Close Close

Regulation and Compliance > Federal Regulation > SEC

SEC Proposes Significant Changes to Form ADV Part 1

Your article was successfully shared with the contacts you provided.

Just when you thought it was safe to go outdoors, the Securities and Exchange Commission strikes again. This time, it wants more information on Form ADV. On May 20, the SEC published Release No. IA-4091 proposing amendments to Form ADV Part 1. The proposed changes would impact the way RIAs report their clients’ assets, and require additional information about firm operations.


The proposed updated Form ADV Part 1 seeks additional information about what the SEC calls separately managed accounts. In common parlance, the term separately managed account or SMA may apply to different types of investment vehicles or platforms. It is therefore critical to note that for the purposes of Form ADV Part 1, the SEC defines an SMA as “advisory accounts other than those that are pooled investment vehicles (i.e., registered investment companies, business development companies and pooled investment vehicles that are not investment companies).”

The proposed amended Form ADV Part 1 Item 5 will require additional information about SMA assets, which the proposed amended form defines as accounts containing regulatory assets under an RIA’s management attributable to the following types of clients:

— Individuals, including HNW

— Banking or thrift institutions

— Pension and profit sharing plans (but not participants or government pensions)

— Charitable organizations

— Corporations or other businesses not listed above

— State or municipal government entities (including government pension plans)

— Other investment advisors

— Insurance companies

— Sovereign wealth funds and foreign official institutions

— Any other type of client besides investment companies, business development companies, and pension and profit sharing plans

Given the wide range of accounts that would constitute SMAs under this definition, most advisors will now be required to respond to additional questions about SMA assets on Form ADV Part 1 Item 5.K and the corresponding section of Schedule D. Most notably, advisors would be required to list the relative percentages of SMA assets under management allocated among investments like ETFs, mutual funds, various types of bonds and securities issued by pooled investment vehicles.

SIGNIFICANT CHANGES In Social Media Reporting

Form ADV Part 1 Item 1.I currently requires an advisory firm to identify its website. The proposed amendment would require an advisor to include any social media platforms it uses. This will not only make it easier for SEC examiners to locate and scrutinize online RIA advertisements, but could have a profound effect upon advisory firms whose representatives are using social media to advertise on behalf of the RIA without properly notifying management.

Further, a proposed amendment to Item 1.J would require an advisor to report whether its chief compliance officer is employed as a CCO by any other person or entity. If so, the firm would be required to report the name and IRS employer identification number (if any) of the other entity for which the CCO also serves in that capacity. This change is consistent with recent SEC concerns that the CCO role be “top down,” such that the CCO should be involved in all management decisions and maintain a firm grasp on day-to-day operations.

Ostensibly, the SEC is concerned that a CCO may not be able to adequately perform her or his duties to the advisor if she or he is required to perform similar functions for other firms. I endorse this proposed change. I have long counseled against the “rent-a-CCO.” It has been my long-stated position that the CCO should be a “supervised” person who is a member of senior management. To do otherwise will expose the firm to greater scrutiny during an examination and potentially greater liability during a client-related arbitration or lawsuit.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.