Revised Form ADV requires much more data from advisers

Securities and Exchange Commission steps up information collection to augment risk analysis

Aug 1, 2017 @ 1:48 pm

By Mark Schoeff Jr.

Registered investment advisers will have to provide more client account data and social media information in a revised Securities and Exchange Commission registration form that will go into effect this fall.

The changes were promulgated in a regulation approved last year designed to increase the amount of data the SEC collects so it can better monitor potential systemic market risks. As of Oct. 1, advisers must provide information in several areas, including regulatory assets under management attributable to various client types, wrap-fee programs and separately managed accounts. They also must indicate whether they use an outsourced chief compliance officer, disclose firm social media pages and give details about their 25 largest branch offices.

The changes to Form ADV will be the biggest since the document was revised in 2010 to require a narrative overview of an adviser's practice rather than a check-the-box description, according to G.J. King, president of RIA in a Box, a compliance and software consulting firm.

"This really does impact every RIA firm in some way," Mr. King said. "They're going to have to gather data that they may not have readily available today. Most firms haven't been thinking about this."

The additional data will be required any time an RIA changes its Form ADV after Oct. 1. Most advisers will feel the impact during their annual ADV update in the first quarter of 2018.

"These changes represent a significant amount of additional data going to the SEC," said Karen Barr, president and chief executive of the Investment Adviser Association. "It will require a significant amount of work to put systems in place to capture the ... information in exactly the way the SEC is asking for it."

Advisers whose business hasn't changed much since they last filed an ADV — or who are simply changing an office address — could find that they're in for more than a quick update.

"It becomes a two-hour filing process instead of 10 minutes," said Steven Thomas, chief operating officer at Wealth Financial Advisory Services.

One reason the SEC is drawing additional data from the more than 12,000 registered investment advisers, who have $70.7 trillion in AUM, according to the latest IAA survey, is to zero in on those who should be examined and in what areas.

In a recent appearance at a U.S. Chamber of Commerce event in Washington, SEC Chairman Jay Clayton said the agency is not requesting from Congress an increase in its $1.6 billion budget and instead is "using data in a more effective way to target exams."

That effort starts at registration.

"They want to get as much information upfront on the ADV as they can," said Mr. Thomas, a former South Dakota securities examiner. "These are data points on the risk profile to rank which firms are going to get the audit."

For example, advisers will have to list the addresses for their homepages, Twitter, Facebook, LinkedIn and other accounts, giving the SEC an easy way to track what advisers are posting.

"It's an acknowledgment that that's a factor they use in assessing risk," said Ken Berman, a partner at Debevoise & Plimpton.

Now the agency doesn't have to laboriously Google advisers' online activity.

"Instead of looking at them one-by-one, which is quite inefficient and time-consuming, the SEC will likely over time be able to pull all this information into one master database," Mr. King said. The agency could then search by keywords, products and other criteria.

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