As many of you are aware, the U.S. Securities and Exchange Commission (“SEC”) issued a final rule in August 2016, which significantly expands the information required in Form ADV Part 1. The compliance date for the rule is October 1, 2017, and all investment advisers making Form ADV filings on and after that date will need to include the additional information, as applicable. Below is a summary of the areas in the document that are materially affected.
I want to be sure that you are aware of these changes as this will require some work on your part to be ready to provide the information for Item 5 as part of your annual updating amendment in the first quarter. Please read the information below and work with your portfolio management application provider to determine how you can provide this information. You may want to run the numbers as of 9/30/17 to be sure that you are prepared.
Item 1 – Identifying Information
Item 1F(5) – List the total number of offices, other than principal office (which is referenced Item 1F). In Schedule D for Item 1F, you will be required to include the (i) address, phone and fax number for each location; (ii) number of employees at that location, (iii) other type of business activities performed at this location; and (iv) description of any investment-related business activities conducted from this location.
Item 1I – Check this box if the firm utilizes social media sites (e.g., LinkedIn, Facebook, etc.). In Schedule D for Item 1I, you will be required to list the address of all social media sites utilized by the firm.
Item 5 – Information about Your Advisory Business
Item 5C(1) – Provide the number of clients for whom you do NOT have regulatory assets under management, but provided investment advisory services during the most recent fiscal year.
Item 5D – Provide the number of clients AND the corresponding regulatory assets under management (“RAUM”) (no longer range of clients) for each client type listed below. The type of clients listed are:
(b) High net worth individuals
(c) Banking or thrift institutions
(d) Investment companies
(e) Business development companies
(f) Pooled investment vehicles (other than investment companies and business development companies)
(g) Pension and profit sharing plans (but not the plan participants or government pension plans
(h) Charitable organizations
(i) State or municipal government entities (including government pension plans)
(j) Other investment advisers
(k) Insurance companies
(l) Sovereign wealth funds and foreign official institutions
(m) Corporations or other businesses not listed above
The total RAUM from Item 5D must be consistent with Item 5F where your RAUM are listed as either discretionary or non-discretionary.
Item 5F(3) – Provide the RAUM (reported in 5F(2)) attributable to client who are non-United States persons.
Item 5I(1) – If you participate in a wrap fee program, what is the amount of RAUM attributable to acting as:
(a) sponsor to a wrap fee program
(b) portfolio manager for a wrap fee program
(c) sponsor to and portfolio manager for the same wrap fee program
In Schedule D for Item 5I(1) provide name of sponsor for each wrap program participated in by the firm, including the sponsor’s SEC and CRD numbers.
You are not required to enter anything in Item 5I if your involvement in a wrap fee program is limited to recommending wrap fee programs to your clients.
Item 5J(2) – Indicate whether the AUM reflected in Form ADV Part 2A is calculated differently than the RAUM reported in Form ADV Part 1.
Item 5K(1) – Indicate whether you have RAUM attributable to clients other than those listed in Item 5D(3)(d)-(f). (This should be a “yes” response.)
In Schedule D for Item 5K(1) complete the chart reflecting the percent of RAUM by asset type for separately managed accounts (SMA) (see definition of SMA below)*. Use the date used to calculate your RAUM for purposes of your annual updating amendment. Below is a list of Asset Types:
(i) Exchange-Traded Equity Securities
(ii) Non Exchange-Traded Equity Securities
(iii) U.S. Government/Agency Bonds
(iv) U.S. State and Local Bonds
(v) Sovereign Bonds
(vi) Investment Grade Corporate Bonds
(vii) Non-Investment Grade Corporate Bonds
(ix) Securities Issued by Registered Investment companies or Business Development Companies
(x) Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies)
(xi) Cash and Cash Equivalents
Item 5K(2) – Indicate whether you engage in borrowing transactions on behalf of any separately managed account clients that you advise. If so, please let me know as there is other information that will need to be provided.
Item 5K(3) – Indicate whether you engage in derivative transactions on behalf of any of the separately managed account clients that you advise. If so, please let me know as there is other information that will need to be provided.
Item 5K(4) – Indicate whether any custodian holds 10% or more of SMA RAUM.
Report RAUM attributable to clients other than those listed in Item 5D(3)(d)-(f) (see list above) (separately managed accounts).
* A separately managed account (SAM) is defined as advisory accounts other than pooled investment vehicles (e.g., registered investment companies, business development companies and private funds). Based on this definition it is my understanding that an SAM is a mutual fund, ETF, and individual stocks.
In Schedule D for Item 5K(4) provide the following information for any custodian that holds 10% or more of your aggregate SMA RAUM.
(a) Legal name of custodian
(b) Primary business name of custodian
(c) Location of custodian’s office(s) responsible for custody of the assets (city, state, country)
(d) Is custodian a related person of the firm?
(e) If the custodian is a broker-dealer, provide its SEC registration number
(f) If the custodian is not a broker-dealer, or does not have an SEC registration number, provide its legal entity identifier
(g) Provide the RAUM attributable to separately managed accounts held at the custodian