SEC’s Passes New Rule Requiring Additional Information from Investment Advisers on the Form ADV

September 12, 2016

The United States Securities and Exchange Commission (“SEC”) recently announced changes to the Form ADV used by investment adviser firms to register with the SEC and state securities regulators. Two changes are of particular note. First, investment adviser firms will now be required to disclose all social media platforms the firm uses for business purposes, such as pages on Facebook, Twitter, or LinkedIn. In the event of a regulatory exam, investment adviser firms should also be prepared to produce records related to the content of those sites at any given point in time. The SEC rule does not require investment adviser firms to provide information about personal social media accounts held by employees or about social media sites whose content is generated by third parties and not controlled by the investment adviser. It is important to remember, however, that client communications made by the investment adviser firm’s employees on a personal account would still be subject to other applicable record keeping requirements, such as those relating to performance claims or solicitation. Click here to read the SEC rule release detailing the new requirements.

Second, the new rule will require investment advisers to “make and keep supporting documentation that demonstrates performance calculations or rates of return in any written communications that the adviser circulates or distributes, directly or indirectly, to any person.” Maintaining records related to performance claims and rates of return will make it easier for the SEC to ensure that investors are receiving truthful and accurate information about how an investment or investment model is performing. In the event of a dispute, these records can also help investment adviser firms defend against allegations of spreading false or inflated performance claims. Thirteen investment adviser firms recently ran afoul of the SEC for spreading false performance claims, allegedly relying on claims made by a third party money manager without conducting due diligence that would have uncovered their false and inflated nature. Click here to read our blog post on those recent enforcement actions.

In addition to the above discussed changes, the SEC rule also expands the reporting requirements of an investment adviser firm for branch offices, requiring information on all branches where advisory services take place, as well as detailed information on the largest 25 branches. Investment adviser firms will also have to disclose more information about their separately managed accounts, including the types of assets held and the use in those accounts, if any, of derivatives and borrowings.

These new requirements will go into effect October 2017, but it’s not too early to begin planning your compliance strategy. RIA Compliance Consultants can help your investment adviser firm evaluate and update your Form ADV disclosures to comply with these new requirements.

 

Posted by Bryan Hill
Labels: ADV Annual Offer Letter, ADV Part 2, SEC, Uncategorized