The Securities and Exchange Commission (the “SEC”) published final rules to amend the Form ADV in order to gather additional about separately managed accounts, create an umbrella registration for affiliated private fund advisors operating a single advisory business, and to add additional identifying questions to the Form ADV. The final rules also amend the books and records rule to clarify the obligation to keep supporting information on performance and rate of return calculations. Please note that these final rules become effective in 60 days; however, compliance with these requirements does not become effective until October 1, 2017.
Separately Managed Accounts
The final rules will require advisors to aggregate information about the separately managed accounts, in order to improve the SEC’s risk management initiatives and risk-based exam program. The aggregate information about separately managed accounts will include types of assets held and the use of derivatives and borrowings in the accounts. The updated form will also ask that assets in separately managed accounts be reported on Schedule D. Finally, the final rules require advisors to identify the custodians with at least ten percent of separately managed account assets under management, and the amount of the assets under management attributable to the separately managed accounts held at the custodian.
Umbrella Registration for Private Fund Advisors
The final rules also create a process for umbrella registration of private fund advisors that operate a single advisory business through multiple legal entities. Umbrella registration is not mandatory, but will simplify the registration process for these advisors. To qualify for an umbrella registration, the advisor must have a principal place of business in the United States and must advise only private funds and qualified clients in separately managed accounts. Also all of the advisors must operate under the same policies and procedures (including a single code of ethics and single CCO) and be subject to the filing advisor’s supervision and control. Finally, all the advisor must agree to be subject to examination by the SEC.
Additional Form ADV Information Required
In addition to requiring reporting for separately managed accounts and creating umbrella registrations, the final rules also require additional identifying information be provided on the Form ADV.
Books and Records Updates
Currently advisors are required to maintain records supporting performance claims in communications that are distributed or circulated to ten or more persons. However, the final rule requires that advisors maintain:
How should a Chief Compliance Officer respond to the Rule?
To prepare for the implementation of these rule updates at your firm for the October 1, 2017 compliance date, AdvisorAssist recommends the best practices of: