Newly-Adopted SEC Amendments Require Increased Recordkeeping Obligations for Investment Advisers

On August 25, 2016, the Securities and Exchange Commission (SEC) issued Release No. IA-4509 which adopted amendments that impact Form ADV requirements and various Investment Advisers Act rules. These amendments require additional, enhanced information relating to investment advisers’ separately managed accounts (SMAs), make clarifying and technical changes for other Form ADV items, and increase recordkeeping obligations for investment advisers.

Form ADV is used by investment advisers to register with both the SEC and state securities authorities. The amendments to Form ADV primarily surround the disclosures and transparency related to separately managed accounts. The amendments require more in depth disclosures for borrowings, the usage of derivatives, asset allocation within SMAs, the use of social media, and level of information available for adviser office locations outside of the primary headquarters. For a full listing of amendments made to Form ADV, please refer to the Commission’s website.

The SEC believes these enhancements will improve the depth and quality of information collected and facilitate their risk monitoring initiatives. In addition, current and prospective clients may use this information to learn more about investment advisers and make more informed decisions regarding the selection of investment advisors.

Separate from Form ADV, the SEC is adopting two amendments to the Investment Advisers Act books and records rule, specifically rule 204-2(a)(16) and Rule 204-2(a)(7). These amendments increase the recordkeeping requirements for investment advisers surrounding investor performance materials and forms of written communication. Investment advisers were previously required to be registered with the SEC and maintain records of distributed performance materials when circulated to 10 or more parties. The amended Rule 204-1(a)(16) removes the 10 party requirement and mandates that investment advisers maintain these materials for all instances of distribution. Materials in scope were previously set forth as a requirement within Rule 204-2(a)(16), and will remain unchanged. In addition to the amended rule removing the 10 party requirement, the amended Rule 204-2(a)(7) requires the investment adviser to maintain all written communications received and sent relating to the performance or rate of return of any or all managed accounts or securities recommendations in their original form.

The SEC believes these records will be useful in examining and evaluating adviser performance claims. Investors will benefit to the extent that the amendments reduce the incidence of misleading or fraudulent advertising and communications.

The SEC also adopted amendments to remove rules relating to transitionary periods for exemption periods that have already passed but were not previously amended.

The effective date for the aforementioned rule changes will be 60 days after publication in the Federal Register. Advisers will need to be in compliance with these amendments by October 1, 2017.

We would be pleased to provide further information related to this subject. For more information, contact Eric Levandowski, Senior Accountant, Audit & Accounting at

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