SEC Adopts Significant Amendments to Form ADV

Global Publication December 6, 2016

As we discussed in our Winter 2015 NewsWire article, Reminder: The SEC Expected to Act on Proposed Amendments to Form ADV in 2016, the SEC has adopted certain significant amendments to Form ADV, which is used by investment advisers to register or file as “exempt reporting advisers.” [1] The SEC’s actions follow the issuance of proposed amendments to Form ADV in May 2015, and will implement the most significant changes to Form ADV since the changes to Form ADV that were made in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

Specifically, the amendments to Form ADV will (i) significantly expand reporting requirements relating to separately managed accounts (“SMA”s); (ii) codify reliance on so-called “umbrella” registration; (iii) make certain clarifying changes to Form ADV to provide for additional disclosure obligations, including with respect to the usage of certain social media accounts; and (iv) amend certain books and records requirements.

Asserted Goals of the Amendments

As stated in the SEC’s promulgating release, the Form ADV amendments were prompted, in large part, by the goal of acquiring more information to assess purported risks that asset managers may pose to the U.S. financial system, as well as modernizing what many in the industry viewed as an antiquated form that was not designed to address certain complex structural arrangements that over time had become common in the industry.

Separately Managed Accounts

Under the amendments, investment advisers will be required to submit certain detailed information in respect of advised SMAs. Specifically, the SEC is amending Item 5 and Section 5 of Schedule D of Form ADV Part 1A to require advisers to provide aggregate-level information relating to advised SMAs, including the use of derivatives and borrowings in respect of such SMAs. Advisers managing less than $10 billion in regulatory assets under management will be required to report end-of-year percentages in respect of 12 asset categories [2] in respect of their advised SMAs, while those advisers managing at least $10 billion will be required to provide such information on both a mid-year and end-of-year basis. In providing such disclosures, advisers will be permitted to report approximate percentages using “reasonable methodologies” for classifying assets. Additionally, in respect of asset classes that consist of underlying investments (e.g., ETF and fund investments), advisers will not be required to look through such investments.

For certain advisers utilizing borrowings or derivatives as part of their SMA investment strategies, the amendments add Section 5.K.(2) to Schedule D, which will require such advisers to provide disclosure information relating to such strategies. Specifically, the amendments will require disclosures relating to the “gross notional values” and “gross notional exposures” of borrowings and derivatives used in respect of advised SMAs for advisers with at least $500 million in SMA regulatory assets under management. [3] Advisers will only be required to provide such disclosures in respect of SMAs with at least $10 million in assets.

In addition to these SMA reporting obligations, as well as certain other items set forth in the SEC’s promulgating release, advisers will be required to provide disclosures relating to any custodians that account for at least 10% of the adviser’s SMA regulatory assets under management.

Umbrella Registration

The amendments clarify past guidance that the SEC has issued in respect of “umbrella” registration (i.e., the usage of a single Form ADV for multiple advisory entities that function as a single business). While the SEC already authorized this practice in a 2005 letter to the American Bar Association’s Subcommittee on Private Investment Entities, [4] Form ADV is not currently tailored to address the concept adequately.

For an investment adviser to avail itself of umbrella registration under the amendments, the following conditions must be met:

  1. The filing adviser (and each of its relying advisers) generally must advise only private funds and SMA clients that are “qualified clients” and that are eligible to invest in the private funds advised by the investment adviser or relying advisers (with the SMAs pursuing substantially similar investment objectives and strategies as the private funds);
  2. The filing adviser must have its principal office and place of business in the United States;
  3. Each relying adviser, its employees, and persons acting on its behalf must be subject to the filing adviser’s supervision and control;
  4. The advisory activities of each relying adviser must be subject to the Advisers Act, and each relying adviser must be subject to examination by the SEC; and
  5. The filing adviser and each relying adviser must operate under a single code of ethics and a single set of written policies and procedures and have the same chief compliance officer.

It is important to note that umbrella registration is not mandatory. Additionally, despite numerous comment letters requesting that the SEC extend the availability of umbrella registration to non-U.S. filing advisers and a form of “umbrella reporting” for exempt reporting advisers, the SEC expressly declined to do so.

Additional Disclosure and Books and Records Matters

The SEC’s amendments to Form ADV also include certain other significant disclosure matters that may be of interest to those in the investment management industry, including the items discussed below.

For instance, amendments to Item 1.I. and Section 1.I. of Schedule D will require advisers to provide disclosures relating to the extent that social media platforms (e.g., Twitter, Facebook and LinkedIn) are used in the adviser’s business, including the addresses of such platforms. [5]

Additionally, amendments to Item 1.F. and Section 1.F. of Schedule D will now require advisers to provide the total number of offices at which they conduct advisory business, and provide certain disclosures relating to the 25 largest offices.

Amendments to Item 1.J. also will require advisers to disclose whether their chief compliance officers are compensated or employed by any other person.

Finally, the amendments will require advisers to provide disclosures relating to, among other things, (i) certain financial service providers; (ii) client information across certain specified categories and information relating to regulatory assets under management by category, including the approximate amount attributable to clients that are non-U.S. persons; and (iii) whether a private fund relying on the 3(c)(1) exclusion limits sales of its interests to “qualified clients.”

The SEC’s promulgating release also amends Advisers Act Rule 204-2(a). These amendments will require advisers to maintain (i) records supporting performance claims in communications that are distributed or circulated to any person (previously, the Rule required advisers to maintain such records in respect of communications distributed or circulated to ten or more persons) and (ii) originals of all written communications received by (and copies of written communications sent by) an adviser relating to the performance or rate of return of SMAs or relating to securities recommendations.

In adopting such amendments to Advisers Act Rule 204-2(a), the SEC stated that it believes such amendments will “be useful in examining and evaluating adviser performance claims,” and that investors will benefit to the extent that such amendments “reduce the incidence of misleading or fraudulent advertising and communications.”

Effective Date and Compliance Date

As discussed above, the amendments represent the first significant revisions to Form ADV since the regulations promulgated in the immediate aftermath of Dodd-Frank, and will add to the administrative burden that Form ADV filers will experience in connection with their filing obligations. The effective date of the rules implementing the Form ADV amendments is October 31, 2016, and advisers must begin complying with the rules, including by using the amended Form ADV in their filings, on October 1, 2017. [6] Advisers should plan to begin familiarizing themselves with the new Form ADV and implement processes designed to gather information that will be required to be disclosed on the new Form.


[1] See Form ADV and Investment Advisers Act Rules, Release No. IA-4509 (Aug. 25, 2016), available at

[2] Such categories are “(i) Exchange-Traded Equity Securities; (ii) Non Exchange-Traded Equity Securities; (iii) U.S. Government/Agency Bonds; (iv) U.S. State and Local Bonds; (v) Sovereign Bonds; (vi) Investment Grade Corporate Bonds; (vii) Non-Investment Grade Corporate Bonds; (viii) Derivatives; (ix) Securities Issued by Registered Investment Companies or Business Development Companies; (x) Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies); (xi) Cash and Cash Equivalents; and (xii) Other.”

[3] Advisers with at least $10 billion in SMA regulatory assets under management will face additional reporting obligations in respect of their advised SMAs.

[4] See American Bar Association Subcommittee on Private Investment Entities, SEC Staff Letter (Dec. 8, 2005) at Question and Answer G.1, available at

[5] The SEC’s adopting release specifies that advisers will only be required to provide disclosures relating to platforms in respect of which the adviser controls the content.

[6] A significant portion of advisers will face their first reporting obligations using the new Form ADV for their fiscal year 2017 annual amendments, which generally will be filed in Q1 2018.

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