be required to file an other-than-annual amendment to add or delete Schedule R filings as relying advisers are added or deleted.
The SEC published 16 new FAQs related to the revised Form ADV on October 2, 2017. The FAQs are available on the SEC website.