SEC ratchets up Form ADV requirements

As a part of amended rules, private equity fund managers will be required to disclose separately managed accounts, the location of their largest offices, and the addresses of any social media accounts.

The Securities and Exchange Commission has made amendments to the Investment Advisers Act rules and Form ADV, the registration and reporting form that investment advisors are required to update annually.

Under the new rules, investment advisors, including private equity managers, will be required to disclose more information on the Form ADV, including the details of any separately managed accounts, the location of branch offices and the addresses of any social media accounts.

“Requiring investment advisors to report this additional information will provide investors and the commission with a better understanding of the risk profile of each advisor and the industry as a whole,” SEC chairwoman Mary Jo White said in a statement.

The SEC considers a “separately managed account” to be advisory account that is not a pooled investment vehicle, such as a registered investment company, business development company, or private fund. Under the rules, advisors will be required to disclose any regulatory assets under management attributable to separately managed accounts.

The rules, which will also require advisors to provide information on the total number of offices at which they provide investment advisory services, as well as their 25 largest offices in terms of employees, have been amended in order to help the SEC’s examinations staff learn more about an adviser’s business and identify locations to conduct exams, the SEC said.

“Other amendments to Form ADV that we are adopting are designed to improve the depth and quality of information that we collect on investment advisors, facilitate our risk monitoring initiatives and assist our staff in its risk-based examination program,” the SEC said.

In addition, advisors will be required to maintain further records on how they calculate and distribute performance information. “These records will be useful to the Commission’s examinations staff in evaluating advisor performance claim, and could reduce the incidence of misleading or fraudulent advertising and communications by advisers,” the SEC said.

The amendments, which were initially proposed by the SEC in May last year, come into effect 60 days after publication in the Federal Register. Advisors are required to comply with the amendments from October 1 2017.

“The good news is that most advisors, who have fiscal years that end on December 31, will not have to comply with the SEC’s amended rules until March 2018,” Jason Brown, a partner in Ropes & Gray’s private investment funds team, told pfm.