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New Disclosures for Form ADV

New Disclosures for Form ADV

About our Contributors
ICS Group is a regulatory compliance consulting firm specializing in providing compliance support to the financial services and insurance industries. We help our clients comply with regulatory requirements and industry standards. Our clients include: registered investment advisers, private equity funds, hedge funds, mutual funds, broker-dealers, insurance companies and state pension plans. Our team of highly experienced compliance professionals know from first-hand experience what regulators are looking for, the industry standards that apply, and how to develop and implement cost-effective business-oriented solutions.


Beginning on October 1, 2017, investment advisers will be expected to comply with the various new disclosures required on the Form ADV. Earlier this summer, the SEC released additional guidance for investment advisers and compliance professionals in the form of frequently asked questions (“FAQ”) to help answer any remaining questions advisers may have on how to comply with the new amendments to Form ADV. We have summarized below some important changes to the Form ADV along with highlights associated with that change from the SEC’s most recent guidance.

1. Separately Managed Accounts
The Amendments will require increased information concerning separately managed accounts (“SMAs”) (advisory accounts other than those that are pooled investment vehicles) by adding specific questions to Section 5 of Form ADV with respect to a) the type of asset(s) held by the SMAs; b) the use of derivatives and borrowing; and c) the role of custodians.

The Amendments will require investment advisers who have investment discretion with respect to SMAs to report the approximate percentage of their SMA assets invested in twelve broad asset categories, such as exchange-traded equity, U.S. Government Bonds, Derivatives, Cash and cash equivalents, etc. Parallel Managed Accounts reported by advisers to private funds should be treated as SMAs for reporting purposes.

Any borrowing by the SMA will have to be reported. The SEC described the types of transactions that constitute “borrowing” to include: traditional lending activities such as client bank loans and margin accounts; other secured borrowings and unsecured borrowings; synthetic borrowings and transactions involving synthetic borrowings (e.g., total return swaps that meet the failed sale accounting requirements); transactions selling securities short; and transactions in which variation margin is owed, but as a result of not reaching a certain set threshold, has not been paid by the client. Advisers should not report leverage embedded through the use of derivatives, securities lending or repurchase agreements as borrowings. Personal loans taken by the client without the firm’s knowledge are also not required to be reported.

2. Custodians
Advisers are required to report information about any custodian that accounts for at least 10% of total RAUM attributable to the adviser’s SMAs. Advisers are not required to report sub-custodians that their custodian may arrange to use for some custodial services, such as settling trades or trade execution.

3. Umbrella Registration
For a variety of tax, legal and regulatory reasons, private fund managers are often carved into separate legal entities even though they operate together. Because the Form ADV is based on the legal entity, each separate legal entity of the private fund was required to file a separate Form ADV. In a 2012 American Bar Association No-Action Letter the staff took the position that these separate legal entities could register under one Form ADV provided the relying advisors met certain conditions. The staff acknowledged in the No-Action letter that the Form ADV was not set up for a single filing. Now that exemption has been codified and the Form ADV has been amended such that separate legal entities that operate together may file one Form ADV known as “umbrella registration” in Schedule R.

Non-resident general partners and managing agents of any investment adviser (domestic or non-resident) must file a Form ADV-NR even if they are a non-resident general partner of a resident adviser.

Umbrella Registration is available only for “filing advisers” and “relying advisers” who satisfy the definitions of those terms and meet the conditions set forth in General Instruction 5. Umbrella Registration and the filing of Schedule R is not permitted for exempt reporting advisers.

4. Registration of General Partners
The American Bar Association No-Action Letter also permitted a special purpose vehicle created to act as a private fund’s general partner or managing member to rely upon the registered adviser’s registration. The FAQs affirm that registrants may continue to rely on this position and that such general partners and managing members are not required to be reported on the new Schedule R.

5. Social Media
Investment Advisers will now need to disclose the internet websites used to promote their SEC-registered businesses. This typically includes the firm website, a LinkedIn account or social media site associated with the Adviser that is used for business purposes. An adviser does not need to provide the website address or accounts on publicly available social media platforms where the advisor does not control the content. If a firm has a parent company that creates and maintains a social media account that references the business of the adviser, the adviser does not need to disclose the account, unless the adviser is providing the content for the account and is aware that its parent company uses the account to promote the adviser’s business.

6. CCO Information
Advisers will now be expected to disclose more detailed information regarding their Chief Compliance Officers. Advisers will be required to confirm whether their CCO is employed by someone other than the adviser or a related person of the adviser (unless the CCO’s employer is a registered investment company advised by the investment adviser). If the CCO is employed by someone other than the adviser or a related person of the adviser, the name and EIN of that employer must be disclosed.

In the event that your CCO is also employed by one or two other firms and those firms employ and compensate the CCO for the services provided to their respective firms, then you do not need to report their firm information. The Amended Form ADV only requires information when another person employees or compensates your CCO for providing compliance services to your firm.

Read the SEC’s FAQ.

We hope you have found this information helpful. Please don’t hesitate to contact us with any questions you might have. As always, we are here to help.

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