Rule Change Updates

The Securities and Exchange Commission (SEC) has adopted amendments to Form ADV and the Investment Advisors Act of 1940 that are effective October 31, 2016. The changes will provide additional information and fill existing data gaps, which will assist both investors and regulators in better understanding the advisor’s business.

Form ADV Changes

Among the changes that are Included in the changes to Form ADV are the following:

  • Additional information about separately managed accounts or private funds held by the advisor. Information that must be provided includes the types of assets held and any use of derivatives and borrowing in these accounts.
  • The requirement to identify all social media platforms with which an advisor has account, such as those on Twitter, Facebook and LinkedIn, along with the address of each of the advisor’s websites. This information is intended to help regulatory examiners compare and monitor information about the advisor disseminated across different platforms and provide investors more opportunity to learn about the advisor.
  • The requirement for advisors to specify the total number of offices at which they conduct investment advisory business and provide specific information about their 25 largest offices.
  • The requirement to report the number of clients and amount of assets under management attributable to each category of clients in the business of an advisor.
  • The requirement for advisors with assets of $1 billion or more to report their assets within three ranges: 1) $1 billion to less than $10 billion; 2) $10 billion to less than $5 billion; and 3) $50 billion or more. As required by Dodd-Frank, this detail is for use in monitoring incentive based compensation arrangements.
  • The requirement for the advisor to report whether its chief compliance office is compensated by or employed by other advisors. This disclosure is intended to allow regulators to monitor the effectiveness and risk of outsourcing the compliance function.

Amendments to the Books and Records Rule of the Investment Advisors Act of 1940

The new amendments to the books and records rule, Rule 204-2 of the Investment Advisors Act of 1940, require advisors to make and keep all supporting documentation that the advisor has used to demonstrate performance or rates of return in any written communication circulated or distributed. This rule also requires advisors to maintain originals of all written communications they receive or that they send that are related to performance or rate of return of managed accounts or securities recommendations.

The purpose of these additional recordkeeping requirements is to improve investor protection from fraudulent performance claims.

Knopman Marks Keeps You Informed

Series 63, 65 and 66 exams may include questions on these reforms. For more detail see https://www.federalregister.gov/documents/2016/09/01/2016-20832/form-adv-and-investment-advisers-act-rules.

We invite you to stay in touch for regular updates from Knopman Marks, and thank you for checking out our blog!

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Written by Marcia Larson
Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.