Form ADV Changes to Take Effect Next Month

Beginning next month, registered investment advisors (RIA) will have to disclose more details around private funds they manage, separately managed accounts (SMA), social media postings and regulatory assets.

The changes take effect Oct. 1 following adoption of the amendments to Form ADV 1A by the Securities & Exchange Commission last year. Advisers filing an initial form or an amendment to an existing form on or after Oct. 1, will be required to provide responses to the form revisions.

Many of the changes, which are designed to give SEC regulators more information about advisors and how they conduct business, apply to all SEC-registered advisors.

Other changes affect advisors with assets under management in the hundreds of millions of dollars. Either way, the changes promise more involved reporting.

Listed below are some of the changes advisors can expect when they file the next round of ADV forms.

Umbrella Registrations

Form ADV sets conditions for umbrella registration to multiple legal entities that operate as a single advisory business, according to an update by the Proskauer law firm.

Other modifications to Form ADV, in connection with umbrella registration, include definition of terms, a new Schedule R and a new question on Schedule D.

New Schedule R disclosures affect the “relying advisor,” as separate from the filing advisor, Proskauer said.

A new question on Schedule D requests advisors to identify the filing advisors and the relying advisors that manage or sponsor private funds reported on Form ADV.

Separately Managed Accounts

In the SMA area, Form ADV changes will require advisors to report aggregate information about SMAs.

A new section requires the reporting of the approximate percentage of separately managed account regulatory assets under management invested in 12 asset categories, the Proskauer brief notes.

Advisors to $10 billion or more in SMA regulatory assets will have to report both midyear and end-of year percentages.

Another new section requires advisors with $500 million to $10 billion in SMA regulatory assets to report the amount of the dollar borrowings attributable to those assets that correspond to different levels of risk exposures, Proskauer said.

Advisors with at least $10 billion in SMA assets will be required to report their exposures across six derivatives categories.

Lastly, advisors will be required to identify any custodians that maintain at least 10 percent of SMA regulatory assets under management, and to report those regulatory assets held by each of the custodians.

Social Media, Office and AUM Reporting

With social media weaving its way deeper into advisors’ lives, regulators have come up with a reporting framework on Form ADV for that too.

As of Oct. 1, advisors will have to disclose whether they have one or more accounts linked to social media platforms, and list the internet address of each of the advisor’s social media pages.

Reporting on Form ADV is limited to accounts on social media platforms where the advisor controls the content. Social media accounts of an advisor’s employees are excluded from the reporting, Proskauer said.

Financial advisories must report their 25 largest offices and list offices at which they conduct investment advisory business. Also, the number of employees who perform advisory functions from each office, and what securities-related activities are conducted from each office, Proskauer said.

In addition, advisors must report whether the chief compliance officer is compensated or employed by anyone other than the advisor and, if so, to list the name of that employer or organization.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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