SEC’s Proposed Changes to Form ADV: Time for RIAs to Prepare?

As the Securities and Exchange Commission finalizes new compliance rules, registered investment advisers can get ready by taking stock of their reporting systems.


For registered investment advisers, it could be an opportunity to get ahead of the game. In May the Securities and Exchange Commission published Release No. IA-4091, which includes proposed amendments to Part I of Form ADV, the document that investment advisers use to register with the SEC and state regulators. The comment period ended on August 11, and RIAs must now wait to learn which new rules the agency will adopt.

The release contains many potential changes that would require information from RIAs on everything from separately managed accounts to social media use and outsourced chief compliance officers. According to Karen Barr, president and CEO of the Investment Adviser Association industry group, the SEC received numerous comments, including detailed feedback from the Washington-based IAA. Barr doesn’t expect the agency to issue final regulations until early next year, but it could force affected firms to make big changes.

“If the proposals go through as is, advisers are going to have to modify their systems to capture the [required] information in a way that they haven’t captured it before,” she says. “There will be an expenditure of time and resources to put systems in place to be able to report on this information.”

So far, the SEC proposal hasn’t been met with urgency by chief compliance officers at RIAs, who are reluctant to comment publicly. Although CCOs know about the potential changes, they don’t seem to have started planning to accommodate them. That’s understandable, Barr says: Given that these officers are busy dealing with current regulations, waiting to see the proposal’s final form makes sense.

Still, the release gives a good indication of the SEC’s thinking and the changes that RIAs will probably face when the revised Form ADV appears. The waiting period gives them a chance to assess how their compliance-related data are stored and retrieved, says Melissa Wheeler, senior principal consultant with ACA Compliance Group in San Francisco.

For example, a firm might think about if and how its internal systems capture securities data. “Further, it may wish to assess what additional manipulation may need to happen to respond to categories of assets defined by the SEC, rather than using internal guidelines,” Wheeler tells Institutional Investor.


Compliance requests for externally stored data will probably involve third parties like custodians. That will mean deciding who can best access the required data: the custodian, the administrator or the RIA. “When determining that certain information may be maintained at a third party, the adviser should get a sense of how quickly the third party can provide responses,” Wheeler explains. “It’s important to understand where all data are coming from and the time frame it is provided in order to file Form ADV in an accurate and timely manner.”

One of the SEC’s main goals with the proposed changes is to collect information from RIAs about their separately managed accounts, according to Linda Smith, New York–based managing director with SEC Compliance Consultants. In its release the SEC points out that 73 percent of RIAs recently reported assets under management attributable to SMAs. The agency collects voluminous information about private investment funds through its Form PF but not information on SMAs, Smith notes.

The SEC proposal includes multiple new potential disclosures related to SMAs, among them a breakdown of asset categories held, Smith says. That would mean calculating the percentage of SMA assets under management in ten categories such as exchange-traded equities and U.S. Treasuries. All advisers would report the percentage of SMA assets held in derivatives, though details would depend on the amounts managed and kept in such accounts. The proposed data on derivatives and borrowings are similar to those reported on Form PF. RIAs would also have to supply information about SMA custodians that account for at least 10 percent of assets under management.

The new data go beyond client accounts, Smith says: Social media activity would also face extra scrutiny. Whereas current rules request only their web sites, RIAs would have to name all of the social media platforms they use, such as Facebook, LinkedIn and Twitter.

Another new disclosure is whether a firm outsources its CCO role. The proposal’s text appears to show an SEC bias against CCO outsourcing: “Our examination staff has observed a wide spectrum of both quality and effectiveness of outsourced chief compliance officers and firms.”

RIAs should get ready to reveal more about themselves, experts say. “Providing enhanced information on SMAs is, in our view, inevitable,” Smith asserts. “Also, in light of the enhanced disclosure requested on social media, advisers should be updating their social media policies and procedures.”