On May 20th, the Securities and Exchange Commission (the “SEC”) proposed amendments to Form ADV, Part 1A and the related instructions and glossary (collectively, “Form ADV”).  Jesse Kanach and Shawn Durrani of Perkins Coie’s Washington D.C. office have prepared the attached documents, which show what Form ADV would look like, if the SEC adopted all of these recently proposed changes.

View the proposed changes to the Glossary Instructions Form ADV.

View the proposed changes to Part 1A of Form ADV.

In summary, the changes are being proposed in order to:

1) Fill certain data gaps and enhance current reporting requirements in respect of “separately managed accounts,” including pension plans, endowments, foundations, other institutional clients and retail clients.  Advisers would be required to provide information on regulatory assets under management, investments and use of derivatives and borrowings.  This aspect of the proposal, which will be analyzed under a separate posting, closely mirrors similar requirements under existing Form PF.  The SEC has also proposed changes that would require advisers to provide information about the use of social media and whether the adviser has offices other than its principal office;

2) Incorporate “umbrella registration” for private fund advisers that use multiple legal entities, instead of a single advisory business.  These changes are intended to make the availability of umbrella registration more widely known to advisers.  Additionally, the SEC intends for the changes to provide for uniform filing requirements, more consistent data, and greater comparability across private fund advisers; and

3) Make clarifying, technical and other amendments to existing items and instructions with an ultimate goal of making Form ADV easier to understand and complete.

In addition to the Form ADV changes, the SEC has proposed several amendments to rules that it promulgated under the Investment Advisers Act of 1940 (the “Advsiers Act”).  In particular, the SEC has proposed changes to paragraphs 2(a)(16) and 2(a)(7) of Advisers Act Rule 204-2 (the “books and records rule”) that would require advisers to maintain additional materials related to the calculation and distribution of performance information.  The following is a summary of these proposed rule changes:

1) Rule 204-2(a)(16) currently requires advisers to maintain records supporting performance claims in communications that are distributed or calculated to ten or more persons.  The proposed changes to paragraph 2(a)(16) would remove the ten or more persons condition and require advisers to maintain the materials that demonstrate the calculation of the performance or rate of return in any communication to any person (i.e., regardless of whether it is sent to ten or more persons or a single person).

2) Rule 204-2(a)(7) currently requires advisers to maintain certain categories of written communications received and copies of written communications sent by it.  The proposed changes would clarify that this recordkeeping requirement applies to that relate to the performance or rate of return of any or all managed accounts or securities recommendations.

As observed by the SEC in the proposing release, most advisers already maintain the information required as a result of the proposed changes to paragraphs 2(a)(16) and 2(a)(7) of the books and records rule.

In addition to these changes, the SEC has proposed the removal Advisers Act Rules 203A-5, 202(a)(11)(G)-1(e), 203-1(e), all of which were added to facilitate Dodd-Frank related transitions that are now complete.  The SEC has also proposed the removal of Advisers Act Rules 203-1(b) and 204-1(c), which were added to facilitate the now-completed transition to the electronic filing of Part 2A of Form ADV.

At the time that this posting was prepared, the related release had not yet been published in the Federal Register.  However, the .PDF version of that release is available from the SEC at this link.

Good day.  Good to see what those Form ADV changes actually look like. DR2