On August 25, 2016, the SEC adopted amendments to several rules under the Investment Advisers Act and revised its registration and reporting forms. The amendments are designed to enhance the reporting and disclosure of information provided by Registered Investment Advisers (“RIAs”) to investors and the SEC.
Mary Jo White, SEC chair, said that the additional information will give investors and the Commission a better understanding of each adviser’s risk profile. An RIA’s risk profile helps the SEC determine which firms to examine. The additional information provided by RIAs will also help the SEC to understand the risk profile of the asset management industry. The data is used by the SEC for risk assessment and to monitor the industry’s activities.
The amendments require RIAs to provide additional information about their separately managed accounts (SMAs) such as aggregate data dealing with the use of borrowings and derivatives. The threshold for certain SMA reporting items is $500 million, so smaller RIAs will not need to comply with this specific requirement. Although the SEC collects detailed information about pooled investment vehicles, it currently gathers little information regarding SMAs.
As a result of the new amendments, private fund advisers that operate a single advisory business through multiple legal entities may register using just one Form ADV. This umbrella registration method does not apply to exempt reporting advisers or non-U.S. filing advisers.
Rule 204-2 under the Investment Advisers Act, better known as the Books and Records Rule, was also amended. RIAs must maintain records showing how they calculated performance and rates of return referred to in any written communication. Currently, RIAs must only maintain records to substantiate performance claims in communications distributed to ten or more persons. This change was prompted by the SEC’s belief that performance-related claims must be accurate in every situation, whether it is a single email to clients or an advertisement. Once those records are available, examiners can evaluate the truthfulness of an RIA’s performance claims in any written communication.
The amendments also require RIAs to disclose information regarding other aspects of their advisory business, such as their branch office operations and use of social media. RIAs must disclose the website addresses of all publically-available social media sites over which the adviser controls the content.
The newly-amended Form ADV Part 1 will be required for an RIA’s first amendment after October 1, 2017. For the typical RIA whose fiscal year ends on December 31, filings of the revised Form ADV will not be required until the first quarter of 2018.
RIAs that circulate or distribute performance-related communications after October 1, 2017, will be required to keep books and records showing how they calculated that performance. Essentially, RIAs will be required to keep the same records for those communications that they would retain for performance advertising. The SEC removed the “ten or more persons” condition and replaced it with “any person.”
The amendments can be found at the following link.
About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Boca Raton, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.
RIA Compliance Group, LLC – 5301 North Federal Highway, Suite 380, Boca Raton, FL 33487 – Tel: 561-600-0564 – email@example.com.