Registered investment advisors will be required to report additional information about their separately managed accounts (SMAs) to the Securities and Exchange Commission and be subject to other additional disclosure and recordkeeping requirements starting in October 2017, the SEC announced recently.
Reporting more information about SMAs is designed to allow the SEC to establish a database of risk-based information about SMAs, while the new recordkeeping requirements could assist the SEC in reducing the incidence of misleading or fraudulent advertising and communications by advisors, says the SEC.
Different levels of reporting on advertising and client communications will be required for different sized firms and will fall heaviest on those with regulatory assets under management of over $10 billion, but will also impact those with between $500 million and $10 billion, says Tim Silva, partner and chair of WilmerHale’s investment management practice. WilmerHale is an international law firm recognized for its securities and regulatory practices.
“These amendments are an important step in a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry,” says SEC Chair Mary Jo White. “Requiring investment advisors to report this additional information will provide investors and the commission with a better understanding of the risk profile of each advisor and the industry as a whole.”
The amendments to Form ADV will require advisors to provide additional information regarding their separately managed account business, including aggregate data related to the types of assets held by the SMAs, as well as the use of borrowings and derivatives.
Other amendments were adopted to require information about other aspects of their advisory business, including branch office operations and the use of social media, and to facilitate streamlined registration and reporting for groups of private fund advisors operating a single advisory business, the SEC says. In addition, advisors will be required to maintain additional records of the calculation and distribution of performance information.
Form ADV will be expanded to accommodate the additional reporting, Silva says. Smaller firms are exempt from some of the new requirements, while mid-sized will have an annual reporting obligation, and large firms will have to report twice a year. Investment advisors with a Dec. 31 fiscal yearend will be required to first provide the new information at the time of their annual Form ADV amendment in March 2018.
“What the SEC is trying to accomplish is to have the same level of data on SMAs as on other types of accounts,” he says.