9/9/16 - SEC Amendments Will Increase Disclosures by Investment Advisers
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9/9/16 - SEC Amendments Will Increase Disclosures by Investment Advisers

The Securities and Exchange Commission on Aug. 25 announced changes to the primary disclosure form used by investment advisers and amended several rules under the Investment Advisers Act of 1940. Taken together with other recent rulemakings focused on modernizing information reported by investment companies and investment advisers and promoting effective liquidity risk management throughout the open-end-fund industry, these changes reflect a sustained focus on expanding the information available to the commission — and to the investing public — about investment advisers’ business activities and risks.

The changes to Form ADV on separately managed accounts will likely have the greatest impact on investment advisers. The final rule, which reflected minor changes to the May 2015 proposal, becomes effective 60 days after publication in the Federal Register, with a compliance date of October 1, 2017. Most advisers will first use the revised form for their 2018 update to Form ADV.

Form ADV Changes

SEC-registered investment advisers file Form ADV at least annually. Under the new rule, advisers must provide additional information on separately managed accounts, including the types of assets held, the use of derivatives and borrowings, and allocations across 12 broad asset categories. The final rule includes clarifying language — in response to comments on the proposed rule — permitting advisers to use their own consistently applied methodology for determining the asset class of each investment without double-counting.

Private fund advisers may file one “umbrella registration” on Form ADV for multiple private fund entities operating under a single advisory business. The commission has begun providing guidance to private fund advisers on the new registration and filing process, which is designed to be easier for advisers and give the SEC a better data perspective across groups of private fund advisers that operate as a single advisory business.

The adopted amendments to Form ADV also include a number of new requirements, including the website address for each of the adviser’s social-media pages, information about all physical office locations (rather than just its primary location), representatives located in each office and business activities conducted, and, if applicable, information about outsourced chief compliance officers.

Investment Advisers Act Rule Amendment

The final rule also amends the Investment Advisers Act’s books and records rule to require advisers to make and keep supporting documentation that demonstrates “the calculation of the performance that the adviser circulates or distributes, directly or indirectly, to any person.” Previously, advisers were only required to keep such records if the performance information was distributed to 10 or more persons. As a result, advisers must be prepared to maintain calculations for all advertising materials, including personalized communications and “one-on-one” pitch meetings created or distributed after the compliance date.

The amendments also require advisers to maintain originals of all written communications received and copies of written communications they send that relate to the performance or rate of return of managed accounts or securities recommendations.

Contact Promontory

Promontory helps regulated entities, including investment advisers, understand and meet their compliance and regulatory obligations. Please call us to discuss these form and rule amendments and how advisers can plan for these changes. For more information, please contact:

Conway Dodge
Managing Director
+1 202 370 0461

Michael Sullivan
Managing Director
+1 202 370 0507

Jacob Lesser
+1 202 370 0397