On June 12, 2015, the U.S. Securities and Exchange Commission (“SEC”) published in the Federal Register a proposed rule recommending amendments to the Form ADV. Additionally, the proposed rule addresses amendments proposed to the Books and Records Rule, Rule 204-2, under the Investment Advisers Act of 1940 (“Investment Advisers Act”) and several technical amendments proposed to rules under the Investment Advisers Act to remove transition provisions that were adopted but are no longer necessary. The proposed amendments to the Form ADV would require investment advisers to provide additional information that will help the SEC and investors to better understand the risk profile of the individual investment advisers and the industry in general. The proposed amendments to Rule 204-2 of the Investment Advisers Act would expand the records investment advisers are required to maintain related to performance calculations and performance related communications. In a press release dated May 20, 2015, SEC Chair Mary Jo White is quoted as stating, “Investors will have better quality and greater access to information about … investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”
The following are highlights of some of the proposed changes:
- PROPOSED FORM ADV AMENDMENTS
- Information Regarding Separately Managed Accounts – Several of the proposed Form ADV amendments would require investment advisers to provide more detailed information concerning investment advisers’ separately managed accounts. The proposal states, “For purposes of reporting on Form ADV, we consider advisory accounts other than those that are pooled investment vehicles…to be separately managed accounts.” Under the proposed rule, investment advisers would be required to provide information specifically about the investment advisers’ separately managed accounts, which would include the types of assets held and, for certain investment advisers, the use of derivatives and borrowings in the account. Additionally, in certain circumstances, the proposed rule would require investment advisers to identify any custodians where separately managed account assets are held.
- Additional Information about the Investment Adviser – Under the proposal, additional questions would be added to the Form ADV to improve certain identifying information obtained; additional information about the advisory business; and additional information about financial industry affiliations and private fund reporting. Some examples of the additional information that would be included in this area would be:
- expanded branch office information;
- information regarding the use of websites for social media platforms;
- information regarding whether the investment adviser’s chief compliance officer is compensated or employed by anyone other than the investment adviser;
- more specific information related to client types and regulatory assets under management attributable to client types;
- information regarding the number of clients that the investment adviser provided investment advisory services to but does not have regulatory assets under management for; and
- information regarding the amount of regulatory assets under management that is attributable to non-U.S. clients.
- Umbrella Registration – Some investment advisers to private funds may be organized as a group of related investment advisers that are separate legal entities operating as, and appearing to investors and regulators to be, a single advisory business. Because of the way the Form ADV is currently organized, private fund advisers organized as a group of related investment advisers could have to file multiple investment adviser registration forms for the same advisory business. The SEC has proposed amendments to the Form ADV Part 1A that would simplify the process of registration for these investment advisers while providing additional and more consistent data about private fund advisers that operate in this manner.
- PROPOSED RECORD KEEPING REQUIREMENTS AMENDMENTS
One of the proposed revisions to Rule 204-2, the Books and Records Rule, under the Investment Advisers Act would require investment advisers to maintain performance calculations and performance related communications that the investment adviser circulates or distributes to “any person” instead of “ten or more persons” as currently stated in Rule 204-2. Additionally, the SEC is proposing an amendment to require investment advisers to maintain 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 information provided above is only a highlight of some of the proposed amendments. Investment advisers are strongly encouraged to review the entire proposed rule to gain a better understanding of the proposed changes. The SEC has opened a 60 day response period for investment advisers to provide feedback regarding the proposed amendments. Comments will be accepted until August 11, 2015.
You can submit your comments regarding the proposed amendments by the following methods:
Electronic comments:
- Use the Commission’s Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
- Send an e-mail to rule-comments@sec.gov. Please include File No. S7-09-15 on the subject line; or
- Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper comments:
- Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
Investment advisers should continue to monitor developments regarding the proposed changes. RIA Compliance Consultants can assist you if you have any questions, need assistance with revisions to your advisory documents, or need assistance in developing new advisory documents. If you would like to further discuss how we can assist you, contact your consultant if you are an existing client or click here to schedule a time to speak with one of our consultants.
Posted by Bryan Hill
Labels: Books Records, Record Keeping