As you know, the Securities and Exchange Commission (“SEC”) has adopted amendments to Form ADV Part 1A that will go into effect on October 1, 2017. The expanded Form ADV is part of a new rulemaking effort outlined in SEC Release IA-4509. The updated Form ADV will require investment advisers to provide additional information regarding their separately managed account business, wrap fee accounts, and advisory relationship(s) with registered funds (40 Act funds), among other clarifying and technical amendments.

In response to these upcoming changes, RIA Compliance Group is providing a summarization of the changes most likely to affect our clients and serve as a general guide for preparing for these changes. Given the timing of the SEC’s rollout, it is likely that many advisers will be incorporating these changes as part of their annual updating amendment due March 31, 2018.  However, if an adviser makes any type of amendment to its Form ADV after October 1, 2017 the adviser will be required to provide all responses to all of the newly created fields.

Separately Managed Accounts

For Advisers that provide investment management services to separately managed accounts, the following information will need to be provided upon amending Form ADV:

  • Indicate the approximate number of clients and the amount of regulatory assets under management attributable to each type of client. The aggregate amount of regulatory assets under management reported should equal the total amount of regulatory assets under management reported separately. If a client fits into more than one category, select one category that most accurately represents the client to avoid double counting clients and assets.
  • The type of client categories include: Individual, High Net Worth Individuals, Banking or Thrift institutions, Investment companies, Business development companies, Pooled investment vehicles, (private funds), Pension and Profit Sharing plans (but not the plan participants or government pension plans), Charitable organizations, State or municipal government entities (including government pension plans), Other investment advisers, Insurance companies, Sovereign wealth funds and foreign official institutions, Corporations or other businesses not listed above, and Other.

Additionally, all Advisers will be required to classify separately managed account assets into specific security types by percentages. Advisers may use their own internal methodologies and the conventions of their service providers in determining how to categorize assets, so long as the methodologies or conventions are consistently applied and consistent with information reported internally and to current and prospective clients. However, assets should not be double counted.

  • The security type classifications include all of the following: Exchange-Traded Equity Securities, Non Exchange-Traded Equity Securities, U.S. Government/Agency Bonds, U.S. State and Local Bonds, Sovereign Bonds, Investment Grade Corporate Bonds, Non-Investment Grade Corporate Bonds, Derivatives, Securities Issued by Registered Investment Companies or Business Development Companies, Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies), Cash and Cash Equivalents, and Other.

In the near future, RIA Compliance Group will be providing schedules to assist in gathering and complying with the additional categorization of information requests.

Wrap Fee Programs

If you participate in a wrap fee program, you will be required to state your regulatory assets under management attributable as a sponsor to a wrap fee program, as a portfolio manager to a wrap fee program and/or as a sponsor to and portfolio manager for the same wrap fee program. Advisers will be required to check all that apply and supply the amount of assets under management for each applicable category.

If your involvement in a wrap fee program is limited to recommending wrap fee programs to your clients, or you advise a mutual fund that is offered through a wrap fee program, the above item is not required to be completed.

Advisers to Registered Investment Companies (Mutual Funds)

In addition to listing each registered investment company to which you act as an adviser, you will be requested to provide the regulatory assets under management of all parallel managed accounts related to a registered investment company (or series thereof) that you advise.

  • The Glossary to Amended Form ADV includes “parallel managed account,” which is defined as: “With respect to any registered investment company or series thereof or business development company, a parallel managed account is any managed account or other pool of assets that you advise and that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as the identified investment company or series thereof or business development company that you advise.”

Clarifying and Technical Amendments

Below are some of the additional requirements for Form ADV.

  • If you are registered with the SEC, you will be required to list the largest twenty-five offices in terms of numbers of employees as of the end of your most recently completed fiscal year. Advisers will also need to list total number of offices.
    • Additional requested information regarding branch offices include how many employees perform investment advisory functions from each office location and a check box selection of other business activities that are conducted at each office location. These categories include: Broker-dealer,  Bank, Insurance broker or agent , Commodity pool operator or commodity trading advisor, Registered municipal advisor, Accountant or accounting firm, and Lawyer or law firm.
  • Advisers will be required to list all firm website addresses for each of the firm’s accounts on publicly available social media platforms (including, but not limited to, Twitter, Facebook and LinkedIn).

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 –