SEC Proposes New Rules for Investment Advisers

Just as investment advisers are adjusting to their new Dodd-Frank compliance obligations, the Securities and Exchange Commission (SEC) has proposed new reporting and disclosure requirements.

The rule proposal, which was unveiled on May 20, 2015, includes several amendments to Form ADV as well as new reporting requirements for statements of the investment advisers performance.

According to the SEC’s press statement, the new rules would “enhance the quality of information available to investors and would allow the Commission to more effectively collect and use data provided by investment companies and investment advisers.” The agency also proposed new data reporting for mutual funds, exchange-traded funds (ETFs), and other registered investment companies.

Proposed Changes to Form ADV

The SEC’s rule proposal includes several changes to Form ADV, which must be filed annually with the agency by registered investment advisers. Below is a brief summary of the proposed amendments:

• Separately managed accounts: The new requirements would require aggregate information related to assets held and use of borrowings and derivatives in separately managed accounts. The extent of the information required would depend on the adviser’s total regulatory assets under management (RAUM) attributable to SMAs.
• Umbrella registration: The changes to Form ADV would formalize the SEC’s previous guidance regarding umbrella registration under which related private fund advisers operating as a single advisory business may register with the SEC using one Form ADV. The criteria established in the proposed rules are essentially the same as those articulated in a 2012 ABA No Action Letter.
• Additional advisory business information: The proposal would require registered advisers to submit additional information in a number of areas, including social media use, total number of office locations, employment of chief compliance officer, and balance sheet assets.

Proposed Changes to Advisers Act Recordkeeping Obligations

Rule 204-2(a)(16) currently requires registered advisers to maintain documentation for communications regarding performance that are distributed or circulated to ten or more persons. The proposed amendment makes the requirement applicable to all performance-related communications, even those provided to one single person.

The proposed amendments also would also expand the record-keeping obligations of registered advisers. Under the rule proposal, advisers must maintain originals of all written communications received and copies of written communications sent “related to performance or rate of return of accounts and securities recommendations.”

Comments on the proposed amendments must be submitted to the SEC no later than 60 days after their publication in the Federal Register.