Wednesday, August 2, 2017

Form ADV Part 1 Update for October 1, 2017

On October 1, 2017 the United States Securities and Exchange Commission (the “SEC”) new rules for the Form ADV 1 will go into effect. Registered investment advisors (“Advisors”) submitting any new filings on or after October 1, 2017, will need to utilize the new Form ADV 1 and provide additional information as applicable. The main areas of focus that the Form ADV 1 updates impact are in Item 1 - Identifying Information and Item 5 - Information about Your Advisory Business.

Direct update:

Item 1 now requires disclosure of:

  1. all offices where the Advisor conducts business;
  2. Any outside business activities of the Chief Compliance Officer;
  3. Direct links for each social media account where the Advisor controls the content; and
  4. The Central Index Key numbers (CIK) and Central Registration Depository numbers (CRD).

Item 5 updates affect Advisors who utilize separately managed accounts (“SAM”) and offer a wrap fee program, and now requires:

  1. Breakdown of SAM assets to assets under management (“AUM”) disclosed on the Schedule D*
  2. Disclosure of SAM usage of borrowing and derivative transactions
  3. A drill down to disclosing AUM; and
  4. A breakdown of total AUM as it applies to the following clients:
    • Not residing in the United States.
    • Who participate in a wrap fee program.
    • Clients who have SAMs.
    • Identify the custodians with at least ten percent of SAM AUM.

*Based off your fiscal year end, if the AUM is $10 billion or higher the advisor is now required to file both a mid-year and end of year breakdown or if you have less than $10 billion in AUM you only have to update these figures annually.

The Form ADV 1 has added a Schedule R for umbrella registrations for private fund advisors that operate a single advisory business through multiple legal entities. While this is not required the Schedule R should simplify the process for private fund advisors. To file an umbrella registration, the advisor must be located in the United States and only advise private funds and qualified clients in separately managed accounts.

Most Advisors will not have to use the new Form ADV 1 until their renewal filing in 2018 and AdvisorAssist will be collecting this information through our renewal questionnaires. However, if an Advisor requires an “Other than Annual” filing be done after October 1, 2017, please contact your consultant and they will collect these additional items for your filing. To prepare for the implementation of these rule updates for the October 1, 2017 compliance date, AdvisorAssist recommends the best practices of:

  1. Review SAMs to ensure that the amount of assets being held, types of assets held, and the use of derivatives and borrowings in the accounts is easily reportable.
  2. Perform an annual review of custodians for SAMs to ensure you can identify the accounts and AUM with each custodian.
  3. If you operate a single advisory business through multiple legal entities, review whether an umbrella registration is best for your business.
  4. Start tracking and reviewing the additional identifying information, including CIK and CRD numbers that will be required on the Form ADV 1.
  5. Prepare and maintain comprehensive records supporting performance and rate of return calculations.
  6. Perform an annual review of the advisor’s books and records archive to ensure you are keeping the required documentation for the required duration.
For more information about the new rules, please see our blog post and the SEC summary of changes.

Evan Barrows
Brendan Furey
Conor Anderson


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