SEC Amends Rules Under Investment Advisers Act

At the end of August, the Securities and Exchange Commission (“SEC”) issued a release amending a number of rules under the Investment Advisers Act of 1940 (“Advisers Act”), as well as Form ADV, which is the registration and reporting form for investment advisers.  The SEC outlined in their release that these amendments are intended to improve and expand the information currently reported to the SEC and disclosed to the public by investment advisers, and are geared to help the SEC develop a better understanding of the risk profile of advisory firms as well as the industry.

Below is a summary of some of the additional information that will be required to be reported and maintained beginning October 1, 2017:

  • Increased disclosure of Separately Managed Accounts (SMAs): Investment advisers will be required to report the approximate percentage of their invested SMA assets, disclose derivatives and borrowing and identify custodians.
  • Facilitation and Standardization of Umbrella Registrations: The amendments updated Form ADV’s general instructions, as well as established preconditions required for a group of private fund advisers that are registered and operate as a single advisory business to quality for this type of registration.
  • Disclosure of additional information on Form ADV: Investment advisers will be required to disclose, among other things, their Internet presence, physical office locations, and whether the chief compliance officer is employed by someone other than the investment adviser.
  • Clarifications to Amendments and Technical Changes: The amendments clarify changes related to solicitation of an investment adviser’s clients and audited financial statements.
  • Additional Performance Calculation Records: Investment Advisers will need to maintain originals of all written communications sent and received that contain performance or rate of return information.  Advisers also will need to maintain backup documentation that outlines the performance and/or rate of return calculations.

While the compliance date is not until October 1, 2017, Chief Compliance Officers should begin working with senior management to determine what policies, procedures and internal controls are needed in order for their firm to gather, report and maintain the additional required information.

Core Compliance & Legal Services, Inc. will be issuing a Risk Management Alert later this month that will provide further details on the requirements under the new amended rules, along with a list of action items to help firms comply.

Should you have questions or need assistance with reviewing your current Form ADV or drafting disclosures that adhere to the new rule, please call us at (619) 278-0020.

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