IAA Associate General Counsel Monique Botkin says the biggest amendments to Form ADV Part 1 fall under the form’s revised Item 5 and related disclosure in new Section 5.K of Schedule D.
Botkin says the new changes require advisory firms to:
- Report the number of clients in the listed categories, rather than the percentage of total clients in the listed categories, and the percent of assets under management in the aggregate for each client category.
- Identify SMA assets under management, which is all client AUM except that of registered investment companies, BDCs and pooled investment vehicles, and report borrowings and derivatives exposure for these in the aggregate. Firms with smaller accounts must keep in mind they have an option to exclude AUM of separately managed accounts with less than $10 million in AUM from this reporting of borrowings and derivatives.
- Identify and report the percentage of AUM in the categories of asset types held in the client SMAs. In other words, the form will show the percentage of the types of investments (equity, fixed income, mutual funds, derivatives, “other,” etc.) that advisors are investing in for their clients.
“In general, the form permits firms to use their own internal (or service provider) methodology, as long as it is consistently used in reporting to current and prospective clients,” Botkin explains.