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Regulation and Compliance > Federal Regulation > SEC

SEC Mulls Adding SMA Info to Form ADV

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The Securities and Exchange Commission is mulling requiring advisors to include more information about their practices — like separately managed accounts — in their Form ADV to help the agency determine which firms to examine, David Grim, acting director of the agency’s Division of Investment Management, said Friday.

The IM division has been reviewing the types of information filed by investment advisors on Form ADV and Form PF regarding private fund advisors and “considering whether there is additional information that would be useful for risk assessment purposes,” Grim told compliance officers at the Investment Adviser Association’s compliance conference in Arlington, Virginia, just outside Washington.

Karen Barr, president and CEO of IAA, says IAA foresees “a number of significant changes coming to Form ADV.”

While SEC staff has been working on changes to make the form work better for private fund advisors, more recently, Barr says, the SEC ”may be exploring whether to add information about use of leverage and securities lending,” and “may also be considering whether to require advisors to break down various answers based on type of account (pooled vehicles vs. separate account).”

IAA, Barr says, has also asked SEC staff to consider “clarifying some of the confusing questions in the custody section” of Form ADV.

The SEC told lawmakers last August that the agency is using the information it has gleaned from Form PF in its examinations and enforcement efforts regarding private fund advisors, including hedge funds, and plans to “enhance” how it uses the data.

Such review is part of SEC Chairwoman Mary Jo White’s mission to enhance risk monitoring and regulatory safeguards for the asset management industry, Grim said, stating that IM staff has been not only been analyzing ways to enhance the Commission’s registration and regulatory and examination program, but also to “improve the usefulness of Form ADV for prospective and current advisory clients, and increase the effectiveness by which advisors report information” to the Commission.

Information about separately managed accounts, for instance, “is an area where further information may be useful,” Grim said. “Collecting more data on separately managed accounts, where the advisor manages assets on behalf of a particular client, may also better inform the Commission about the totality of the advisory industry and inform examination priorities and the assessment of the risks associated with those accounts, which are a significant portion of the business of many investment advisors.”

Requiring advisors to disclose more information about their businesses on Forms ADV and PF will assist “risk profiling” for exams, enhance the staff’s “overall understanding of asset management activities, and allow advisory clients and potential advisory clients to make more informed decisions about the selection and retention of investment advisors,” Grim said.

Grim noted changes to Form ADV that the agency has made over the years, citing that in 2010, Part 2 of Form ADV was amended and divided into two sections, Parts 2A and B.

Part 2A requires an advisor to prepare a narrative “brochure” that includes information about the advisor’s business practices, investment strategies, fees, conflicts of interest and disciplinary information, while Part 2B is the “brochure supplement” that contains information about each advisory employee, including educational background and business experience, among other things.

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