On August 25, 2016, the SEC adopted amendments to the Form ADV Part 1. The purpose of this Blog is to remind registered investment advisors of those changes and to notify you that the changes to the Form ADV Part 1 go into effect as of October 1, 2017. That means, if you need to amend your Form ADV Part 1 for any reason on or after October 1, 2017, investment advisors will need to provide responses to the new questions applicable to your firm’s business model.
Who do the changes to the Form ADV Part 1 apply to and what is now required?
The most significant changes to the Form ADV Part 1 relate to reporting your Regulatory Assets Under Management for your investment advisory firm’s separately managed accounts.
A good portion of the amendments are made within Item 5, Information About Your Clients, and the supporting Schedules, on the Form ADV Part 1. These new questions are collecting more specific information about your firm’s separately managed accounts. Although the SEC does not specifically define separately managed accounts here is their guidance directly from their adopting release:
“For purposes of reporting on Form ADV, we consider 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)) to be separately managed accounts.”
Therefore, all of your client accounts, outside of pooled investment vehicles, are considered to be a separately managed account according to the SEC and for purposes of reporting on the new questions on Form ADV Part 1.
What do registered investment advisors need to do?
Investment Advisors will still need to report regulatory assets under management as of December 31, 2017 broken out between discretionary vs non-discretionary assets as you have been reporting in past year annual updating amendment filings.
To prepare for this new change on the Form ADV Part 1 there will be new client information that will now need to be reported.
- For example, as of October 1, 2017, you will now need to also include the actual (not a range) number of clients you have, broken out by type of client (Individuals, High Net Worth, Individuals, Banking or thrift institutions, Investment Companies, Business development companies, Pooled Investment vehicles, Pension and profit sharing plans, charitable organizations, state or municipal government entities, other investment advisors, insurance companies, sovereign wealth funds and foreign official institutions, corporations or other businesses not listed above, other) and report the aggregate dollar amount of your regulatory assets under management by each client group.
- Further, investment advisors with separately managed account business, if you engage in borrowing transactions on behalf of any of the separately managed account clients; or if you engage in derivative transactions on behalf of any of your separately managed account clients, there will be additional information that will need to be reported.
Included here is a paper copy of the Form ADV Part 1, marked up, to include the ‘new’ questions so you may see these questions in context with the Form.
Click Here for the paper copy of the Form ADV Part 1 with the ‘new’ questions.
Generally, the other new questions on the Form ADV Part 1 center around the following topics:
- New Umbrella Registration for multiple (relying) advisors who advise more than one private fund;
- Including registered investment advisors largest twenty-five offices where you conduct investment advisory business;
- Include all of your websites or accounts on publicly available social media platforms (including, but not limited to, Twitter, Facebook and LinkedIn). This means list all of the firm’s accounts on publicly available social media platforms, not personal accounts;
- New questions about Outsourced Chief Compliance Officers;
- New Wrap Fee Program Information.
These new questions will only apply to your investment advisory firm based upon your business model. In other words, for example, if you do not offer a wrap fee program, then the new questions will not apply.
The purpose of this blog post is to remind you to be proactive! Don’t wait until October to determine how you will respond to these new questions. Review the attached ‘mark-up’ of the Form ADV Part 1 to begin thinking about how you will be able to gather this new required information.
What is the due date for responses to the ‘new’ Form ADV Part 1 questions?
To reiterate, the Form ADV Part 1 will have new questions that will need to be answered (as applicable) as of October 1, 2017. If registered investment advisors make no changes to your Form ADV Part 1 between October 1, 2017 and the end of this year (2017), then you will see these new questions for the first time with your annual updating amendment filing, first quarter, 2018.
