Changes to Form ADV Just in Time for Annual Updating Amendments

It is that time of year again, when state and federal registered investment advisers (RIAs) renew their registrations and file annual Form ADV updating amendments.  The updating amendments are due by March 31, 2018. Part 1A of Form ADV has changed significantly. The changes were effective on October 1, but most RIAs will first encounter them as they prepare their updating amendments. The key amendments are described below.

Separately Managed Accounts

 One of the most significant changes to Form ADV is that RIAs are required to provide information about their “separately managed accounts” (SMAs), which are advisory accounts other than funds. RIAs must now report information about the kinds of assets held in SMAs and the custodians of those assets, and some RIAs must report on their use of derivatives and borrowings in SMAs. If an RIA has SMAs, it must respond to questions in Item 5 of Part 1A of the amended Form ADV and complete one or more additional sections in Schedule D about those SMAs.

Section 5.K.(1) of Schedule D requires RIAs that advise SMAs to report the approximate percentage of SMA regulatory assets under management that are invested in each of twelve asset categories. Section 5.K.(2) of Schedule D requires RIAs managing at least $500 million in assets for information regarding the use of borrowings and derivatives in SMAs. Section 5.K.(3) of Schedule D requests information regarding custodians of at least 10% of SMA regulatory assets under management. Reporting about SMAs is on an aggregated basis, not on a per-account basis.

Item 5 of Part 1A also asks for additional information about wrap fee programs, and reporting about clients and investments in Item 5 has changed to require some additional information.

Information About the Adviser

Item 1 of Part 1A of the amended Form ADV has been changed to ask for additional information regarding the RIA.         

RIAs with more than one office are now asked to report on Form ADV in more detail about their offices, including the total number of offices, information about their 25 largest offices, activities conducted in each office, and the number of employees who offer advisory services in each office.

Each RIA must now report all of the websites and all social media platforms (such as Facebook and Twitter) controlled by the RIA. Each RIA is also asked whether its Chief Compliance Officer is employed by any person other than the RIA. (Many small RIAs use outside Chief Compliance Officers).

Umbrella Registration

Although Form ADV has been designed for single entity investment advisers to register and report to regulators, the SEC has been permitting some RIAs that have other legal entities under their control or under common control with them to use one Form ADV to report and register. The amended Form ADV formalizes this guidance to allow certain RIAs to file one Form ADV for themselves and their related entities through an “umbrella registration.”

Investment advisers are cautioned to closely examine the new amended Form ADV as they prepare their 2018 Form ADV updating amendments. Our attorneys are available for advice and assistance with these amendments.