More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
As our readers know, I spend a great deal of my time traveling the country preparing advisory firms for SEC regulatory examinations. One of the issues on the exam, Form 13F, is too often misunderstood, leaving many firms in violation of regulatory filing requirements. So what is Form 13F, and to whom does its reporting obligations apply?
In short, Form 13F is a quarterly report of equity holdings by investment advisors who maintain discretionary authority over $100 million or more of exchange-listed equity securities. The SEC describes Form 13F as follows:
Institutional investment managers must use Form 13F for reports to the Commission required by Section 13(f) of the Securities Exchange Act of 1934 and Rule 13f-1 thereunder. Rule 13f-1(a) provides that every manager who exercises investment discretion with respect to accounts holding Section 13(f) securities, as defined in Rule 13f-1(c), having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100 million shall file a report on Form 13F with the Commission within 45 days after the last day of such calendar year and within 45 days after the last day of each of the first three calendar quarters of the subsequent calendar year.
Except for the initial filing, 13F filings are due 45 days after the end of each quarter. If the date falls on a weekend or holiday it is typically pushed forward to the first business day thereafter. For example, the Dec. 31 13F report is due on Feb. 14.
There have been recent changes to the 13F filing format. Previously, 13F filings were made in Notepad. Beginning with the second quarter of 2013, filings were required to be made in .xml format. Cover sheet information is now filed online through the EDGAR system. We have found the easiest paper format for 13F is now to begin with an Excel spreadsheet; however, you cannot simply save the file in an .xml format. Instead, you have to use the .xml map to convert the data and save the table information prior to filing. Our firm makes a substantial number of 13F filings for our advisory clients. From our recent experience, we know that it is currently difficult to get a response from EDGAR technical support. EDGAR, which stands for the Electronic Data Gathering, Analysis and Retrieval system, performs automated collection, validation, indexing, acceptance and forwarding of submissions by those who are required by law to file forms with the SEC.
Are registered investment advisors considered institutional managers? Yes, an institutional manager generally includes an individual or entity who maintains discretionary investment authority over the account of any other natural person or entity: That includes investment advisors, banks, insurance companies, broker-dealers, pension funds and corporations.
“Just stocks?” “It doesn’t include exchange-traded funds?” Those retorts are too often heard. Yes, Form 13F just covers stocks—if by stocks you mean equity securities that trade on an exchange. Attention advisors: Exchange-traded funds are equity securities, as are closed-end mutual funds and MLPs that trade on a listed exchange (NYSE and NASDAQ). However, Form 13F only requires the reporting of long positions. Short positions are not required to be reported.
Form 13F requires disclosure of the names of the registered investment advisor, the names and class of the securities they manage, the CUSIP number, the number of shares owned and the total market value of each security. The securities that institutional investment managers must report on Form 13F are found on what is known as the Official List of Section 13(f) Securities. The Official List is updated and published quarterly and is available for free on the SEC’s website. You can learn more about the parameters for Form 13F filings by accessing Frequently Asked Questions About Form 13F published by the SEC’s Division of Investment Management.