United States: SEC Staff Issues Information Update For Advisors Filing Other-Than-Annual Amendments To Form ADV

Amendments to Form ADV, adopted on August 25, 2016 which are applicable to all ADV filings on or after October 1, 2017, include additional disclosure requirements that are designed to enhance current reporting and improve data collection by the SEC to assist the SEC's risk-based examination program and other risk assessment and monitoring activities. Normally, an adviser's next Form ADV filing would be its annual amendment due within 90 days of the adviser's fiscal year end (March 31 for calendar year end filers). However, there are a number of events that require advisers to file an other-than-annual amendment, including to report any changes to: the adviser's name or address; form of organization (e.g., LP to LLC); required ownership information; control person and/or executive officer information; or narrative Part 2 brochure or brochure supplement, if applicable and if the change is material (e.g., a new material conflict of interest or certain legal or disciplinary events). Any annual or other-than-annual amendment filed on or after October 1, 2017, must include the information required by the new Form ADV.

Advisers with at least $10 billion of regulatory assets under management ("RAUM") attributable to separately managed accounts will be required to report the approximate percentage of separately managed account RAUM that are invested in twelve broad asset categories, for both mid-year and end-of-year. The August 2017 Information Update addresses the lack of data that may be available for those advisers required to report such information accurately. Advisers with less than $10 billion of RAUM attributable to separately managed accounts will report only end-of-year percentages. All advisers should also be reminded that in addition to the specific information about their separately managed accounts, additional detailed information regarding Item 5 and social media, among other things, must be provided in their regular annual amendment to Form ADV.

Specifically, the amendments to Item 5 include requirements to provide the following, in order for the SEC to carry out its risk-based examination program and other risk assessment and monitoring activities:

• Specific information on the types of assets held in separately managed accounts and the use of derivatives and borrowings in separately managed accounts. All advisers would be required to report the information at least annually, with those advisers with at least $10 billion RAUM required to report the information semi-annually. This information may take significant additional time to collect, as well as impose an additional burden for advisers in the research of different types of securities and implementing new methodologies of categorization in their portfolio accounting systems. Additionally, such disclosure requirements have the potential to cause an adviser to compromise the confidentiality of advisory relationships and client investments, as well as investment strategies and methodologies.
• The approximate number of advisory clients, the types of advisory clients, and approximate amount of RAUM attributable to such client types. Narrative disclosures about types of clients, investment strategies and risk factors already appear in Part 2A, and additional disclosure may be time consuming and burdensome for advisers.
• Identification of any custodians that account for at least 10% of separately managed account RAUM, and the amount of RAUM held at such custodian. This information allows the SEC to identify advisers whose clients use the same custodian in the event, for example, a concern is raised about a particular custodian, but may also raise potential privacy concerns for smaller advisers and their potential clients.
• Advisers' participation in wrap fee programs, and the RAUM attributable to acting as sponsors of and portfolio managers for a wrap fee program, including whether an adviser acts as both sponsor of and portfolio manager for a particular wrap fee program. The additional wrap fee program information is intended to help the SEC better understand a particular adviser's business.
• The approximate amount of an adviser's RAUM that is attributable to clients that are non-United States persons. This information must be updated promptly, along with the percentage of an adviser's clients that are non-United States persons, if the information becomes inaccurate.
• Notice of an election to report client assets in Part 2A differently from the RAUM the adviser reports in Part 1A. This information would allow the SEC to better understand the situations in which the calculations differ, and assist the SEC in analyzing whether those differences require a regulatory response.

Notably for smaller advisers, including alternative investment advisers, the amended Form ADV Part 1A requires disclosure of whether the adviser has, in addition to websites, accounts on publicly available social media platforms, including corporate social media accounts as well individual business-related profiles on LinkedIn, Twitter, Facebook and other social networks, where the adviser "controls the content." It's important to note that this item is not intended to extend to the social media accounts of an adviser's employees regardless of whether the adviser controls the content of such accounts. Advisers should account for all the social media profiles used by their investment advisory representatives for business communications.

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