SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279 

Release No. IA-4509; File No. S7-09-15

RIN 3235-AL75

Form ADV and Investment Advisers Act Rules 

AGENCY: Securities and Exchange Commission

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (the “Commission” or “SEC”) 

is adopting amendments to Form ADV that are designed to provide additional 

information regarding advisers, including information about their separately managed 

account business, incorporate a method for private fund adviser entities operating a single 

advisory business to register using a single Form ADV, and make clarifying, technical 

and other amendments to certain Form ADV items and instructions. The Commission 

also is adopting amendments to the Advisers Act books and records rule and technical 

amendments to several Advisers Act rules to remove transition provisions that are no 

longer necessary.

DATES: Effective [Insert date 60 days after the date of publication in the Federal 

Register]. 

Compliance Date: See Section III of this final rule.

FOR FURTHER INFORMATION CONTACT: Bridget D. Farrell, Senior Counsel, 

Jennifer Songer, Senior Counsel, Betselot Zeleke, Attorney-Adviser, or Sara Cortes, 

Assistant Director at (202) 551-6787 or IArules@sec.gov, Investment Adviser Regulation 
2

Office, Division of Investment Management, Securities and Exchange Commission, 100 

F Street, NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 

rules 202(a)(11)(G)-1 [17 CFR 275.202(a)(11)(G)-1], 203-1 [17 CFR 275.203-1], 204-1 

[17 CFR 275.204-1], 204-2 [17 CFR 275.204-2], and 204-3 [17 CFR 275.204-3] under 

the Investment Advisers Act of 1940 [15 U.S.C. 80b] (“Advisers Act” or “Act”),1and 

amendments to Form ADV [17 CFR 279.1] under the Advisers Act. The Commission is 

also rescinding rule 203A-5 [17 CFR 275.203A-5] under the Advisers Act.

TABLE OF CONTENTS

I. BACKGROUND

II. DISCUSSION

A. Amendments to Form ADV

1. Information Regarding Separately Managed Accounts

a. Amendments to Item 5 of Part 1A and Section 5 of 

Schedule D

b. Section 5.K.(1) of Schedule D 

c. Section 5.K.(2) of Schedule D

d. Section 5.K.(3) of Schedule D

e. Public Disclosure of Separately Managed Account 

Information

f. Additional Comments About Reporting of Separately 

Managed Accounts

2. Additional Information Regarding Investment Advisers

a. Additional Identifying Information

b. Additional Information About Advisory Business

c. Additional Information About Financial Industry 

Affiliations and Private Fund Reporting 

3. Umbrella Registration

4. Clarifying, Technical and Other Amendments to Form ADV

a. Amendments to Item 2

b. Amendments to Item 4

 

1

15 U.S.C. 80b. Unless otherwise noted, when we refer to the Advisers Act, or any paragraph of the 

Advisers Act, we are referring to 15 U.S.C. 80b of the United States Code, at which the Advisers 

Act is codified, and when we refer to rules under the Advisers Act, or any paragraph of these 

rules, we are referring to title 17, part 275 of the Code of Federal Regulations [17 CFR 275], in 

which these rules are published. 
3

c. Amendments to Item 7

d. Amendments to Item 8

e. Amendments to Section 9.C. of Schedule D

f. Amendments to Disclosure Reporting Pages

g. Amendments to Instructions and Glossary

B. Amendments to Investment Advisers Act Rules

1. Amendments to Books and Records Rule

2. Technical Amendments to Advisers Act Rules

a. Rule 203A-5

b. Rule 202(a)(11)(G)-1(e)

c. Rule 203-1(e)

d. Rule 203-1(b), Rule 204-1(c) and Rule 204-3(g)

III. EFFECTIVE AND COMPLIANCE DATES

A. Effective Date

B. Compliance Dates

IV. ECONOMIC ANALYSIS

A. Introduction

B. Amendments to Form ADV

1. Economic Baseline and Affected Market Participants

2. Analysis of the Amendments to Form ADV and Alternatives

a. Information Regarding Separately Managed Accounts

b. Additional Information Regarding Investment Advisers

c. Costs Applicable to Reporting Information Regarding 

Separately Managed Accounts and Additional Information 

on Form ADV

d. Umbrella Registration

e. Clarifying, Technical and Other Amendments to Form 

ADV

f. Exempt Reporting Advisers

C. Amendments to Investment Advisers Act Rules

1. Economic Baseline and Affected Market Participants

2. Analysis of the Effects of the Amendments to the Advisers Act 

Books and Records Rule

V. PAPERWORK REDUCTION ACT ANALYSIS

A. Form ADV

1. Changes in Average Burden Estimates

a. Estimated Change in Burden Related to Part 1A 

Amendments (Not Including Private Fund Reporting)

i. Amendments Related to Reporting of Separately 

Managed Account Information

ii. Other Additional Information Regarding Investment 

Advisers

iii. Clarifying, Technical and Other Amendments

b. Estimated Changes in Burden Related to Private Fund 

Reporting Requirements

c. Estimated Changes in Burden Related to Exempt Reporting 

Adviser Reporting Requirements
4

2. Annual Burden Estimates

a. Estimated Annual Burden Applicable to All Registered 

Investment Advisers

i. Estimated Initial Hour Burden (Not Including 

Burden Applicable to Private Funds) For First Year 

Adviser To Complete Form ADV (Part 1 and Part

2)

ii. Estimated Initial Burden Applicable to 

Registered Advisers to Private Funds

iii. Estimated Annual Hour Burden Associated With 

Amendments, New Brochure Supplements, and 

Delivery Obligations

iv. Estimated Annual Cost Burden

b. Estimated Annual Burden Applicable to Exempt Reporting 

Advisers

i. Estimated Initial Hour Burden

ii. Estimated Annual Burden Associated with 

Amendments and Final Filings

3. Total Revised Burden

B. Rule 204-2

VI. FINAL REGULATORY FLEXIBILITY ANALYSIS

A. Need for and Objectives of the Amendments

B. Significant Issues Raised by Public Comments

C. Small Entities Subject to the Rule and Rule Amendments

D. Projected Reporting Recordkeeping, and Other Compliance Requirements

E. Agency Action to Minimize Effect on Small Entities

VII. STATUTORY AUTHORITY

APPENDIX A: FORM ADV: GENERAL INSTRUCTIONS

APPENDIX B: FORM ADV: INSTRUCTIONS FOR PART 1A

APPENDIX C: FORM ADV: GLOSSARY OF TERMS

APPENDIX D: FORM ADV, PART 1A
5

I. BACKGROUND

Form ADV is used by investment advisers to register with the Commission and 

with the states.2 The information collected on Form ADV serves a vital role in our 

regulatory program and our ability to protect investors. On May 20, 2015,3 we proposed 

amendments to Part 1A of Form ADV in three areas: revisions to fill certain data gaps 

and to provide additional information about investment advisers, including their 

separately managed account business; amendments to incorporate a method for private 

fund adviser entities operating a single advisory business to register with us using a single 

Form ADV; and clarifying, technical and other amendments to existing items and 

instructions.4

Several of the amendments to Form ADV relate to separately managed accounts. 

These amendments will require advisers to provide certain aggregate information about 

separately managed accounts that they advise. Other amendments to Form ADV that we 

are adopting are designed to improve the depth and quality of information that we collect 

on investment advisers, facilitate our risk monitoring initiatives and assist our staff in its 

risk-based examination program. Moreover, because Form ADV is available to the 

 

2

Information on Form ADV is available to the public through the Investment Adviser Public 

Disclosure System (“IAPD”), which allows the public to access the most recent Form ADV filing 

made by an investment adviser and is available at http://www.adviserinfo.sec.gov.

3

See Amendments to Form ADV and Investment Advisers Act Rules, Investment Advisers Act 

Release No. 4091 (May 20, 2015) [80 FR 33718 (June 12, 2015)] (“Proposing Release”).

4

In general, this Release discusses the Commission’s rule and form amendments that will affect 

advisers registered with the Commission. We understand that the state securities authorities 

intend to consider similar changes that affect advisers registered with the states, who are also 

required to complete Part 1B of Form ADV as part of their state registrations. 
6

public on our website, these amendments also are intended to provide advisory clients 

and the public additional information regarding registered investment advisers.

We are also adopting amendments to Part 1A that will provide a more efficient 

method for the registration on one Form ADV of multiple private fund adviser entities 

operating a single advisory business (“umbrella registration”). The staff has provided 

guidance to private fund advisers regarding umbrella registration,5and the amendments 

to incorporate umbrella registration into Form ADV will make the availability of 

umbrella registration more widely known to advisers. Uniform filing requirements for 

umbrella registration in Form ADV will provide more consistent data about, and create a 

clearer picture of, groups of private fund advisers that operate as a single business.

The last set of amendments to Part 1A of Form ADV includes clarifying, 

technical and other amendments that are based on our staff’s experience with the form 

and responding to inquiries from advisers and their service providers. These amendments 

should make it easier for advisers to understand and complete the form. 

Separate from Form ADV, we are adopting amendments to several Advisers Act 

rules. First, we are adopting amendments to the books and records rule, rule 204-2, to 

require advisers to make and keep supporting documentation that demonstrates 

performance calculations or rates of return in any written communications that the 

adviser circulates or distributes, directly or indirectly, to any person. Advisers also will 

be required to maintain originals of all written communications received and copies of 

written communications sent by them related to the performance or rate of return of any 

 

5

See American Bar Association, Business Law Section, SEC Staff Letter (Jan. 18, 2012), available 

at http://www.sec.gov/divisions/investment/noaction/2012/aba011812.htm (“2012 ABA Letter”).
7

or all managed accounts or securities recommendations. As discussed in the Proposing 

Release, we believe that these amendments will better protect investors from fraudulent 

performance claims.6 Finally, we are adopting several technical amendments to rules 

under the Advisers Act to remove transition provisions that were adopted in conjunction 

with previous rulemaking initiatives, but that are no longer necessary.

We received 50 comment letters on our proposals, most of which were from 

investment advisers, trade or professional organizations, law firms and consultants.7 

Commenters generally supported the goals of the proposal. The majority of comments 

focused on reporting of separately managed accounts and umbrella registration. Several 

commenters supported collection of information on separately managed account clients, 

but many raised concerns about the public availability of the information and reporting 

on derivatives and borrowings. A diverse group of commenters supported umbrella 

registration. Commenters also generally supported the amendments to certain Advisers 

Act rules. We are adopting the proposed amendments with several modifications to 

address commenters’ concerns. We discuss these modifications and concerns below.

 

6

See Proposing Release, supra footnote 3 at Section I.

7 Comment letters submitted in File No. S7-09-15 are available on the Commission’s website at 

http://www.sec.gov/comments/s7-09-15/s70915.shtml. We also considered those comments 

submitted in File No. S7-08-15 (Investment Company Reporting Modernization, Investment 

Company Act Release No. 9776 (May 20, 2015) [80 FR 33589 (June 12, 2015)]) that addressed 

the amendments adopted in this Release. Those comments are available on the Commission’s 

website at http://www.sec.gov/comments/s7-08-15/s70815.shtml. We also note that in December 

2014, the Financial Stability Oversight Council (“FSOC”) issued a notice requesting comment on 

aspects of the asset management industry, which includes, among other entities, registered 

investment advisers. Although this rulemaking is independent of FSOC, the notice included 

requests for comment on additional data or information that would be helpful to regulators and 

market participants. In response to the notice, several commenters discussed issues concerning 

data that are relevant to this rulemaking, including data regarding separately managed accounts 

that was cited and considered as part of the Proposing Release. 

 
8

II. DISCUSSION

A. Amendments to Form ADV

1. Information Regarding Separately Managed Accounts

Several of the amendments to Form ADV that we are adopting are designed to 

collect more specific information about advisers’ separately managed accounts. For 

purposes of reporting on Form ADV, we consider 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 registered 

(including, but not limited to, private funds)) to be separately managed accounts. As we

discussed in the Proposing Release, we currently collect detailed information about 

pooled investment vehicles that advisers manage, but little specific information about 

separately managed accounts.8 We believe that collecting additional information about 

separately managed accounts will enhance our staff's ability to effectively carry out our 

risk-based examination program and other risk assessment and monitoring activities. We

discuss below the specific separate account reporting requirements. Commenters stated 

that they generally understood our interest in collecting additional data on separately 

managed accounts,9but many raised concerns regarding separately managed account 

reporting as proposed, and we discuss those concerns below. 

 

8

See Proposing Release, supra footnote 3 at Section II.A.1.

9

See, e.g., Comment Letter of Blackrock, Inc. (Aug. 11, 2015) (“BlackRock Letter”); Comment 

Letter of Dechert LLP (Aug. 11, 2015) (“Dechert Letter”); Comment Letter of Investment Adviser 

Association (Aug. 11, 2015) (“IAA Letter”); Comment Letter of Investment Company Institute 

(Aug. 11, 2015) (“ICI Letter”); Comment Letter of Invesco Advisers, Inc. (Aug. 11, 2015) 

(“Invesco Letter”); Comment Letter of LPL Financial LLC (Aug. 11, 2015) (“LPL Letter”); 

Comment Letter of Managed Funds Association (Aug. 11, 2015) (“MFA Letter”); Comment 

Letter of Money Management Institute (Aug. 11, 2015) (“MMI Letter”); Comment Letter of 

Morningstar, Inc. (Aug. 12, 2015) (“Morningstar Letter”); Comment Letter of North American 
9

a. Amendments to Item 5 of Part 1A and Section 5 of Schedule D

Item 5 of Part 1A and Section 5 of Schedule D currently require advisers to 

provide information about their advisory business including percentages of types of 

clients and assets managed for those clients. We had proposed to collect information 

specifically about separately managed accounts, including types of assets held, and the 

use of derivatives and borrowings in the accounts.10 We are adopting the amendments to 

Item 5 of Part 1A and Section 5 of Schedule D largely as proposed, with some 

modifications in response to comments we received, as discussed below. We are 

amending Item 5 of Part 1A and Section 5 of Schedule D to require advisers to provide 

information on an aggregate level regarding separately managed accounts that they 

manage.

11

 Advisers will be required to report information about the types of assets held 

and the use of derivatives and borrowings in separately managed accounts. Advisers that 

report that they have regulatory assets under management attributable to separately 

managed accounts in response to new Item 5.K.(1) of Part 1A will be required to 

complete new Section 5.K.(1) of Schedule D, and may be required to complete new 

Sections 5.K.(2) and 5.K.(3) of Schedule D regarding those accounts. 

 

Securities Administrators Association, Inc. (Aug. 11, 2015) (“NASAA Letter”); Comment Letter 

of National Regulatory Services (Aug. 11, 2015) (“NRS Letter”); Comment Letter of 

OppenheimerFunds, Inc. (Aug. 10, 2015) (“Oppenheimer Letter”); Comment Letter of Charles 

Schwab & Co., Inc. (Aug. 11, 2015) (“Schwab & Co. Letter”); Comment Letter of Securities 

Industry and Financial Markets Association, Asset Management Group and Asset Managers 

Forum (Aug. 11, 2015) (“SIFMA Letter”); Comment Letter of the Systemic Risk Council (Aug. 7, 

2015) (“SRC Letter”); Comment Letter of T. Rowe Price Associates, Inc. (Aug. 11, 2015) (“T. 

Rowe Price Letter”). However, certain commenters expressed their disapproval of the collection

this data. See Comment Letter of The Alternative Investment Management Association Limited 

(Aug. 6, 2015) (“AIMA Letter”) (stating that this data should not be collected unless kept 

confidential).

10 See Proposing Release, supra footnote 3 at Section II.A.1.

11 See infra Section II.A.2.b. for a discussion of other amendments to Item 5 of Part 1A.
10

b. Section 5.K.(1) of Schedule D

In Section 5.K.(1) of Schedule D advisers will be required to report the 

approximate percentage of separately managed account regulatory assets under 

management that are invested in twelve broad asset categories, modified from the ten that 

were proposed in response to comments received and discussed below. As proposed, 

advisers with at least $10 billion in regulatory assets under management attributable to 

separately managed accounts will report, on an annual basis, both mid-year and end of 

year12 percentages while advisers with less than $10 billion in regulatory assets under 

management attributable to separately managed accounts will report only end of year 

percentages. As we stated in the Proposing Release, we believe this information will

allow us to better monitor this segment of the investment advisory industry and identify 

advisers that specialize in particular asset classes.13 We are adopting the amendments to 

Section 5.K.(1) of Schedule D largely as proposed, with some minor modifications in 

response to comments we received, as discussed below.

While some commenters generally supported the collection of this information,14 

others suggested requiring a minimum regulatory assets under management or number of 

account threshold for reporting on this section to minimize burdens on small and mid-

 

12 As stated in Amended Form ADV, Part 1A, Schedule D, Section 5.K.(1), end of year refers to the 

date used by the adviser to calculate its regulatory assets under management, and mid-year is the 

date six months before the end of year date. 

13 See Proposing Release, supra footnote 3 at Section II.A.1.

14 See Schwab & Co. Letter (“We support the SEC’s efforts to collect additional data seeking to 

minimize as much as possible the burden on regulated entities and the investors they service while 

helping the SEC to enhance their ability to conduct risk-based examinations of advisers.”); 

BlackRock Letter (“We believe this information will help the Commission identify which 

managers specialize in SMAs that invest in certain asset classes.”).
11

sized advisers.15 We recognize that this reporting will impose some burden on all 

advisers, including smaller advisers, but we believe that gathering this information for all

registered advisers is important for us to gain a full understanding of assets held in 

separately managed accounts managed by investment advisers of different sizes. This

section requires advisers, on an annual basis, to report aggregate separate account

investments across twelve categories of investments. We believe that requiring all 

advisers to separately managed accounts to report this information will enable us to gain 

a more fulsome picture of assets held in separately managed accounts. We have also 

tailored and limited the scope of information to be reported and the frequency of such 

reporting.

With respect to the categories of investments listed in Section 5.K.(1), we 

proposed to require advisers to report the approximate percentage of separately managed 

account regulatory assets under management invested in ten broad asset categories.16 

Several commenters sought clarification on how to classify assets in certain categories17 

Another commenter suggested new categories, such as “private real estate” and 

“structured products.”18 In response to that commenter's suggestion19 we have included a 

 

15 Comment Letter of Advisor Solutions Group, Inc. (Aug. 11, 2015) (“ASG Letter”); AIMA Letter 

(suggesting that advisers with a small number of separately managed account clients or a small 

amount of separately managed account assets under management be exempt from reporting on 

separately managed accounts). 

16 Proposing Release, supra footnote 3 at Section II.A.1.

17 LPL Letter; MMI Letter. See also Dechert Letter (stating that advisers may not maintain systems 

that permit them to efficiently categorize assets based on asset types in the proposed amendments); 

IAA Letter. 

18 BlackRock Letter. BlackRock also suggested removing “derivatives” as a category, because 

derivatives information for some advisers will be collected in Section 5.K.(2). We have not 

removed “derivatives” as a category, because are collecting different information in Section 

5.K.(2) than in Section 5.K.(1).
12

new category for “Cash and Cash Equivalents.”

20

 We also believe that additional 

delineation of equity securities would be helpful for our staff and the public, and 

accordingly, we have added a “Non-Exchange-Traded Equity Securities” category in 

addition to the “Exchange-Traded Equity Securities” category, to clarify where to report 

equities that are not listed on a regulated securities exchange. This information will assist 

our examination staff in monitoring risks associated with advisers managing separately 

managed account assets in securities that are not exchange traded. 

Some commenters also sought clarification about how to report assets that may be 

classified into multiple categories. 21 Commenters also suggested that advisers be 

permitted to use reasonable and documented systems and methodologies for determining 

appropriate asset categories.22 We acknowledge that some assets may be classified into 

more than one category or require advisers to apply discretion about which category 

applies to a particular asset, and agree that advisers should be permitted to use reasonable 

methodologies in selecting a category in which to report such an asset, but should not 

double count assets. Accordingly, in response to these comments, we are adding an 

 

19 BlackRock Letter; MMI Letter.

20 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)-(b). The text proceeding Section 

5.K.(1) gives examples of cash and cash equivalents, including bank deposits, certificates of 

deposit, bankers’ acceptances, and similar bank instruments. We also added an instruction to the 

text preceding Section 5.K.(1)(a) stating that advisers should round to the nearest percent when 

reporting this information. 

21 Comment Letter of Anonymous (Aug. 11, 2015) (“Anonymous Letter”) (“derivatives” category 

may overlap with others); Comment Letter of JAG Capital Management LLC (June 24, 2015) 

(“JAG Letter”) (convertible bonds, TIPS and ETFs); MMI Letter (convertible bonds, fixed income 

securities, preferred securities); Comment Letter of Professional Compliance Assistance, Inc. 

(Aug. 11, 2015) (“PCA Letter”) (balanced mutual funds). See also IAA Letter (U.S. government 

agency, corporate bonds, other).

22 Dechert Letter; IAA Letter.
13

instruction to Item 5.K.1 that advisers may use their own internal methodologies and the 

conventions of their service providers in determining how to categorize assets, so long as 

their methodologies are consistently applied and consistent with information the advisers 

report internally and to current and prospective clients, but should not double count 

assets. We believe that providing this flexibility, which we modeled after an instruction 

in Form PF, acknowledges that advisers may categorize the same or similar assets 

differently based on different methodologies.

Some commenters expressed concerns about the proposed reporting of "Corporate 

Bonds - Investment Grade" and "Corporate Bonds - Non-Investment Grade," based on 

the proposed definitions of such terms, as they believed that this would require advisers 

to make subjective decisions about how to classify assets and could result in inconsistent 

reporting. These commenters requested that the Commission eliminate the reporting 

requirement, or either provide a more objective definition or permit an adviser to follow 

and rely on the classifications made by another investment adviser.

23 Another 

commenter noted the reference to “liquidity” in the definition and requested that the 

Commission seek a consistent approach to liquidity-related concepts across reporting 

regimes.24 

In response to these comments, we are removing the proposed definitions of these 

terms from Form ADV. Given the instruction we have added permitting advisers to use 

their own consistently applied methodologies to select asset categories, we believe that 

the definitions are no longer necessary. We recognize that an adviser might reasonably 

 

23 LPL Letter; MMI Letter.

24 IAA Letter.
14

categorize the same or similar assets differently from another adviser. Even with such 

differences, we believe that this categorization will provide useful information, 

particularly given the Commission’s intended purpose for requiring such reporting, which 

is to better understand how assets in separately managed accounts are invested across that 

industry, rather than to impose a standard of creditworthiness for such assets.

Other commenters suggested we provide instructions as to whether advisers need 

to look through investments in funds or ETFs, for example, and report the underlying 

asset type.25 With respect to looking through an account's investments in funds, advisers 

should not do so and we have clarified this in the form.26 Advisers should not look 

through investments in funds because we want to understand the extent to which 

separately managed account assets are invested in funds as well as other types of 

investments. 

c. Section 5.K.(2) of Schedule D

We are also adopting amendments to add Section 5.K.(2) of Schedule D to Form 

ADV to require advisers to separately managed accounts to report information regarding

the use of borrowings and derivatives in those accounts with modifications from the 

proposal in response to commenters. These amendments are designed to provide data to 

assist our staff in identifying and monitoring the use of borrowings and derivatives 

exposures in separately managed accounts as part of the staff's risk assessment and 

monitoring programs. Some commenters supported our proposal for the collection of 

 

25 ASG Letter; MMI Letter; NRS Letter; Schwab & Co. Letter.

26 We have added the following sentence to the text preceding Schedule D, Section 5.K.(1)(a): 

“Investments in derivatives, registered investment companies, business development companies,

and pooled investment vehicles should be reported in those categories. Do not report those 

investments based on related or underlying portfolio assets.”
15

that data.27 However, as discussed below, several other commenters expressed concern 

about the proposed reporting thresholds, the public disclosure of certain information,28

the use of gross notional metrics and the burden associated with reporting this 

information. The specific gross notional metrics used in Section 5.K.(2) are “gross 

notional value” and “gross notional exposure,” as proposed. The calculation of gross 

notional exposure includes borrowings and the gross notional value of derivatives. The 

definition of “gross notional value” specifies how derivatives are measured when 

determining an account’s gross notional exposure.29 

One commenter suggested requiring reporting on derivatives only if there is a 

minimum gross notional amount of derivatives.30 Another commenter suggested as an 

alternative requiring derivatives reporting only if the adviser uses leverage as part of its 

investment strategy.31 We disagree with these approaches as they would give us 

information only about a segment of the separately managed account industry that uses 

derivatives or borrowings, and because the line between advisers that use derivatives and 

borrowings strategically and those that do not can be fluid and difficult to define. While 

 

27 NASAA Letter; SRC Letter.

28 We discuss public disclosure of separately managed account information in Section II.A.1.e. 

29 Gross notional exposure of an account is “the percentage obtained by dividing (i) the sum of (a) 

the dollar amount of any borrowings and (b) the gross notional value of all derivatives, by (ii) the 

regulatory assets under management of the account.” Amended Form ADV, Part 1A, Schedule D, 

Item 5.K.(2). Gross notional value is defined in the Glossary to Form ADV as “The gross nominal 

or notional value of all transactions that have been entered into but not yet settled as of the 

reporting date. For contracts with variable nominal or notional principal amounts, the basis for 

reporting is the nominal or notional principal amounts as of the reporting date. For options, use 

delta adjusted notional value.”

30 Anonymous Letter.

31 JAG Letter.
16

we are adopting Section 5.K.(2) largely as proposed, we have modified it in certain 

places in response to commenters’ concerns, as discussed below. 

As proposed, advisers with at least $150 million but less than $10 billion in 

regulatory assets under management attributable to separately managed accounts would 

have been required to annually report in Section 5.K.(2)(b) the number of accounts and 

average borrowings that corresponded to ranges of net asset values and gross notional 

exposures, as of the date the adviser used to calculate its regulatory assets under 

management for purposes of the adviser’s annual updating amendment. Advisers with at 

least $10 billion in regulatory assets under management attributable to separately 

managed accounts would have been required to annually report in Section 5.K.(2)(a) the 

number of accounts, average borrowings, and average derivatives exposures across six 

categories of derivatives, based on the same ranges of net asset values and gross notional 

exposures in Section 5.K.(2)(b), as of the date used by the adviser to calculate its 

regulatory assets under management for purposes of its annual updating amendment, and 

six months before that date. 

We received a diversity of views about whether the proposed reporting thresholds 

of at least $150 million in regulatory assets under management attributable to separately 

managed accounts, and at least $10 billion in regulatory assets under management 

attributable to separately managed accounts for additional reporting, were appropriate, 

and if not, what these thresholds should be.

32

 Certain commenters suggested thresholds 

 

32 ASG agreed with the $150 million threshold. Oppenheimer agreed with the thresholds, but also 

suggested a threshold based on number of accounts, below which the adviser would not be 

required to respond to Section 5.K.(2), and permitting advisers to round number of accounts to the 

nearest five in a particular range. IAA recommended increasing the $150 million threshold to 

$500 million but supported the $10 billion threshold. SIFMA also agreed with the thresholds, but 
17

based on number of accounts or the size of individual separately managed accounts. 

However, we believe establishing thresholds based on regulatory assets under 

management attributable to separately managed accounts better provides us with 

comparability across advisers and appropriately advances our regulatory goal of gaining a 

more complete understanding of advisers’ separately managed account business as 

compared to the alternatives suggested by commenters. Several commenters 

recommended that we increase the $150 million threshold to $500 million on the basis 

that such a change would allow the Commission to collect 95% of the data that it would 

using the $150 million threshold, while relieving approximately 3,000 advisers from 

having to report derivatives and borrowings information.33 On balance, and based on our 

staff's experience with small advisers, we agree with commenters that this is a sensible 

accommodation that would allow us to meet our regulatory objectives while alleviating 

reporting burdens on smaller advisers. As a result, we have raised the minimum 

 

suggested changing the account-level reporting thresholds to minimize confidentiality concerns 

and permitting advisers to round to the nearest 5 accounts in a particular range. AIMA noted that 

the proposed thresholds at the adviser level and at the individual separately managed account level 

are low for advisers with institutional clients and recommended not requiring advisers with less 

than $150 million in separately managed account assets to report any separately managed account 

information, including in Sections 5.K.(1) and 5.K.(3). Anonymous suggested that the reporting 

threshold should be based on a minimum gross notional amount in relation to the adviser’s total 

regulatory assets under management. BlackRock suggested that reporting thresholds should not 

be tied to aggregate adviser separately managed account regulatory assets under management, but 

rather only to individual separately managed account regulatory assets under management. 

33 IAA Letter; Comment Letter of the New York State Bar Association, Business Law Section, 

Securities Regulation Committee, Private Investment Funds Subcommittee (Aug. 12, 2015) 

(“NYSBA Committee Letter”); PCA Letter; Schwab & Co. Letter. IAA estimated that if the 

minimum threshold were $150 million, the Commission would collect data on approximately 

$37.8 trillion in separately managed account assets under management from 7,257 advisers. 

However, it estimated that if the threshold were raised to $500 million, the Commission would 

collect data on approximately $36.8 trillion in separately managed account assets under 

management from approximately 3,700 advisers. A recent analysis of Form ADV by Commission 

staff filings shows that over 2,800 advisers will be relieved from the filing requirement and we 

will receive information on 98% of the assets for which we would have received reporting under 

the proposed $150 million threshold. IARD system data as of May 16, 2016.
18

reporting threshold to $500 million. Advisers with at least $500 million but less than $10 

billion in separately managed account regulatory assets under management will be 

required to report on Section 5.K.(2)(b) the amount of separately managed account 

regulatory assets under management and the dollar amount (rather than the proposed 

average amount) of borrowings attributable to those assets that correspond to three levels 

of gross notional exposures rather than four levels as proposed. Advisers with at least 

$10 billion in separately managed account regulatory assets under management will be 

required to report on Section 5.K.(2)(a) the information required in Section 5.K.(2)(b) as 

well as the derivative exposures across the same six derivatives categories that were 

proposed. Also as proposed, advisers may limit their reporting for both (a) and (b) to 

individual accounts of at least $10 million.34 

Another change we are making to Section 5.K.(2) in response to commenters is to 

base the reporting of borrowings and derivatives on regulatory assets under management 

in separately managed accounts, rather than net asset value as proposed. One commenter

noted that advisers do not currently characterize their individual client accounts 

according to net asset values.

35

 We agree, and accordingly advisers will be required to 

report both the amount of regulatory assets under management and borrowings in their 

separately managed accounts that correspond to ranges of gross notional exposure of 

those accounts. Regulatory assets under management is already used throughout Form 

 

34 Some commenters suggested making the exclusion of individual accounts under $10 million 

optional because excluding those accounts might, in some cases, be more costly to firms. See

Dechert Letter; IAA Letter; NYSBA Committee Letter. We have revised the text in Section 

5.K.(2) to read, “You may, but are not required to, complete the table with respect to any 

separately managed account with regulatory assets under management of less than $10,000,000.”

35 IAA Letter.
19

ADV, and should be available to advisers for purposes of Section 5.K.(2). Similarly, the 

reporting of borrowings in Section 5.K.(2) has been revised to require information about 

the total dollar amount of borrowings that correspond to different ranges of gross notional 

exposure, and not the weighted average amount (which is based on a percentage of net 

asset value).36 We believe these changes will reduce burdens for advisers completing this 

section, while providing our staff with additional information regarding borrowings and 

derivatives exposures in separately managed accounts.

Commenters presented a range of concerns and suggestions about the use of 

gross notional metrics in reporting on Section 5.K.(2). Some commenters supported the 

use of gross notional metrics for assessing the use of derivatives and borrowings in 

separately managed accounts,37 while others raised issues concerning the utility of gross 

notional metrics.

38

 Several commenters stated that gross notional metrics are not 

accurate measures of leverage or risk and argued that they provide little value without 

context, and they could be misleading or misunderstood.

39

 Some commenters suggested 

 

36 One commenter suggested that reporting of borrowing is duplicative of reporting of margin by 

broker-dealer custodians to FINRA. JAG Letter. While we recognize that broker-dealers report 

this information, we note that parties other than broker-dealers may serve as custodians to 

separately managed accounts. 

37 Comment Letter of CFA Institute (Aug. 10, 2015) (“CFA Letter”) (observing that notional 

exposure metrics are valuable in conducting investment and operational analyses, but provide less 

value for risk management); NASAA Letter (stating that the proposal contemplates collecting 

commonly used metrics on the use of derivatives and borrowings, consistent with Form PF); and 

SRC Letter (suggesting that the collection of data relating to gross notional exposure, borrowings 

and gross notional value of derivatives would provide the Commission with “invaluable insight 

into the use of derivatives and borrowings by advisers in separately managed accounts.”).

38 See, e.g. NYSBA Committee Letter (stating that publicly reporting gross notional exposures 

without also reflecting actual exposure on the form would be misleading and potentially alarming 

to investors) and MFA Letter (asserting that gross notional disclosures provide an inaccurate 

representation of economic or market exposures and would not provide meaningful information, 

and thus should not be required).

39 BlackRock Letter; Dechert Letter; IAA Letter; Invesco Letter.
20

reporting derivatives and borrowings in Form ADV similar to how leverage is reported in 

Form PF or in the AIFMD framework.40 For example, one commenter suggested 

reporting long and short dollar amounts, similar to Form PF.41 We acknowledge these 

commenters' concerns and recognize that gross notional metrics may not always reflect 

the way in which derivatives are used in a separately managed account and are not a risk 

measure.

42

 We also recognize that there are other measures or additional data points that 

could be used to evaluate the use of derivatives in a separately managed account, which 

may depend on various considerations, such as investment strategy, types of investments, 

and the specific risks that are being considered. The calculations of gross notional 

exposure and gross notional value that we proposed and are adopting today rely on 

measures common to all advisers: regulatory assets under management of an account; 

total amount of borrowings in an account; and the notional value of derivatives. As we 

noted in the Proposing Release, gross notional metrics are commonly used metrics and 

are comparable to the information collected on Form PF regarding private funds. On 

balance, therefore, we continue to believe that, for most types of derivatives the gross 

notional metrics generally provide a measure that is sufficient for this regulatory purpose, 

 

40 Dechert Letter (suggesting allowing additional data points, such as the ones required in Form PF, 

to better provide the Commission a more comprehensive understanding of the extent to which 

derivatives are used in separately managed accounts and the relevant risks associated with them); 

Blackrock Letter (providing an appendix containing a comprehensive framework for calculating 

leverage, similar to AIFMD’s commitment leverage approach, under which derivatives used for 

hedging positions and offsetting long and short positions do not create leverage).

41 AIMA Letter.

42 For example, different derivatives transactions having the same notional amount but different 

underlying reference assets—for example, an interest rate swap and a credit default swap having 

the same notional amount—may expose a separately managed account to very different potential 

investment risks and potential payment obligations.
21

which is to collect information about the scale of an account’s derivatives activities, 

rather than to collect specific risk metrics or more granular information regarding the 

ways in which derivatives are used in a separate account. Section 5.K.(2) also provides 

advisers the option of including a narrative description of the strategies and/or manner in 

which borrowings and derivatives are used in the management of separately managed 

accounts. To the extent that advisers are concerned that disclosure of gross notional 

metrics would be misleading, they could provide in the space provided in Section 5.K.(2) 

an additional narrative description regarding their use of derivatives in these accounts. 

Many commenters requested that the term “derivatives” be defined as part of this 

rulemaking.

43 Several of these commenters suggested the Commission adopt a definition 

that provides flexibility to adapt to changing financial markets and instruments, such as

the characteristic-based definition of derivatives in FASB ASC 815.44 Another 

commenter, however, suggested that we should not define derivatives, similar to Form 

PF.45 We believe that Form ADV, which collects aggregate portfolio information, is 

similar to Form PF. Thus, consistent with adviser reporting on Form PF and the 

proposal, we have decided not to define the term at this time. Several commenters 

requested clarification on whether interest rate derivatives should be presented in terms of 

10-year bond equivalents, consistent with Form PF.46 We have added a sentence to the 

definition of “interest rate derivative” in the Glossary that interest rate derivative 

 

43 ASG Letter; Oppenheimer Letter; PCA Letter; SIFMA Letter; T. Rowe Price Letter.

44 Oppenheimer Letter; SIFMA Letter; T. Rowe Price Letter.

45 IAA Letter.

46 AIMA Letter; IAA Letter; MFA Letter.
22

information should be presented in terms of 10-year bond equivalents. Regarding the 

term “equity derivative,” one commenter requested confirmation that the term “listed” as 

used in Form ADV has the same meaning as in Form PF. We confirm that the term 

“listed equity derivatives” refers to exposures to derivatives for which the underlying 

asset is listed equities.47 

Finally, we are also revising the proposal in ways that should both alleviate 

concerns about confidentiality, which we discuss more fully below, and simplify 

reporting of separately managed account information. First, we reduced the number of 

categories of gross notional exposure that we proposed in the charts. As proposed, 

Section 5.K.(2) included four categories of gross notional exposure by which accounts 

and borrowings were reported. This has been reduced to three categories of gross 

notional exposure: less than 10%, 10 - 149% and 150% or more. In addition to reducing 

the number of categories from four to three, we changed the highest threshold from 200% 

or more to 150% or more. After consideration of comments received regarding the 

potential burdens of providing this information, we believe that the use of three 

categories instead of four and changing the highest threshold from 200% or more to 

150% or more will reduce the reporting burden on advisers while providing us with 

sufficient information regarding the use of derivatives and borrowings by investment 

advisers in separately managed accounts. In addition, we believe that these modifications 

provide less granular information than proposed, thereby mitigating some concerns 

commenters raised regarding confidentiality. We also modified Section 5.K.(2) to 

 

47 We note that current staff guidance regarding this term in Form PF takes a similar approach. See

Form PF, Frequently Asked Questions, Question 26.1.
23

remove reporting of the number of separately managed accounts. As proposed, Section 

5.K.(2) would have required advisers to report the number of accounts that corresponded 

to the accounts’ net asset value and gross notional exposure. Section 5.K.(2) (a) and (b) 

now require reporting of regulatory assets under management based on ranges of gross 

notional exposure of accounts.48 

d. Section 5.K.(3) of Schedule D

As proposed, we are amending Form ADV to require advisers to identify any 

custodians that account for at least ten percent of separately managed account regulatory 

assets under management, and the amount of the adviser’s regulatory assets under 

management attributable to separately managed accounts held at the custodian.49 This 

information will allow our examination staff to identify advisers whose clients use the 

same custodian in the event, for example, a concern is raised about a particular custodian. 

As we discussed in the Proposing Release, similar disclosures are required for custodians 

to pooled investment vehicles50 and registered investment companies.51

We received several comments on this aspect of the proposal. For example, a 

commenter suggested that we obtain this information from other parties, including 

custodians.52 However, we do not directly regulate all separately managed account 

 

48 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2).

49 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(3). We added “aggregate” before 

“separately managed account regulatory assets under management” to the text preceding the 

section for clarity. 

50 Amended Form ADV, Part 1A, Schedule D, Section 7.B.(1), Question 25.

51 Form N-1A, Item 19(h)(3). 

52 BlackRock Letter. See also Comment Letter of Financial Engines Advisors, LLC (Aug. 11, 2015) 

(“Financial Engines Letter”) (suggesting identification of recordkeeper, rather than custodian, 

where advised assets are associated with a 401(k) plan).
24

custodians and we believe this information is available to advisers because advisers 

interact with custodians when placing trades on behalf of separately managed account 

clients. Some commenters agreed with the ten percent of regulatory assets under 

management threshold for reporting custodians of the adviser's separately managed 

account client assets.

53 Other commenters recommended that the Commission modify 

the threshold, and raised concerns about this reporting for smaller advisers.

54

 We agree 

with the commenters who believe that the ten percent threshold is appropriate. We 

recognize that this reporting will impose some burdens on all advisers, including smaller 

advisers. However, we are adopting the ten percent threshold as proposed because we 

continue to believe it, rather than a higher threshold, most appropriately advances our 

regulatory goal of identifying and obtaining a more complete picture regarding the 

custodians serving a significant proportion of an adviser’s separately managed account 

clients. Moreover, we believe we have appropriately tailored and limited the scope of 

information to be reported since this requirement at most will require advisers to identify 

ten custodians. 

In addition, some commenters recommended deleting or clarifying the 

requirement to identify the location of the custodian’s office.55 These commenters 

reasoned that because of the electronic nature of custodian records, and the current 

advisers’ practice of not maintaining this physical location information as a matter of 

 

53 Anonymous Letter; CFA Letter; PCA Letter.

54 AIMA Letter (suggested a twenty percent threshold); BlackRock Letter; IAA Letter; MMI Letter; 

NRS Letter (suggested a minimum separately managed account regulatory assets under 

management threshold in lieu of or in addition to the ten percent threshold).

55 ASG Letter; IAA Letter; MMI Letter; Oppenheimer Letter; PCA Letter; SIFMA Letter.
25

course, disclosure of the identity of the custodian, rather than the location of the office, 

would be of primary benefit to the Commission. This information is consistent with 

similar questions we ask about custodians in Schedule D, Section 7.B.(1), Question 25 of 

Form ADV. Location information allows us to identify the appropriate contacts when a 

custodian is part of a large organization with multiple offices.56 Therefore, we are 

adopting these requirements as proposed. 

e. Public Disclosure of Separately Managed Account Information

While commenters understood our reasons for collecting information on 

separately managed accounts, many expressed concerns that the new reporting would 

lead to disclosure of client-identifying information or confidential or proprietary 

information about investment strategy.

57

 Commenters also expressed concern that public 

disclosure of separately managed account information could put advisers with a small 

number of separately managed account clients at a competitive disadvantage if clients 

 

56 One commenter also sought clarification about reporting custodians who have multiple legal 

entities. IAA Letter. Advisers do not have to determine affiliations of related custodians for 

purposes of this item, but rather should report the particular legal entity that is custodian for the 

adviser’s separately managed account assets.

57 Comment Letter of the American Bar Association, Section of Business Law, Federal Regulation 

of Securities Committee (Sept. 3, 2015) (“ABA Committee Letter”); AIMA Letter; Anonymous 

Letter; ASG Letter; BlackRock Letter; Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; 

NYSBA Committee Letter; Oppenheimer Letter; Comment Letter of Schulte Roth & Zabel LLP 

(Aug. 11, 2015) (“Schulte Letter”); Comment Letter of Shearman & Sterling LLP (Aug. 11, 2015) 

(“Shearman Letter”); SIFMA Letter; Comment Letter of Securities Industry and Financial Markets 

Association Asset Management Group and Asset Managers Forum (Jan. 13, 2016) (“SIFMA II 

Letter”). See also Comment Letter of Private Equity Growth Capital Council (Aug. 11, 2015) 

(“PEGCC Letter”).
26

were concerned about the reporting on Form ADV being linked or attributable to their 

separately managed accounts.

58

 We address these concerns below.

Section 210(a) of the Advisers Act requires information in Form ADV to be 

publicly disclosed, unless we find that public disclosure is neither necessary nor 

appropriate in the public interest or for the protection of investors.59 As discussed in the 

Proposing Release, we believe these amendments will enhance our staff's risk assessment 

and monitoring activities, which also serve to benefit investors.60 We also believe that 

aggregate information about separately managed accounts may assist the public in better 

understanding advisers’ management of separately managed account clients.

61 This 

information may directly improve the ability of clients and potential clients of investment 

advisers to make more informed decisions about the selection and retention of investment 

advisers, which, in turn, may also benefit the public by increasing competition among 

investment advisers for clients. For these reasons, we continue to believe that public 

disclosure of information about separately managed accounts on Form ADV is 

appropriate in the public interest as well as for the protection of investors. We have, 

 

58 ABA Committee Letter; AIMA Letter; Anonymous Letter; BlackRock Letter; Dechert Letter; IAA

Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; Schulte Letter; Shearman

Letter; SIFMA Letter; SIFMA II Letter.

59 Advisers Act section 210(a). Certain commenters suggested that this information be filed in a 

nonpublic manner, similar to Form PF. See ABA Committee Letter; PEGCC Letter. We note that 

Form PF is filed on a confidential basis under Advisers Act section 204(b), which prohibits the 

Commission from disclosing Form PF information unless those disclosures are made to Congress, 

other Federal agencies, or courts under certain conditions. Advisers Act section 204(b)(8).

60 Proposing Release, supra footnote 3 at Section II.A.1.

61 C.f., NASAA Letter (“These amendments would provide additional necessary information to the 

SEC and state regulators, as well as members of the public, far outweighing any regulatory 

burden the proposal creates.”).
27

however, made several modifications to our proposal, discussed below, in response to 

commenters. 

Some commenters also expressed broader concerns that public disclosure of 

separately managed account holdings or borrowings and derivatives information would 

reveal proprietary investment strategies.

62

 We do not believe that public disclosure of 

aggregate information in Schedule D, Sections 5.K.(1) or (2) would lead to the revelation 

of proprietary investment strategies. This information would be reported for one or two 

data points per year,63 depending on the amount of regulatory assets under management 

attributable to separately managed accounts, ninety days after the end of the adviser’s 

fiscal year,

64 and only on an aggregate basis for all the separately managed account 

clients that an adviser manages. Given the limited number of data points that advisers to 

separately managed accounts must report on, the fact that the information is reported both 

in aggregate and in broad categories across an adviser’s separately managed accounts,

and the time lag between those data points and any public reporting, we disagree that this 

 

62 See, e.g., ABA Committee Letter (“While individual types of securities would not be disclosed, 

the percentage of the portfolio in ten different asset categories would be subject to unprecedented 

public scrutiny, as would be detailed breakdowns of derivatives exposures and borrowings.”); 

BlackRock Letter; Dechert Letter; MFA Letter.

63 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and (2). Although two commenters 

recommended against larger advisers providing both mid-year and end of year separately managed 

account information, we believe this information is important to understanding advisers to the 

largest separately managed accounts. LPL Letter; NRS Letter.

64 Advisers are required to update the derivatives and borrowings information annually, when filing 

their annual updating amendment to Form ADV, which is consistent with the requirement for 

updating other information in Item 5 of Form ADV. Advisers with at least $10 billion in 

separately managed account regulatory assets under management would be required to report both 

mid-year and end of year information as part of their annual filing. Many commenters supported 

the annual reporting and recommended against more frequent reporting. Anonymous Letter; ASG

Letter; CFA Letter; Comment Letter of Capital Research and Management Company (Aug. 11, 

2015) (“Capital Research Letter”); MMI Letter; Morningstar Letter; NRS Letter; PCA Letter;

Shearman Letter. Form ADV is required to be amended at least annually, within 90 days of the 

end of the adviser's fiscal year. See rule 204-1.
28

reporting could compromise trading strategies. In addition, as discussed above, we 

reduced the number of categories of gross notional exposures in Section 5.K.(2), which 

means advisers will be required to report less granular information.65 

We are mindful of commenters’ concerns regarding disclosure of client-specific 

information and related competition concerns.66 Accordingly, we revised Item 5.D., 

which lists the number of advisory clients in categories, to include a “fewer than 5 

clients” column.67 We also have modified Section 5.K.(2) to remove reporting of the 

number of accounts. As proposed, Section 5.K.(2) would have required reporting of the 

number of accounts that correspond to the accounts’ net asset value and gross notional 

exposure. As adopted, Section 5.K.(2)(a) and (b) will require reporting solely by ranges 

of gross notional exposure of accounts.68 We believe that these changes mitigate the risk 

of any client-specific information being disclosed in Item 5.D. and Sections 5.K.(1) and 

(2).

 

65 Supra Section II.A.1.c.

66 See, e.g., ABA Committee Letter; AIMA Letter; BlackRock Letter (“For a particular adviser, there 

may be only one or two accounts in a particular category, potentially making this client 

identifiable and its RAUM with an adviser public information.”); Dechert Letter; IAA Letter; 

MFA Letter (“[A] fund manager may need to report data of a single SMA client, which is not 

suitable for public disclosure.”); NYSBA Committee Letter (“In addition, if an adviser has a small 

number of accounts, the disclosure of any of the information would be particularly problematic as 

others may be in a position to determine the identity of the clients in any such account.”);

Oppenheimer Letter; SIFMA Letter.

67 Several commenters suggested limiting reporting for five or fewer clients, or rounding to the 

nearest five clients. IAA Letter; NYSBA Committee Letter; Oppenheimer Letter; SIFMA Letter. 

Other commenters suggested that advisers with a small number of separately managed account 

clients be excluded from reporting on separately managed accounts. See, e.g., AIMA Letter; 

SIFMA Letter. However, a small number of accounts could still include a large amount of assets 

or significant use of borrowings and derivatives. For that reason, reporting will be required on 

these accounts. We believe that the modifications in Item 5.D. and Schedule D, Section 5.K.(2) 

will address confidentiality concerns related to those accounts. 

68 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2).
29

f. Additional Comments About Reporting of Separately Managed 

Accounts

Additional comments regarding separately managed account reporting in 

Schedule D included comments about the definition of separately managed account, the 

treatment of subadvisers, and the reporting requirements when both the registered 

investment adviser and the separately managed account owner are not United States 

persons.

First, several commenters sought clarification of the definition of the term 

“separately managed account” as used in Form ADV. 69 We do not believe that a formal 

definition of this term is required because we have included instructions in the text 

preceding Sections 5.K.(1) and (2) to clarify that any regulatory assets under management

reported in Item 5.D.(3)(d) (investment companies), (e) (business development 

companies), and (f) (other pooled investment vehicles) should not be reported in 

Schedule D, Sections 5.K.(1) or (2). Thus, regulatory assets under management reported 

for those types of clients in Item 5.D.(3) should not be considered separately managed 

account assets and should not be reported in Sections 5.K.(1) or (2). 

Second, several commenters requested clarification about how to treat subadviser 

relationships in reporting separately managed account information, including suggestions 

that only advisers with discretionary authority report information in these sections.70 In 

 

69 See, e.g., IAA Letter (noting the term has not been defined in the Advisers Act); Financial Engines

Letter (seeking the exclusion of assets within defined contribution plans from separately managed 

accounts); MMI Letter (seeking clarification for sponsors, overlay managers, portfolio managers 

and model providers). Commenters also sought clarification of the treatment of pooled investment 

vehicles that are not private funds. See PEGCC Letter. See also IAA Letter. Pooled investment 

vehicles include, but are not limited to, private funds. 

70 Comment Letter of JG Advisory Services LLC (Jul. 22, 2015) (“JGAS Letter”); LPL Letter; MMI 

Letter; NYSBA Committee Letter; SIFMA Letter. See also Dechert Letter; IAA Letter.
30

response to these concerns, we are clarifying the instructions in the text preceding Section 

5.K.(1)(a) to expressly state, as they already do for Section 5.K.(2), that a subadviser to a 

separately managed account should provide information only about the portion of the 

account that it subadvises.

71

 We recognize that these instructions may require both 

advisers and subadvisers to report on the same regulatory assets under management (i.e., 

the assets that they both manage in an account) in Sections 5.K.(1) and (2) of their 

separate Form ADVs, which is consistent with the current reporting structure of 

regulatory assets under management in Form ADV. 

Further, in response to suggestions that only advisers with discretionary authority 

should be required to report information in Sections 5.K.(1) and (2), we note that these 

sections both require responses based on the regulatory assets under management an 

adviser reports in Item 5.F. Per the instructions to Item 5.F., advisers are already required 

to consider the role of discretionary authority when calculating regulatory assets under 

management. Those instructions require that the calculation include only assets over 

which advisers provide continuous and regular supervisory or management service.72 

The instructions further state that an adviser “provide[s] continuous and regular 

supervisory or management services with respect to an account” if: (a) the adviser has 

discretionary authority over and provides ongoing supervisory or management services 

with respect to the account; or (b) the adviser does not have discretionary authority over 

the account, but has ongoing responsibility to select or make recommendations, based 

 

71 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and (2). 

72 See Form ADV, Instructions to Part 1A, Item 5.F. 
31

upon the needs of the client, as to specific securities or other investments the account may 

purchase or sell and, if such recommendations are accepted by the client, the adviser is 

responsible for arranging or effecting the purchase or sale.73 Thus, if an adviser does not 

provide continuous and regular supervisory or management services with respect to an 

account, those account’s assets should not be reported as regulatory assets under 

management in Item 5.F, and would not be reported in Sections 5.K.(1) and (2).

A final suggestion from commenters was to exclude from the reporting 

requirements any separately managed account held by a non-United States person and 

managed by an investment adviser whose principal office and place of business is outside 

the United States.74 As proposed, and consistent with the reporting of regulatory assets 

under management generally, we are requiring each adviser whose principal office and 

place of business is outside the United States to report information regarding separately 

managed accounts for all of their clients, including clients who are not United States 

persons.

75

 We believe that the consistent reporting of information in Item 5 will be 

valuable in our and the public's understanding of the new separately managed account 

items as they are a subset of the regulatory assets under management already being 

reported by registered investment advisers.

Commenters suggested that we not require reporting of accounts beneficially 

owned by those who are not United States persons and managed by advisers whose 

 

73 Id.

74 AIMA Letter; PEGCC Letter; Shearman Letter. “United States person” is defined in the Glossary 

to Form ADV.

75 The Form ADV Instructions to Part 1A, Item 5 that specify how regulatory assets under 

management must be calculated provides that accounts of clients who are not United States 

persons are accounts that must be included in the adviser's securities portfolios.
32

principal offices and places of business are outside the United States. These commenters 

noted Item 7.B. of Form ADV and Form PF generally allow advisers whose principal 

offices and places of business are outside the United States to exclude reporting on funds 

that are not United States persons, are not offered in the United States, and are not 

beneficially owned by any United States persons.76 As noted above, there is not a similar 

exclusion in Item 5 regarding funds that are not United States persons advised by any 

advisers, and advisers must include those clients in response to Item 5, including their 

regulatory assets under management and client types. An exception like the one 

suggested by commenters would hamper the utility of the data collection in Item 5, which 

collects aggregate, census-type information regarding the adviser’s total business. We 

are collecting this information to better inform Commission staff and the public about 

this segment of the investment adviser industry.77

In the Proposing Release, we requested comment on whether to require advisers 

to report on securities lending and repurchase agreements in separately managed 

accounts.78 While some commenters supported collection of this information,79 others 

noted that advisers may not be aware of or directly involved in securities lending activity 

in separately managed accounts,80 and several commenters objected to the disclosure.81 

 

76 AIMA Letter; PEGCC Letter; Shearman Letter.

77 See infra Section II.A.3 for a discussion of the application of the Advisers Act to non-U.S. 

advisers. 

78 Proposing Release, supra footnote 3 at Section II.A.1.

79 CFA Letter; SRC Letter.

80 JAG Letter; NRS Letter; Comment Letter of The Risk Management Association, Committee on 

Securities Lending (Aug. 10, 2015) (“RMA Committee Letter”); Comment Letter of State Street 

Corporation (Aug. 11, 2015) (“State Street Letter”).
33

In response to the comments we received, we are not requiring disclosure regarding 

securities lending or repurchase agreements at this time. 

2. Additional Information Regarding Investment Advisers

In addition to the amendments outlined above regarding separately managed 

accounts, we are adopting, largely as proposed, several new questions and amending 

existing questions on Form ADV regarding identifying information, an adviser’s advisory 

business, and affiliations. As discussed in the Proposing Release, these items were 

developed through our staff’s experience in examining and monitoring investment 

advisers, and are designed to enhance our understanding and oversight of investment 

advisers and to assist our staff in its risk-based examination program.

a. Additional Identifying Information

We are adopting several amendments to Item 1 of Part 1A of Form ADV as 

proposed to improve certain identifying information that we obtain about advisers. Item 

1 currently requires an adviser to provide a Central Index Key number (“CIK Number”) 

in Item 1.N. only if the adviser is a public reporting company under Sections 12 or 15(d) 

of the Securities Exchange Act of 1934.82 We are removing this question from Item 1.N. 

and adding a question to Item 1.D. that requires an adviser to provide all of its CIK 

Numbers if it has one or more such numbers assigned,83 regardless of public reporting 

 

81 MFA Letter: PCA Letter. See also ASG Letter.

82 Form ADV, Part 1A, Item 1.N.

83 The SEC assigns CIK Numbers in EDGAR not only to identify entities as public reporting 

companies, but also when an entity is registered with the SEC in certain other capacities, such as a 

transfer agent. 
34

company status.84 As we explained in the Proposing Release, requiring registrants to 

provide all of their assigned CIK Numbers, if any, will improve our staff’s ability to use 

and coordinate Form ADV information with information from other sources.

85

 The

commenter who weighed in on the reporting of CIK Numbers did not object to this 

amendment, which we are adopting as proposed. 

Item 1.I. of Part 1A of Form ADV currently asks whether an adviser has one or 

more websites, and Section 1.I. of Schedule D requests the addresses of each website. 

We are amending Item 1.I. largely as proposed to also ask whether the adviser has one or 

more accounts on social media platforms, such as Twitter, Facebook or LinkedIn, and 

requesting the address of each of the adviser’s social media pages in addition to the 

address of each of the adviser’s websites in Section 1.I. of Schedule D.86 As discussed in 

the Proposing Release, our staff may use this information to help prepare for 

examinations of investment advisers and compare information that advisers disseminate 

across different social media platforms, as well as to identify and monitor new platforms. 

Current and prospective clients may use this information to learn more about advisers and 

make more informed decisions regarding the selection of advisers.87 

Several commenters were generally supportive of our proposed approach to social 

media reporting,88 but some commenters were concerned that it would be too 

 

84 Amended Form ADV, Part 1A, Item 1.D.(3).

85 Proposing Release, supra footnote 3 at Section II.A.2.

86 Amended Form ADV, Part 1A, Item 1.I. and Section 1.I. of Schedule D.

87

 Proposing Release, supra footnote 3 at Section II.A.2.

88 CFA Letter; IAA Letter; LPL Letter; Morningstar Letter; NASAA Letter. See also BlackRock 

Letter (understood our rationale for requesting this information).
35

burdensome for advisers and not useful to investors.89 Several commenters requested 

clarification on the types of social media platforms that trigger the reporting 

requirement,90 and some commenters recommended that we limit required reporting to 

accounts on social media platforms where the adviser controls the content.91 These 

commenters pointed out that there may be social media platforms that reference an 

adviser over which the adviser has no control and of which the adviser may not even be 

aware.92 We agree, and we have revised Item 1.I. of Part 1A and Section 1.I. of Schedule 

D to note that the required reporting is limited to accounts on social media platforms 

where the adviser controls the content.93 Commenters generally agreed with the 

proposal’s approach of not requiring information about the social media accounts of an 

adviser’s employees.

94

A commenter requested that we limit required reporting to accounts on publicfacing social media platforms used to promote the adviser’s business.95

 We did not 

intend to require reporting on information posted on an adviser’s internal social media 

platform or information not intended to promote the adviser’s business to potential clients 

 

89 Comment Letter of TMorgan Advisers, LLC (June 28, 2015) (“Morgan Letter”); NRS Letter; 

NYSBA Committee Letter; Oppenheimer Letter. 

90 ASG Letter; IAA Letter; MMI Letter; SIFMA Letter.

91 ASG Letter; MMI Letter; SIFMA Letter.

92 MMI Letter. See also ASG Letter.

93 An adviser may control its social media content, notwithstanding the fact that a social media 

platform has a policy to edit or remove content (such as offensive content) across the platform.

94 ASG Letter; MFA Letter; MMI Letter; Morgan Letter; Morningstar Letter; NRS Letter; NYSBA 

Committee Letter.

95 IAA Letter.
36

(e.g., information posted on a job board intended to attract job applicants). We have 

revised the text preceding Item 1.I. of Part 1A and Section 1.I. of Schedule D to clarify 

that the required reporting is limited to accounts on publicly available social media 

platforms. 

Another commenter requested that we limit required reporting to accounts on 

social media platforms that promote the adviser’s business in the United States or are 

targeted towards the adviser’s U.S. clients.96 The commenter pointed out that there are 

circumstances in which an adviser might have additional accounts on social media 

platforms that are not used to promote the adviser’s business in the United States or are 

targeted towards the adviser’s non-U.S. clients and that reporting on such accounts would 

provide little value to the Commission and could be confusing to clients or potential 

clients seeking information about an adviser.97 We believe that, to the extent an account 

on a social media platform is used to promote the business of an adviser registered with 

the Commission, the account should be disclosed in order to better inform our staff about 

the adviser’s use of social media. However, if an account on a social media platform is 

used solely to promote the business of an affiliate or affiliates that are not advisers

registered with the Commission, the account does not need to be disclosed on Form 

ADV.

 

96 SIFMA Letter.

97 Id. The commenter also mentioned that a large advisory complex that includes multiple affiliated 

advisers may maintain an account on a social media platform on behalf of a parent company or 

another affiliate that is not designed to promote the reporting adviser’s services and/or is targeted 

towards non-U.S. clients, perhaps in a language other than English. 
37

A few commenters were concerned that the burden on advisers of updating social 

media information on Form ADV promptly if the information becomes inaccurate in any 

way would be great, given the frequency of changes in social media platforms and 

accounts.98 We believe that, by limiting the social media information required on Form 

ADV to an adviser’s accounts on publicly available social media platforms where the 

adviser controls the content, the burden associated with reporting and updating that 

information should be limited. Because the social media environment is rapidly

evolving, we think it will be useful to the Commission and investors to have current 

information on an adviser’s use of social media on Form ADV. Additionally, this 

approach to updating social media reporting is consistent with our current approach to 

updating the other information required in Item 1 of Part 1A, including information on 

advisers’ websites. 

Several commenters questioned the utility for investors of social media reporting 

in Part 1A of Form ADV.99 Commenters stated that investors who are interested in an 

adviser’s social media presence will most likely look to the adviser’s website or conduct 

an internet search to find the adviser’s accounts on various social media platforms.100 We 

recognize that this is most likely the case. However, we believe that having current 

information on an adviser’s social media presence collected in one place on Form ADV 

may be helpful to investors. Two commenters stated that investors generally do not read 

 

98 BlackRock Letter; Oppenheimer Letter; SIFMA Letter.

99 Comment Letter of the Association for Corporate Growth (Aug. 11, 2015) (“ACG Letter”); ASG 

Letter; JAG Letter; Morningstar Letter; PCA Letter. 

100 ASG Letter; JAG Letter; Morningstar Letter; Oppenheimer Letter; PCA Letter.
38

Part 1A of Form ADV and recommended that we consider including social media 

reporting in Part 2A of Form ADV instead.101 We recognize that investors may not look 

to Form ADV for information on an adviser’s social media presence, but if they do, they 

will likely look to Item 1.I. of Part 1A and Section 1.I. of Schedule D because those are 

where we currently collect identifying information about an adviser, including 

information on an adviser’s website or websites. In addition, a primary purpose of this 

item is to provide the Commission and our staff with information that may be used in our 

examination program and for other regulatory purposes. Accordingly, we believe it will

be useful to the Commission to have information on an adviser’s use of social media on 

Form ADV, and this placement in the form is an efficient and readily identifiable location 

for such information that appropriately serves our regulatory purposes. 

We are amending Item 1.F. of Part 1A of Form ADV and Section 1.F. of 

Schedule D largely as proposed to expand the information provided about an adviser’s 

offices other than its principal office and place of business. We currently require an 

adviser to provide contact and other information about its principal office and place of 

business, and, if an adviser conducts advisory activities from more than one location, 

about its largest five offices in terms of number of employees.102 In order to help 

Commission examination staff learn more about an investment adviser’s business and 

identify locations to conduct examinations, we are now requiring that advisers provide us 

with the total number of offices at which they conduct investment advisory business and 

 

101 Morningstar Letter; PCA Letter. See also Comment Letter of Jeff J. Diercks (May 22, 2015) 

("Diercks Letter").

102 Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D.
39

provide information in Schedule D about their 25 largest offices in terms of number of 

employees.103 As discussed in the Proposing Release, we chose 25 offices as the number 

to be reported because it will provide a complete listing of offices for the vast majority of 

investment advisers, and provide valuable information about the main business locations 

for the few advisers that have a very large number of offices.104 

In addition to providing contact information for the 25 largest offices in terms of 

number of employees, we are amending Section 1.F. of Schedule D as proposed to 

require advisers to report each office’s CRD branch number (if applicable) and the 

number of employees who perform advisory functions from each office, identify from a 

list of securities-related activities the business activities conducted from each office, and 

describe any other investment-related business conducted from each office. This 

information will help our staff assess risk, because it provides a better understanding of 

an investment adviser’s operations and the nature of activities conducted in its top 25 

offices. This information also will assist our staff in assessing offices that conduct a 

combination of activities. 

Two commenters provided general support for our proposed enhanced reporting 

of adviser offices.105 However, several commenters expressed concern that our approach 

would impose a significant burden on advisers with little or no benefit to either the 

 

103 Amended Form ADV, Part 1A, Item 1F. and Section 1.F. of Schedule D.

104 See Proposing Release, supra footnote 3 at Section II.A.2. IAPD Investment Adviser Registered 

Representative State Data as of May 2, 2016 shows that a majority of SEC-registered advisers 

(approximately 98%) have 25 or fewer offices, but that many of the remaining two percent have 

many multiples of 25 offices.

105 LPL Letter; NASAA Letter.
40

Commission or investors.106 Another commenter noted the substantial burden on 

advisers required to report additional offices, but acknowledged that burden would ease 

after the initial reporting period.107 We recognize that the burden on some large advisers 

might be significant, especially in the initial reporting cycle when they are required to 

report their additional offices for the first time. However, we believe that the burden will 

decrease after the initial filing because in subsequent filings, advisers will only be 

reporting changes to their previously reported additional office information. Two 

commenters requested clarification on how often the additional office information should 

be updated.108 One commenter felt that annual updating of office locations would not be 

unduly burdensome but more frequent than annual updates would be burdensome.109 We 

agree and are requiring that Section 1.F. of Schedule D be updated as part of an adviser’s 

annual updating amendment and not more frequently.

110

 

One commenter expressed concern about our proposal’s impact on smaller 

advisers and suggested that, as an alternative, we require advisers to (a) continue to 

provide information about their five largest additional offices, (b) report their total 

number of additional offices, and (c) report additional information only for their

additional offices that meet a certain threshold of regulatory assets under management or 

 

106 ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter. 

107 Morningstar Letter.

108 ASG Letter; Morningstar Letter.

109 ASG Letter.

110 Amended Form ADV, General Instruction 4. 
41

that engage in certain enumerated practices of interest to the Commission.111 We 

currently require advisers to track their additional offices based upon number of 

employees.112 We understand that many advisers do not currently track their additional 

offices based upon the amount of regulatory assets under management attributable to 

each office and we believe that requiring them to do so would place an additional burden 

on advisers. For this reason, we are not changing our approach to additional office 

reporting.

One commenter requested that we simplify the reporting of information about 

additional offices for firms that are dually registered as investment advisers with the 

Commission and as broker-dealers with FINRA by allowing them to cross-reference to 

information submitted on their Uniform Branch Office Registration Form filed with 

FINRA.113 We agree and we are updating the IAPD system so that by entering a 

branch’s CRD number, the address, phone number, and facsimile number of all 

additional offices will automatically populate on Section 1.F. of Schedule D. 

Item 1.J. of Form ADV currently requires each adviser to provide the name and 

contact information for the adviser’s chief compliance officer. We proposed amending 

Item 1.J. to require an adviser to report whether its chief compliance officer is 

compensated or employed by any person other than the adviser (or a related person of the 

adviser) for providing chief compliance officer services to the adviser, and if so, to report 

the name and IRS Employer Identification Number (if any) of that other person. We are

 

111 NRS Letter.

112 Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D.

113 MMI Letter.
42

adopting the amendments to Item 1.J. largely as proposed, but in addition to related 

persons of the adviser, as discussed below, advisers will not be required to disclose the 

identity of the other person compensating or employing the chief compliance officer if 

that other person is an investment company registered under the Investment Company 

Act of 1940 advised by the adviser.

114

As discussed in the Proposing Release, our examination staff has observed a wide 

spectrum of both quality and effectiveness of outsourced chief compliance officers and 

firms.115 Identifying information for these third-party service providers, like others on 

Form ADV,116 will allow us to identify all advisers relying on a particular service 

provider and could be used to improve our ability to assess potential risks. 

Two commenters expressed general support for our proposal to identify if chief 

compliance officers are compensated or employed by other parties for providing chief 

compliance officer services,

117 and others expressed concern that the requirement would 

be unduly burdensome on advisers or that the information would be of little or no use to 

the Commission or investors.118 We are not persuaded that this requirement would be 

 

114 Amended Form ADV, Part 1A, Item 1.J.

115 Proposing Release, supra footnote 3 at Section II.A.2.

116 For example, advisers provide the names and addresses of independent public accountants that 

perform audits or surprise examinations and that prepare internal control reports on Form ADV, 

Part 1A, Schedule D, Section 9.C. 

117 CFA Letter; NASAA Letter.

118 ACG Letter; Comment Letter of L.A. Schnase (Jul. 2, 2015) (“Schnase Letter”) (would be 

duplicative of already reported information, raises privacy concerns with the chief compliance 

officer’s other clients, would become inaccurate or out-of-date quickly, and would miss the 

situation of firms hiring comprehensive external compliance support with an in-house chief 

compliance officer in name only). See also NRS Letter (adviser may not have access to this 

information).
43

unduly burdensome because the adviser should have or be able to easily obtain the 

necessary information, and we continue to believe that this information will be valuable 

for the reasons discussed above.

One commenter felt that our inquiry should focus not on the chief compliance 

officer’s other employment and/or compensation, but rather on the details of the 

compliance program and resources committed to address compliance risk (e.g., the chief 

compliance officer’s education and professional designations, the number of other 

compliance employees, the estimated total hours spent on compliance, and the other 

duties of the chief compliance officer).119 We agree with the commenter’s suggestion 

that evaluating the overall effectiveness of an adviser’s compliance program relies 

heavily on the facts and circumstances specific to that adviser.120 However, we are 

adopting the amendments to Item 1.J. largely as proposed, because we believe that they

meet our regulatory objective of identifying all advisers relying on particular service 

providers and may improve our ability to assess potential risks related to outsourced chief 

compliance officers and firms. 

One commenter expressed concern that identifying outsourced chief compliance 

officers would invite additional scrutiny about an adviser’s judgment in hiring externally 

versus internally.121 While we understand the commenter’s concerns, we continue to 

believe that identifying information for these third-party service providers, like others on 

 

119 Morgan Letter.

120 Id.

121 Shearman Letter. 
44

Form ADV, will allow us to identify all advisers relying on a particular service provider 

and to address potential risks associated with that service provider.

Two commenters agreed with our proposal to specifically exclude situations 

where the chief compliance officer is paid or employed by a related person of the 

adviser.122 Two other commenters recommended that we specify that a related person 

includes a registered investment company advised by the adviser.123 These commenters 

noted that in many instances an individual may serve as the chief compliance officer of 

both an adviser and a registered investment company advised by the adviser and receive 

compensation from both the adviser and the registered investment company.124 These 

commenters stated that requiring advisers to disclose these arrangements does not further 

our objective of assessing the use of third party service providers.125 We agree and we 

have updated Item 1.J.(2) to exclude chief compliance officers compensated or employed 

by an investment company registered under the Investment Company Act of 1940 

advised by the adviser.

In the Proposing Release, we asked whether we should require information about 

an adviser’s use of third-party compliance auditors. Two commenters supported such 

disclosure,126 but several commenters felt the disclosure would either not be useful or 

lead to incorrect inferences about the decision to use, or not use, external compliance 

 

122 MMI Letter; Morningstar Letter.

123 Dechert Letter; IAA Letter.

124 Id. 

125 Id.

126 Comment Letter of Brown & Associates LLC (Aug. 10, 2015) (“Brown Letter”); NASAA Letter. 
45

support.127 Several commenters expressed concern that, due to the diversity of services 

provided by third-party compliance auditors, requiring an adviser to state whether or not 

it uses them would not be useful to the Commission from a risk monitoring 

perspective.

128

 Commenters also expressed concern that requiring an adviser to report on 

its use of third-party compliance auditors could lead to incorrect inferences about the 

adviser’s compliance program. For example, advisers hiring third-party compliance 

auditors might be viewed as signaling a compliance issue, whereas advisers not hiring 

them might be viewed as not sufficiently focused on compliance.129 Two commenters 

expressed concern about confidentiality issues implicated by third-party compliance 

auditor reporting.130 We are not requiring advisers to report information on Form ADV 

regarding third-party compliance auditors at this time.

We are amending Item 1.O. as proposed to require advisers 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 $50 billion; and (3) $50 billion or more.131 We added 

Item 1.O. in 2011 in connection with the Dodd-Frank Act’s132 requirements concerning 

 

127 ASG Letter; IAA Letter; MFA Letter; MMI Letter; NRS Letter; NYSBA Committee Letter;

PEGCC Letter.

128 IAA Letter; MFA Letter; NRS Letter; PEGCC Letter. See also ASG Letter (requested that we 

more clearly define “auditor”); JGAS Letter; MMI Letter.

129 IAA Letter; NYSBA Committee Letter; PEGCC Letter. 

130 Anonymous Letter; MMI Letter (these relationships are often confidential, such as where law 

firms are involved). 

131 Amended Form ADV, Part 1A, Item 1.O.

132 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 

1376 (2010).
46

certain incentive-based compensation arrangements.133 Advisers are currently required to 

check a box to indicate if they have assets of $1 billion or more. Requiring advisers to 

report their assets within one of the three specified ranges will provide more precise data 

for use in Commission rulemaking arising from ongoing Dodd-Frank Act 

implementation.134 

Two commenters expressed general support for our proposal to require advisers to 

report their own assets within specified ranges.

135

 Two commenters did not believe that 

the information would be useful.136 However, we continue to believe that requiring 

advisers to report their assets as described above will provide more accurate data for use 

in Commission rulemaking arising from ongoing Dodd-Frank Act implementation. 

Another commenter felt our proposal raised privacy issues for investors in an adviser 

where the adviser is privately held.137 While we are sensitive to privacy concerns, we 

believe that we have narrowly tailored our proposal to address these concerns. We are 

only requiring that advisers with significant assets (at least $1 billion) report them and 

 

133 See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers

Act Release No. 3221 (June 22, 2011) [76 FR 42950 (Jul. 19, 2011)] (“Implementing Release”) at 

Section II.C.6; section 956 of the Dodd-Frank Act. We are also moving the instruction for how to 

report “assets” for the purpose of Item 1.O. from the Instructions for Part 1A to Form ADV to 

Item 1.O. in order to emphasize this instruction.

134 See, e.g., section 165(i) of the Dodd-Frank Act (requires the Commission and other financial 

regulators to establish methodologies for the conduct of stress tests by financial companies with 

consolidated assets of over $10 billion).; Incentive-based Compensation Arrangements, Exchange 

Act Release No. 34-77776 (May 6, 2016) (identifies three categories of covered institutions based 

on average total consolidated assets, ranging from $1 billion to $250 billion) (re-proposal of 

Exchange Act Release No. 34-64140); Incentive-Based Compensation Arrangements, Exchange 

Act Release No. 34-64140 (Mar. 29, 2011) [76 FR 21170 (Apr. 14, 2011)].

135 CFA Letter; PCA Letter.

136 NRS Letter; NYSBA Committee Letter.

137 Anonymous Letter.
47

even then only within one of the three specified ranges. One commenter asked for 

clarification on the timing of the calculation of assets.138 The item, as proposed and 

adopted today, specifies that an adviser should use the total assets shown on the adviser’s 

balance sheet for the most recent fiscal year end.139 We did not receive comments on the 

specific asset ranges. 

b. Additional Information About Advisory Business

In addition to the amendments to Item 5 regarding separately managed accounts 

discussed above, we are adopting a number of other amendments to Item 5. Item 5 

currently requires an adviser to provide approximate ranges for three data points 

concerning the adviser’s business – the number of advisory clients, the types of advisory 

clients, and regulatory assets under management attributable to client types.140 As 

proposed, we are amending these items to require an adviser to report the number of 

clients141 and amount of regulatory assets under management attributable to each 

category of clients as of the date the adviser determines its regulatory assets under 

management.

142

 As we discussed in the Proposing Release, replacing ranges with more 

 

138 PEGCC Letter.

139 Amended Form ADV, Part 1A, Item 1.O.

140 Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)-(2). 

141 Amended Form ADV, Part 1A, Item 5.D.(1)-(2). Advisers with fewer than five clients in a 

particular category (other than investment companies, business development companies and other 

pooled investment vehicles) may check Item 5.D.(2) indicating that fact rather than report the 

actual number of clients in the particular category in Item 5.D.(1). 

142 Amended Form ADV, Part 1A, Item 5.D.(3). The categories of clients are the same as those in 

Item 5.D. of the current Form ADV, except that we are adding “sovereign wealth funds and 

foreign official institutions” as a client category, and specifying that state or municipal 

government entities include government pension plans, and that government pension plans should 

not be counted as pension and profit sharing plans. 
48

precise information will provide more accurate information about investment advisers 

and will significantly enhance our ability to analyze data across investment advisers 

because providing actual numbers of clients and regulatory assets under management will 

allow us to see the scale and concentration of assets by client type.143 It will also allow 

us to determine the regulatory assets under management attributable to separately 

managed accounts. We believe that the information needed for providing the number of 

clients and amount of regulatory assets under management by client type should be 

readily available to advisers because advisers are producing this data to answer the 

current iterations of these questions on Form ADV and advisers typically base their 

advisory fees on client assets under management. 

We also are adding to Item 5 as proposed a requirement for advisers to report the 

number of clients for whom they provided advisory services but do not have regulatory 

assets under management in order to obtain a more complete understanding of each

adviser’s advisory business.144 As we explained in the Proposing Release, this 

information will assist in our risk assessment process and increase the effectiveness of 

our examinations.145 

 

143 Proposing Release, supra footnote 3 at Section II.A.2.

144 Amended Form ADV, Part 1A, Item 5.C.(1). An example of a situation where an adviser provides 

investment advice but does not have regulatory assets under management is a nondiscretionary 

account or a one-time financial plan, depending on the facts and circumstances. 

145 Proposing Release, supra footnote 3 at Section II.A.2.
49

Some commenters were generally supportive of our proposal to replace ranges 

with more precise information.

146

 Several commenters stated that advisers would need to 

update computer systems to obtain this data, and raised concerns about the increased 

burden that our proposal would place on advisers.147 One commenter felt that removing 

an adviser’s ability to rely on estimates of the amount of regulatory assets under 

management would increase the time required to prepare Item 5.D.148 We are not 

convinced that the burden placed on advisers by the requirement to report precise 

information will be significant. We continue to believe that the required information 

should be readily available to advisers because advisers are producing this data to answer 

the current iterations of these questions on Form ADV and advisers typically base their 

advisory fees on client assets under management. 

Some commenters suggested that our proposal to replace ranges with more 

precise information would heighten the risk of inaccurate reporting on Form ADV.149 

Commenters suggested that instead of requiring more precise information, we require 

advisers to report only an approximate number of clients and regulatory assets under 

management so as not to penalize advisers for “minor or inadvertent inaccuracies”150 and 

 

146 NRS Letter; PCA Letter; CFA Letter (generally supportive but questions the usefulness of actual 

numbers rather than ranges); NASAA Letter (supports reporting the number of clients for whom 

an adviser provides advisory services but does not have regulatory assets under management).

147 ASG Letter; MMI Letter. See LPL Letter.

148 ASG Letter. 

149 ASG Letter; LPL Letter; MMI Letter. 

150 LPL Letter. See also IAA Letter.
50

one commenter suggested using narrower ranges.151 Our goal in collecting more precise 

information is not to penalize advisers for minor inaccuracies but to enhance our ability 

to analyze data across investment advisers and allow us to see the scale and concentration 

of assets by client type. We collect numerical data throughout Form ADV, and we 

believe that advisers have access to the information required to accurately complete Item 

5.

One commenter expressed skepticism that the amendments would provide new, 

meaningful information to investors.

152

 However, we believe that investors potentially 

will benefit from having a more complete understanding of an investment adviser’s 

business. In addition, we believe that investors will indirectly benefit from our enhanced 

ability to analyze data across investment advisers, including the scale and concentration 

of assets by client type. 

One commenter expressed concern that the reporting of precise numbers might 

reveal confidential client relationships or the amount of regulatory assets under 

management attributable to specific clients.153 We are sensitive to these privacy 

concerns, and, as noted above, we are revising Form ADV, Part 1A, Item 5.D. to allow 

advisers with fewer than five clients in a particular category (other than investment 

companies, business development companies and other pooled investment vehicles) to 

 

151 MMI Letter.

152 ACG Letter.

153 Anonymous Letter. 
51

check Item 5.D.(2) indicating that fact rather than report the actual number of clients in 

the particular category in Item 5.D.(1).

154

 

Several commenters requested clarification in situations where a client fits into 

more than one client category.

155

 Specifically, two commenters requested that the 

Commission clarify whether an adviser that has contracts with other advisers to subadvise registered investment companies, business development companies or pooled 

investment vehicles should categorize those clients as either (1) “other investment 

advisers” because other investment advisers hold the contracts, or as (2) “investment 

companies,” “business development companies,” or “pooled investment vehicles,” as 

applicable, because those entities hold the regulatory assets under management.156 We 

are updating the instructions to Item 5.D. to state that, to the extent that the adviser 

advises a registered investment company, business development company, or pooled 

investment vehicle, the adviser should report those sub-advised assets in categories (d), 

(e), or (f) as applicable.157 We also are amending the instructions in the text preceding 

Item 5.D., in response to a comment that we received,158 to state that if a client fits into 

more than one category, then the adviser should select the category that most accurately 

represents the client in order to avoid double counting clients and assets.159 

 

154 Amended Form ADV, Part 1A, Item 5.D.(1)-(2).

155 Anonymous Letter; ASG Letter; IAA Letter; SIFMA Letter. 

156 ASG Letter; IAA Letter. 

157 Amended Form ADV, Part 1A, Item 5.D.

158 SIFMA Letter. 

159 Amended Form ADV, Part 1A, Item 5.D.
52

Some commenters requested more specific definitions for the categories of 

clients.

160

 However, most of the categories have not changed from current Form ADV 

and, based upon our experience with Form ADV, we believe that they are sufficiently 

clear. At the suggestion of two commenters,161 we are moving the category labeled 

“Corporations or other businesses not listed above” down in the table so that it appears 

just above the category labeled “Other.”

162

 

We are adopting, largely as proposed, several targeted additions to Item 5 and 

Section 5 of Schedule D to inform our risk-based exam program and other risk 

monitoring initiatives. An adviser that elects to report client assets in Part 2A of Form 

ADV differently from the regulatory assets under management it reports in Part 1A of 

Form ADV is now required to check a box noting that election.163 As discussed in the 

Proposing Release, this information will allow our examination staff to review across 

advisers the extent to which advisers report assets under management in Part 2A that 

 

160 IAA Letter (Commission should clarify whether a “sovereign wealth fund and foreign official 

institution” includes the account of any government or quasi-government entity). Morningstar 

Letter (Commission should add definitions for categories, including “other,” and provide a list of 

common custodian account types and how they map to the client categories).

161 IAA Letter; SIFMA Letter.

162 Amended Form ADV, Part 1A, Item 5.D.

163 Amended Form ADV, Part 1A, Item 5.J.(2). Form ADV, Part 2A, Item 4.E. requires an 

investment adviser to disclose the amount of client assets it manages on a discretionary basis and 

on a non-discretionary basis. The method used by an adviser to compute the amount of client 

assets it manages can be different from the method used to compute regulatory assets under 

management required for Item 5.F. in Part 1A. As discussed in the proposing release for Part 2, 

the regulatory assets under management calculation for Part 1A is designed for a particular 

purpose (i.e., for making a bright line determination about whether an adviser should register with 

the Commission or with the states) and permitting a different calculation for Part 2 disclosure may 

be appropriate to enable advisers to make disclosure that is more indicative to clients about the 

nature of their business. See Amendments to Form ADV, Investment Advisers Act Release No. 

2711 (Mar. 3, 2008) [73 FR 13958 (Mar. 14, 2008)].
53

differ from the regulatory assets under management reported in Part 1A of Form ADV.164 

Having this information will allow our staff to better understand the situations in which 

the calculations differ, and assist us in analyzing whether those differences require a 

regulatory response. 

One commenter asserted that this information would not be meaningful to 

investors.165 Another commenter noted that advisers may report additional assets in Part 

2A of Form ADV, rather than calculate regulatory assets under management differently 

than they do in Part 1A of Form ADV.166 We continue to believe that Item 5.J.(2) will 

provide the staff with helpful information regarding these calculations. 

In addition, largely as proposed, we are adding a question asking the approximate 

amount of an adviser’s total regulatory assets under management that is attributable to 

clients that are non-United States persons167 to complement the current requirement that 

each adviser report the percentage of its clients that are non-United States persons, which, 

based on our experience, is not always a reliable indicator of an adviser’s relationships 

with non-U.S. clients.168 As noted in the Proposing Release, our examination staff can

use this information to better understand the extent of investment advice provided to non-

 

164 Proposing Release, supra footnote 3 at Section II.A.2.

165 ACG Letter.

166 PCA Letter (stating that when advisers report different client assets in Part 2A than regulatory 

assets under management in Part 1A of Form ADV, it is frequently due to additional assets being 

included in the Part 2A calculation, such as non-discretionary assets that are under “advisement,” 

rather than a different method of calculating assets under management).

167 Amended Form ADV, Part 1A, Item 5.F.(3). 

168 Form ADV, Part 1A, Item 5.C.(2). For example, an adviser may report a significant percentage of 

clients that are non-United States persons, but the regulatory assets under management attributable 

to those clients is a small percentage of the adviser’s regulatory assets under management. 
54

U.S. clients which will assist in our risk assessment process.169 In our proposal, we used 

the term “non-U.S. client” and commenters sought clarification of the definition of “nonU.S. client.”170

 In response, the amendments that we are adopting today use the term

“non-United States person” in Item 5.F.(3). The Glossary to Form ADV provides that 

“United States person” has the same meaning as in rule 203(m)-1 under the Advisers Act, 

which includes any natural person that is resident in the United States.

Section 5.G.(3) of Schedule D currently requires advisers to report the SEC File 

Number for registered investment companies and business development companies that 

they advise. Largely as proposed, we are adding to Section 5.G.(3) a requirement that 

advisers report the regulatory assets under management of all parallel managed accounts 

related to a registered investment company (or series thereof) or business development 

company that they advise.171 As described in the Proposing Release, this information 

will permit our staff to assess the accounts and consider how an adviser manages 

conflicts of interest between parallel managed accounts and registered investment 

companies or business development companies advised by the adviser.172 This 

 

169 Proposing Release, supra footnote 3 at Section II.A.2.

170 Oppenheimer Letter; SIFMA Letter. 

171 Amended Form ADV, Part 1A, Section 5.G.(3) of Schedule D. The Glossary to Amended Form 

ADV includes “parallel managed account,” which is defined as: “With respect to any registered 

investment company or series thereof or business development company, a parallel managed 

account is any managed account or other pool of assets that you advise and that pursues 

substantially the same investment objective and strategy and invests side by side in substantially 

the same positions as the identified investment company or series thereof or business development 

company that you advise.” 

172 Proposing Release, supra footnote 3 at Section II.A.2.
55

information also will show the extent of any shift in assets between parallel managed 

accounts and registered investment companies or business development companies. 

Some commenters questioned the usefulness of collecting information on parallel 

managed accounts173 or thought that disclosures about parallel managed accounts would 

not produce meaningful results or could be misleading.174 We recognize that there may 

be different reasons for assets to shift between parallel managed accounts and registered 

investment companies or business development companies, but that does not make the 

additional information less useful to the staff in considering how advisers manage 

conflicts of interest and assessing the extent of any shift in assets for risk monitoring 

purposes. 

Some commenters noted that registered investment companies often have 

multiple series, each with its own portfolio manager, investment strategy, and holdings; 

and that the concept of a parallel managed account could only be applied in the registered 

investment company context on a series-by-series basis.175 In response, we have updated 

 

173 BlackRock Letter (suggesting that asking during examinations for an adviser’s policies related to 

fair treatment of all accounts, and testing of compliance with those policies, would better achieve 

the objective); IAA Letter; Comment Letter of Small Business Investor Alliance (Aug. 11, 2015) 

(“SBIA Letter”) (opining that the proposal adds unnecessary reporting for advisers of business 

development companies and is duplicative of Form N-2). We believe the information to be 

collected in Section 5.G.(3) is different from the information collected on Form N-2 regarding 

closed-end funds and business development companies because the information collected on Form 

N-2 regarding management of other accounts focuses on individual portfolio managers, while the 

information collected on Form ADV is reported at the adviser level. 

174 Anonymous Letter (stating there are many reasons assets could shift between parallel managed 

accounts and registered investment companies or business development companies); BlackRock 

Letter.

175 IAA Letter; Oppenheimer Letter; SIFMA Letter.
56

Section 5.G.(3) to clarify that parallel managed accounts related to a registered 

investment company (or a series thereof) should be reported. 

One commenter felt that advisers would have difficulty interpreting the 

requirement that a parallel managed account pursue “substantially the same investment 

objective and strategy” as the relevant investment company or business development 

company.176 Advisers should use their best judgment and make a good faith 

determination as to whether the investment objectives and strategies in question are 

“substantially the same.” We note that many private fund advisers already make this 

determination when filling out Form PF.177 

One commenter asked for confirmation that the value of derivatives held in a 

parallel managed account should be calculated using the market value of the derivatives 

rather than the gross notional value, if that is how the value of the account is reported to 

the account holder.178 We agree that market value should be used in such a case.

179

 

176 PCA Letter.

177 The definition of “parallel managed account,” supra footnote 171, is consistent with the Form PF 

definition of “parallel managed account.” Form PF, Glossary of Terms. 

178 IAA Letter.

179 This approach is consistent with the staff’s view on how the value of a parallel managed account 

should be calculated on Form PF. See Form PF, Frequently Asked Questions. The staff’s 

response to Question 11 on reporting value states that “When calculating the value of a parallel 

managed account for purposes of either determining whether it is a dependent parallel managed 

account that is aggregated with the reporting fund or reporting its value in Question 11, you should 

use the market value of the derivatives held in the parallel managed account, instead of the gross 

notional value, if that is how the value of the account is reported to the account holder.”
57

Finally, we are amending Item 5, largely as proposed, to obtain additional 

information concerning wrap fee programs.180 Item 5.I. of Part 1A currently requires an 

adviser to indicate whether it serves as a sponsor of or portfolio manager for a wrap fee 

program. We are amending Item 5.I. to ask whether the adviser participates in a wrap fee 

program, and if so, the total amount of regulatory assets under management attributable 

to acting as a sponsor to or portfolio manager for a wrap fee program.181 One commenter 

noted that many advisers act as both the sponsor of and a portfolio manager for the same 

wrap fee program and that this could cause those advisers to double count their regulatory 

assets under management attributable to wrap fee programs in Item 5.I.182 We agree and 

have added a question to Item 5.I. that asks for the total amount of regulatory assets under 

management attributable to the adviser acting as both sponsor to and portfolio manager 

for the same wrap fee program. To prevent advisers from double-counting assets, we 

added an instruction that assets reported in this new category should not be reported 

elsewhere in Item 5.I.(2). 

Section 5.I.(2) of Schedule D currently requires an adviser to list the name and 

sponsor of each wrap fee program for which the adviser serves as portfolio manager. We 

are amending Section 5.I.(2), as proposed, to add questions that require an adviser to 

provide any SEC File Number and CRD Number for sponsors to those wrap fee 

 

180

 The Glossary to Form ADV defines a wrap fee program as “[a]ny advisory program under which a 

specified fee or fees not based directly upon transactions in a client’s account is charged for 

investment advisory services (which may include portfolio management or advice concerning the 

selection of other investment advisers) and the execution of client transactions.” We are not 

amending this definition.

181 Amended Form ADV, Part 1A, Item 5.I. 

182 MMI Letter.
58

programs.183 As discussed in the Proposing Release, this information will help us better 

understand a particular adviser’s business and assist in our risk assessment and 

examination process by making it easier for our staff to identify the extent to which the 

firm acts as sponsor or portfolio manager of wrap fee programs and collect information 

across investment advisers involved in a particular wrap fee program.184 

One commenter was generally supportive of our proposed reporting on wrap fee 

programs, but questioned its usefulness to investors and market participants.185 As 

discussed above, our enhanced wrap fee reporting is designed to assist our staff in its risk 

assessment and examination process. Three commenters requested further clarification 

regarding the existing definition of a wrap fee program.

186

 We are not changing or 

clarifying the existing definition of a “wrap fee program” that is included in Form ADV 

because, based on our experience with the Form, we believe it has been sufficiently clear. 

c. Additional Information About Financial Industry Affiliations and

Private Fund Reporting

Part 1A, Section 7.A. of Schedule D requires information on an adviser’s 

financial industry affiliations and Section 7.B.(1) of Schedule D requires information on 

 

183 Amended Form ADV, Part 1A, Section 5.I.(2) of Schedule D.

184 Proposing Release, supra footnote 3 at Section II.A.2.

185 CFA Letter.

186 ASG Letter (asking whether an adviser will be deemed to participate in a wrap fee program if the 

adviser negotiates an asset-based fee with a broker and pays that fee rather than having the client 

pay that fee); PCA Letter (asking whether an adviser will be deemed to “participate” in a wrap fee 

program as a result of placing client funds (or recommending that clients place non-discretionary 

funds) in one or more programs sponsored by unaffiliated third parties, but in which the adviser 

does not serve as the sponsor or a portfolio manager). See also NRS Letter (suggesting that we 

require wrap fee program sponsors to report the combined regulatory assets under management for 

themselves and any independent portfolio managers in their program).
59

private funds managed by the adviser. We are adopting as proposed amendments to 

Sections 7.A. and 7.B.(1) of Schedule D that require an adviser to provide identifying 

numbers (i.e., Public Company Accounting Oversight Board (“PCAOB”)-assigned

numbers187 and CIK Numbers188) in response to two questions to allow us to better 

compare information across data sets and understand the relationships of advisers to other 

financial service providers. 

Two commenters were concerned that, by requiring an adviser to report the 

PCAOB-assigned number of its auditing firm (if applicable), we are suggesting that using 

a PCAOB-registered auditing firm is required by the Commission.

189

 This is not our 

intent. An auditing firm performing a surprise examination is not required to be 

registered with the PCAOB unless the adviser or its related person is serving as qualified 

custodian.190

In addition, we are adding a question to Section 7.B.(1) of Schedule D to require 

an adviser to a private fund that qualifies for the exclusion from the definition of 

investment company under section 3(c)(1) of the Investment Company Act of 1940 (a 

“3(c)(1) fund”) to report whether it limits sales of the fund to qualified clients, as defined 

in rule 205-3 under the Advisers Act.191 As proposed, the question would have required 

 

187 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(e).

188 Amended Form ADV, Part 1A, Section 7.A of Schedule D, Question 4(b).

189 Shearman Letter. See Comment Letter of American Institute of Certified Public Accountants, 

Financial Reporting Executive Committee (Aug. 17, 2015) (“AICPA Letter”). 

190 Rules 206(4)-2(a)(4) and 206(4)-2(a)(6)(i).

191 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 15(b). Current Question 

15 will become Question 15(a).
60

an adviser to report, for every private fund that it advises (including any private fund that 

qualifies for the exclusion from the definition of “investment company” under section 

3(c)(7) of the Investment Company Act of 1940 (“3(c)(7) fund”), the approximate 

percentage of the private fund beneficially owned (in the aggregate) by qualified 

clients.192 One commenter supported the rationale for our proposal;193 however other 

commenters questioned the value of the question and were concerned about situations 

where the qualified client status of an investor is not known, or does not need to be 

determined.194 We continue to believe that this information will give us a better sense of 

the financial sophistication and nature of investors in private funds, but in response to 

comments, we are making two changes from our proposal.

First, we are limiting the question to 3(c)(1) funds because each investor in a

3(c)(7) fund is required to meet the higher “qualified purchaser” standard.195 Second, we 

are revising the question to require a simple yes or no response as to whether the adviser 

limits sales of a fund to qualified clients instead of requiring advisers to report the 

percentage of ownership of the fund by qualified clients. Commenters noted that many 

advisers that are not registered with the Commission (e.g., exempt reporting advisers196) 

 

192 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 15(b).

193 CFA Letter.

194 ACG Letter; Anonymous Letter; SBIA Letter. 

195 “Qualified purchaser” is defined in Section 2(a)(51) of the Investment Company Act of 1940 (15 

U.S.C. 80a-2(a)(51)). 

196 An exempt reporting adviser is an investment adviser that qualifies for the exemption from 

registration under section 203(l) of the Advisers Act because it is an adviser solely to one or more 

venture capital funds, or under rule 203(m)-1 under the Advisers Act because it is an adviser 

solely to private funds and has assets under management in the United States of less than $150 

million. See Form ADV, Glossary.
61

are not required to determine whether the fund’s investors are qualified clients.197 These 

advisers may simply respond “No” to the revised question. Other commenters asked us 

to clarify whether advisers must re-certify the qualified client status of their investors 

annually.198 As long as an investor met the definition of a “qualified client” when it 

entered into the advisory contract with the adviser, then the investor is considered a 

“qualified client” even if it no longer meets the dollar amount thresholds of the rule. This 

is consistent with our existing approach to the definition of qualified client.199 

3. Umbrella Registration

We are adopting, as proposed, amendments to Form ADV that codify umbrella 

registration for certain advisers to private funds. We are adopting the amendments today 

because we believe that umbrella registration should be made available to those private 

fund advisers that are registered with us and operate a single advisory business through 

multiple legal entities. Umbrella registration is not mandatory, but we believe it will 

simplify the registration process for these advisers, and provide additional and more 

consistent data about, and create a clearer picture of, groups of private fund advisers that 

operate a single advisory business through multiple legal entities. The amendments also 

will allow for greater comparability across private fund advisers.

 

197 ACG Letter; SBIA Letter. See also Anonymous Letter. Section 205(a) of the Advisers Act only 

applies to advisers who are registered or required to be registered with the Commission and 

generally restricts advisers from entering into, extending, renewing, or performing any advisory 

contract that provides for performance-based compensation. Rule 205-3 permits advisers to 

charge performance-based compensation to “qualified clients,” as defined in the rule. Advisers 

who are registered or required to be registered with the Commission are otherwise prohibited from 

charging performance-based compensation.

198 JGAS Letter; SBIA Letter. See also PCA Letter.

199 See Investment Adviser Performance Compensation, Investment Advisers Act Release No. 3372 

(Feb. 15, 2012) [77 FR 10358 (Feb. 22, 2012)].
62

As we discussed in the Proposing Release, the Dodd-Frank Act repealed the 

private adviser exemption that used to be in section 203(b)(3) of the Advisers Act.200 As 

a result, many previously unregistered advisers to private funds,201 including hedge funds 

and private equity funds, were required to register under the Advisers Act. Today, about 

4,469 registered investment advisers provide advice on approximately $10.5 trillion in 

assets to approximately 30,896 private funds clients.202

For a variety of tax, legal and regulatory reasons, advisers to private funds may be 

organized as a group of related advisers that are separate legal entities but effectively 

operate as - and appear to investors and regulators to be - a single advisory business. 

Although these separate legal entities effectively operate as a single advisory business,203

Form ADV was designed to accommodate the registration request of an adviser 

structured as a single legal entity. As a result, private fund advisers that operated as a 

single advisory business but were organized as separate legal entities may have had to file 

multiple registration forms, even though the registration effectively was for the same 

 

200 Section 403 of the Dodd-Frank Act. Section 203(b)(3) of the Advisers Act (the “private adviser 

exemption”) previously exempted any investment adviser from registration if the investment 

adviser (i) had fewer than 15 clients in the preceding 12 months, (ii) did not hold itself out to the 

public as an investment adviser and (iii) did not act as an investment adviser to a registered 

investment company or a company that elected to be a business development company.

201 Section 202(a)(29) of the Advisers Act defines the term “private fund” as “an issuer that would be 

an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 

U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act.”

202 Based on IARD system data as of May 16, 2016.

203 We treat as a single adviser two or more affiliated advisers that are separate legal entities but are 

operationally integrated, which could result in a requirement for one or both advisers to register. 

See Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than 

$150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers 

Act Release No. 3222 (June 22, 2011) [76 FR 39646 (Jul. 6, 2011)] (“Exemptions Release”). See 

also In the Matter of TL Ventures Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) 

(settled action).
63

advisory business. Multiple Form ADVs for a single advisory business may distort the 

data we collect on Form ADV and use in our regulatory program, be less efficient and 

more costly for advisers, and may be confusing to the public researching an adviser on 

our website.

Our staff provided guidance to private fund advisers before the compliance date 

of the Dodd-Frank Act private fund adviser registration requirements designed to address 

concerns raised by advisers.204 The guidance provided conditions under which the staff 

believed one adviser (the “filing adviser”) could file a single Form ADV on behalf of 

itself and other advisers that were controlled by or under common control with the filing 

adviser (each, a “relying adviser”), provided that they conducted a single advisory 

business (collectively an “umbrella registration”). 

We believe that most advisers that can rely on umbrella registration are doing so, 

with approximately 743 filing advisers and approximately 2,587 relying advisers filing 

umbrella registrations.205 However, the method outlined in the staff guidance for filing 

an umbrella registration was limited by the fact that the form was designed for a single 

legal entity. This created confusion for filers and the public. It also complicated our 

 

204 See 2012 ABA Letter, supra footnote 5. The Division of Investment Management previously 

provided no-action relief to enable a special purpose vehicle (“SPV”) that acts as a private fund’s 

general partner or managing member to essentially rely upon its parent adviser’s registration with 

the Commission rather than separately register. See American Bar Association Subcommittee on 

Private Investment Entities, SEC Staff Letter (Dec. 8, 2005), available at

http://www.sec.gov/divisions/investment/noaction/aba120805.htm (“2005 ABA Letter”) at 

Question G1.

205 Based on IARD system data as of May 16, 2016.
64

staff’s data collection and analysis on umbrella registrants.

206

 Today’s amendments are 

designed to ameliorate these issues. 

We are adopting, as proposed, amendments to Form ADV’s General Instructions 

that establish conditions for an adviser to assess whether umbrella registration is 

available. The conditions we are adopting today are the same as the conditions set forth 

in the staff’s guidance that many investment advisers have relied on since 2012 (except 

that the staff’s guidance also included disclosure conditions for Form ADV, the substance 

of which is covered elsewhere in this Release).207 The conditions are as follows:

1. The filing adviser and each relying adviser advise only private funds and clients 

in separately managed accounts that are qualified clients (as defined in rule 205-3 

under the Advisers Act) and are otherwise eligible to invest in the private funds 

advised by the filing adviser or a relying adviser and whose accounts pursue 

investment objectives and strategies that are substantially similar or otherwise 

related to those private funds; 

2. The filing adviser has its principal office and place of business in the United 

States and, therefore, all of the substantive provisions of the Advisers Act and the 

rules thereunder apply to the filing adviser’s and each relying adviser’s dealings 

 

206 Under the guidance provided by the staff, for example, umbrella registration was appropriate 

where a relying adviser was not prohibited from registering with the Commission by section 203A 

of the Advisers Act. See 2012 ABA Letter, supra footnote 5. However, a relying adviser did not 

have a way to answer Item 2 regarding the basis on which it was eligible for SEC registration. In 

addition, relying advisers often had to list owners and executive officers in a confusing manner in 

Schedules A and B which were not designed to accommodate multiple advisers and did not always 

provide the Commission staff with useful information on the owners of each relying adviser. 

Also, the filing adviser disclosed its reliance on the 2012 ABA Letter in the Miscellaneous Section 

of Schedule D. 

207 See 2012 ABA Letter, supra footnote 5 at Question 4.
65

with each of its clients, regardless of whether any client or the filing adviser or 

relying adviser providing the advice is a United States person;208

3. Each relying adviser, its employees and the persons acting on its behalf are 

subject to the filing adviser’s supervision and control and, therefore, each relying 

adviser, its employees and the persons acting on its behalf are “persons associated 

with” the filing adviser (as defined in section 202(a)(17) of the Advisers Act); 

4. The advisory activities of each relying adviser are subject to the Advisers Act and 

the rules thereunder, and each relying adviser is subject to examination by the 

Commission; and 

5. The filing adviser and each relying adviser operate under a single code of ethics 

adopted in accordance with rule 204A-1 under the Advisers Act and a single set 

of written policies and procedures adopted and implemented in accordance with 

rule 206(4)-(7) under the Advisers Act and administered by a single chief 

compliance officer in accordance with that rule.209 

The conditions are designed to limit eligibility for umbrella registration to groups 

of private fund advisers that operate as a single advisory business. For purposes of 

umbrella registration, we consider the following factors as indicia of a single advisory 

business: commonality of advisory services and clients; a consistent application of the 

Advisers Act and the rules thereunder to all advisers in the business; and a unified 

 

208 The Glossary to Form ADV provides that “United States person” has the same meaning as in rule 

203(m)-1 under the Advisers Act, which includes any natural person that is resident in the United 

States.

209 The code of ethics and written policies and procedures must be administered as if the filing adviser 

and each relying adviser are part of a single entity, although they may take into account, for 

example, that a relying adviser operating in a different jurisdiction may have obligations that differ 

from the filing adviser or another relying adviser.
66

compliance program. The conditions that we are adopting today are designed to 

demonstrate these factors. Condition 1 limits eligibility for umbrella registration to 

private fund advisers with a commonality of advisory services and clients. Conditions 2 

and 4 are designed to provide assurance that our staff has access to and can readily 

examine the filing and relying advisers and that the Advisers Act and the rules thereunder 

fully apply to all advisers under the umbrella registration and clients of those advisers. 

Conditions 3 and 5 are designed to provide assurance that the filing and relying advisers 

are subject to a unified compliance program. Based on our experience, we believe that 

the conditions, when taken together, are a strong indication of the existence of a single 

private fund advisory business operating through the use of multiple legal entities.

In addition, we are amending the General Instructions as proposed to provide 

advisers using umbrella registration directions on completing Form ADV for the filing 

adviser and each relying adviser, including details for filing umbrella registration requests 

and the timing of filings and amendments in connection with an umbrella registration.210 

To satisfy the requirements of Form ADV while using umbrella registration, the filing 

adviser is required to file, and update as required, a single Form ADV (Parts 1 and 2) that 

relates to, and includes all information concerning, the filing adviser and each relying 

adviser, and must include this same information in any other reports or filings it must 

make under the Advisers Act or the rules thereunder (e.g., Form PF). The revisions to the 

form’s Instructions and Form ADV further specify those questions that should be 

answered solely with respect to the filing adviser and those that require the filing adviser 

 

210 See Form ADV, General Instruction 5.
67

to answer on behalf of itself and its relying adviser(s).211 Additionally, we are amending 

the Glossary as proposed to add the following three terms: (i) “filing adviser;”212 (ii) 

“relying adviser;”213 and (iii) “umbrella registration.”214

We also are adopting as proposed a new schedule to Part 1A – Schedule R – that 

must be filed for each relying adviser.215 Schedule R requires identifying information, 

basis for SEC registration, and ownership information about each relying adviser, some 

of which was already filed by an adviser relying on the staff guidance.216 This new 

schedule consolidates in one location information for each relying adviser and addresses 

the problem the staff faced in its guidance that resulted in information regarding relying 

advisers being submitted in response to a number of different items on the Form, in ways 

not consistent across advisers, due to the fact that Form ADV was not designed to 

 

211 See, e.g., statements added to Form ADV, Instructions and Part 1A, Items 1, 2, 3, 7, 10 and 11.

212 “Filing Adviser” means: “An investment adviser eligible to register with the SEC that files (and 

amends) a single umbrella registration on behalf of itself and each of its relying advisers.” See

Form ADV, Glossary. 

213 “Relying Adviser” means: “An investment adviser eligible to register with the SEC that relies on a 

filing adviser to file (and amend) a single umbrella registration on its behalf.” See Form ADV,

Glossary. 

214 “Umbrella Registration” means: “A single registration by a filing adviser and one or more relying 

advisers who collectively conduct a single advisory business and that meet the conditions set forth 

in General Instruction 5.” See Form ADV, Glossary. 

215 Advisers that choose to file an umbrella registration are directed by Item 1.B. to complete a new 

Schedule R for each relying adviser. Form ADV, Part 1A, Item 1.B.(2).

216 Schedule R requires the following information for each relying adviser: identifying information 

(Section 1); basis for SEC registration (Section 2); form of organization (Section 3) and control 

persons (Section 4). For basis for SEC registration (Section 2), we did not include categories that 

would make the relying adviser ineligible for umbrella registration, such as serving as an adviser 

to a registered investment company. 
68

accommodate umbrella registration.

217

 We believe that certain information that we are 

requiring (such as mailing address and basis for registration) is the same for nearly all 

relying advisers, and the filing adviser can check a box indicating that the mailing 

address of the relying advisers is the same as that of the filing adviser. Finally, we are 

adding, as proposed, a new question to Schedule D that requires advisers to identify the 

filing advisers and relying advisers that manage or sponsor private funds reported on 

Form ADV.218 This information will allow us to identify the specific adviser managing 

the private fund reported on Form ADV if it is part of an umbrella registration. We 

believe that this information will help us better understand the management of private 

funds, will provide information to contact relying advisers, and will help us better 

understand the relationship between relying advisers and filing advisers. 

We received multiple comment letters regarding our proposal to codify umbrella 

registration, the vast majority of which expressed support for umbrella registration.219 

Several commenters also agreed that umbrella registration should not be mandatory.220 

However, several commenters urged the Commission to expand the eligibility for 

umbrella registration to additional advisers including non-U.S. filing advisers, exempt 

 

217 Under the staff’s guidance in the 2012 ABA Letter, an adviser reported in its Form ADV 

(Miscellaneous Section of Schedule D) that it and its relying advisers were together filing a single 

Form ADV in reliance on the position expressed in the letter and identified each relying adviser by 

completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and 

identified it as such by including the notation “(relying adviser).” See 2012 ABA Letter, supra

footnote 5 at Question 4.

218 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 3(b). 

219 See, e.g., ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; BlackRock Letter; 

CFA Letter; Dechert Letter; MFA Letter; NASAA Letter; NRS Letter; NYSBA Committee Letter; 

PCA Letter; PEGCC Letter; SBIA Letter; Schulte Letter; Shearman Letter; SIFMA Letter.

220 ABA Committee Letter; ASG Letter; BlackRock Letter; Dechert Letter.
69

reporting advisers, advisers to other types of clients, and advisers not independently 

eligible to register with the Commission.221 

Many commenters encouraged us to permit umbrella registration for non-U.S. 

filing advisers.

222

 However, as we previously have expressed, we remain concerned that, 

absent Condition 2 (which requires that the filing adviser have its principal place of 

business in the United States), a group of related advisers based inside and outside of the 

United States could designate a non-U.S. adviser as a filing adviser, and could assert, 

based on the theory of operating a single advisory business, that the Advisers Act’s 

substantive provisions generally would not apply to the U.S.-based relying advisers’ 

dealings with their non-U.S. clients.223 Many commenters acknowledged this concern.

224

 

Some commenters suggested that we address the concern by requiring that advisers 

indicate on their umbrella registration that they will follow applicable law.225 We believe 

that Condition 2 eliminates the difficult determinations of the Advisers Act’s application

to these advisory relationships. The amendments we are adopting today do not change 

 

221 One commenter suggested that advisers that can, but do not elect to, file an umbrella registration 

be required to note that on Form ADV. CFA Letter.

222 ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA Committee Letter; Schulte Letter. 

See also Shearman Letter. 

223 2012 ABA Letter, supra footnote 5 at n.9; See Exemptions Release, supra footnote 203 at Section 

II.D.

224 ABA Committee Letter; AIMA Letter; NYSBA Committee Letter; Schulte Letter; Shearman 

Letter.

225 AIMA Letter; NYSBA Committee Letter. See also Dechert Letter; ABA Committee Letter

(suggesting that we state on Form ADV that the Advisers Act applies with respect to all U.S. 

clients of every registered investment adviser, and with respect to all of the activities of registered 

investment advisers that have their principal place of business in the United States). 
70

the Commission’s statements with respect to the cross-border application of the Advisers 

Act.226

Two commenters suggested permitting umbrella registration for an organization 

where all of the advisers have their principal office and place of business outside of the 

United States.227 However, umbrella registration is intended to apply only where our 

staff has access to and can readily examine the filing and relying advisers and where the 

Advisers Act and the rules thereunder fully apply to all advisers (and clients) under the 

umbrella registration.228 This would not be the case for a group of non-U.S. advisers. 

Several commenters229 argued that we should expand the concept of umbrella 

registration by registered advisers to include “umbrella reporting” by exempt reporting 

advisers. Many of these commenters stated, and we acknowledge, that allowing exempt 

reporting advisers that operate a single advisory business through multiple legal entities 

to file an “umbrella report” would provide many of the same benefits as umbrella 

registration.230 However, we are not expanding the concept of umbrella registration to 

include “umbrella reporting” by exempt reporting advisers at this time. Some of the 

 

226 Certain commenters discussed our cross-border application of the Advisers Act. ABA Committee 

Letter; Dechert Letter; Schulte Letter. Most of the substantive provisions of the Advisers Act are 

not applied to the non-U.S. clients of a non-U.S. adviser registered with the Commission but nonU.S. advisers registered with the Commission must comply with the Advisers Act and the 

Commission’s rules thereunder with respect to any U.S. clients (and any prospective U.S. clients) 

they may have. See Proposing Release, supra footnote 3 at n.57 and Exemptions Release, supra

footnote 203 at Section II.D. 

227 Schulte Letter; Shearman Letter. 

228 Proposing Release, supra footnote 3 at Section II.A.3. 

229 ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; MFA Letter; NYSBA 

Committee Letter; SBIA Letter; Schulte Letter; Shearman Letter.

230 ABA Committee Letter; AIMA Letter; MFA Letter; SBIA Letter; Schulte Letter. See also ACG 

Letter.
71

conditions required for umbrella registration reflect certain requirements that apply only 

to registered advisers.231 Different conditions might be more appropriate for ensuring 

that a group of exempt reporting advisers is operating a single advisory business and 

therefore should be able to take advantage of “umbrella reporting.” 

Certain commenters questioned the status of a set of Frequently Asked 

Questions232 that permits certain exempt reporting advisers to file a single Form ADV on 

behalf of multiple special purpose entities.233 The views of the staff as expressed in these 

Frequently Asked Questions are not withdrawn as a result of today’s amendments to 

Form ADV. 

Two commenters disagreed with Condition 5’s requirement that the filing adviser 

and each relying adviser operate under a single code of ethics adopted in accordance with 

rule 204A-1 under the Advisers Act and a single set of written policies and procedures 

adopted and implemented in accordance with rule 206(4)-(7) under the Advisers Act and 

administered by a single chief compliance officer in accordance with that rule.

234

 One 

commenter argued that Condition 5 was too restrictive and suggested that we allow 

groups of related advisers with “substantially similar” codes of ethics and sets of policies 

 

231 Specifically, exempt reporting advisers are not subject to the requirement for compliance policies 

and procedures pursuant to rule 206(4)-7 under the Advisers Act or for a code of ethics pursuant to 

rule 204A-1 under the Advisers Act. See ACG Letter.

232 Frequently Asked Questions on Form ADV and IARD, Reporting to the SEC as an Exempt 

Reporting Adviser (Mar. 2012), available at 

https://www.sec.gov/divisions/investment/iard/iardfaq.shtml#exemptreportingadviser. 

233 ABA Committee Letter; AIMA Letter; NYSBA Committee Letter.

234 Capital Research Letter. See ACG Letter (stating that Condition 5 would have the practical effect 

of excluding exempt reporting advisers from eligibility for umbrella registration because exempt 

reporting advisers are not required by Advisers Act rule 204A-1 to adopt a code of ethics, nor are 

they required by Advisers Act rule 206(4)-7 to adopt compliance policies and procedures).
72

and procedures administered by several chief compliance officers operating under a 

“common compliance regime” to file an umbrella registration.235 Based on our 

experience with private fund advisers that operate a single private fund advisory business 

through multiple legal entities, we believe that they commonly have a unified compliance 

program which is characterized by a single code of ethics and a single set of compliance 

policies and procedures administered by a single chief compliance officer. Because we 

believe that the existence of a unified compliance program that meets the requirements of 

Condition 5 is a meaningful indicia of a single private fund advisory business, we are not 

modifying Condition 5 at this time. 

Several commenters disagreed with limiting umbrella registration eligibility to 

advisers operating a single private fund advisory business as described in Condition 1.236 

Some commenters urged the Commission to make umbrella registration available where 

the advisers operate a single advisory business for types of clients other than those 

described in Condition 1, including registered investment companies and business 

development companies.237 Another commenter disagreed with limiting eligibility to a 

single advisory business of any kind and suggested that umbrella registration apply to all 

related persons of a filing adviser.238 However, as we stated in the Proposing Release, we 

do not believe umbrella registration is appropriate for advisers that are related but that 

 

235 Capital Research Letter.

236 ASG Letter; BlackRock Letter; Capital Research Letter; Dechert Letter; Comment Letter of 

Tannenbaum Helpern Syracuse & Hirschtritt LLP (Aug. 5, 2016) (“Tannenbaum Letter”) 

(disagreed with “substantially similar or otherwise related” language, because advisers may 

operate a single business with different investment strategies). 

237 ASG Letter; Dechert Letter. See also BlackRock Letter.

238 Capital Research Letter.
73

operate separate advisory businesses as it would compromise data quality and complicate 

analyses that rely on data from Form ADV.239 We believe that by adopting umbrella 

registration as proposed, we are best able to accommodate the unique needs of private 

fund advisers that operate a single advisory business through multiple legal entities 

without compromising the data quality or analyses that rely on data from Form ADV.

Several commenters took issue with the proposal’s requirement to determine 

asset-based eligibility for umbrella registration on an entity-by-entity, rather than 

consolidated, basis.240 These commenters suggested that the goals of providing a clearer 

picture of groups of related advisers that operate as a single business and establishing a 

more efficient method for registration for separate legal entities that collectively conduct 

a single advisory business would be better served by allowing the group to determine 

asset-based eligibility for umbrella registration on a consolidated basis.241 Umbrella 

registration was intended to consolidate the multiple registration forms that may 

otherwise have been required by a single advisory business. It was not intended to alter 

or modify the eligibility for registration with the Commission.242

 

239 Proposing Release, supra footnote 3 at Section II.A.3.

240 Dechert Letter; Morgan Letter; NRS Letter; NYSBA Committee Letter. See MFA Letter (arguing 

that a registered private fund adviser that serves as a filing adviser should be able to add a relying 

adviser that is an exempt reporting adviser to its umbrella registration).

241 Id. 

242 See Proposing Release, supra footnote 3 at Section II.A.3. To the extent there is concern about the 

eligibility of SEC registration for newly-formed relying advisers, rule 203A-2(c) provides an 

exemption for advisers that expect to be eligible for Commission registration within 120 days.
74

Some commenters disagreed with the requirement contained in Condition 1 that 

separately managed accounts be owned by qualified clients.243 One commenter stated 

that the qualified client requirement for separately managed accounts is not related to the 

single business requirement.244 Condition 1 also requires that the qualified clients be 

otherwise eligible to invest in the private funds advised by the filing adviser or a relying 

adviser and that their accounts pursue investment objectives and strategies that are 

substantially similar or otherwise related to those private funds. Condition 1, including 

the qualified client requirement, is intended to ensure the commonality of clients that we 

believe is an important indicia of a single private fund advisory business. For example, if 

a group of advisers advised private funds as well as separately managed accounts held by 

non-qualified clients or separately managed accounts that pursue investment objectives or 

strategies that differ from the private funds they advise, we do not believe they would be 

operating a single private fund advisory business. The offering of separately managed 

accounts to clients other than qualified clients (such as retail clients) or separately 

managed accounts that pursue investment objectives or strategies that differ from the 

private funds they advise indicate that the group of advisers is engaged in lines of 

business that differ from a single private fund advisory business that we intend to cover 

with umbrella registration. Accordingly, at this time, we continue to believe that a group 

of advisers’ ability to comply with Condition 1, including the qualified client requirement 

for separately managed accounts, is a meaningful indicia of a single private fund advisory 

business, and we are therefore adopting Condition 1 as proposed. 

 

243 Morgan Letter; NYSBA Committee Letter; Tannenbaum Letter. See also PCA Letter.

244 NYSBA Committee Letter. 
75

We also received several comments on the new amendments to Form ADV to 

accommodate umbrella registration. Two commenters generally supported the benefits 

of new Schedule R, which requires separate reporting of indirect and direct ownership for 

relying advisers (similar to current Schedules A and B of Form ADV).

245 One 

commenter was concerned that relying advisers, which may act as special purpose 

general partners or similar entities and may be owned by employees sharing in the 

performance-based compensation paid by the fund, would in effect be forced to share the 

details of employee compensation on a public filing.246 The ownership information 

required of relying advisers is consistent with the ownership information required of 

filing advisers. We believe this information will more accurately reflect the full nature 

and scope of the single advisory business conducted by the group of related advisers and 

will be more informative for advisory clients and private fund investors as well as the 

Commission.247 

4. Clarifying, Technical and Other Amendments to Form ADV

We are adopting, largely as proposed, several amendments to Form ADV that are 

designed to clarify the form and its instructions. As noted in the Proposing Release, we 

believe these amendments to Form ADV will make the filing process clearer and more 

efficient for advisers and increase the reliability and the consistency of information 

provided by investment advisers. More reliable and consistent information will improve 

our staff’s ability to interpret, understand, and place in context the information provided 

 

245 ASG Letter; PEGCC Letter.

246 Shearman Letter.

247 See Proposing Release, supra footnote 3 at Section II.A.3. 
76

by advisers, allow our staff to make comparisons across investment advisers and improve 

the risk assessment and examination program. Many of these amendments are derived 

from questions frequently received by our staff. Except where noted, we did not receive 

comments on these amendments.

a. Amendments to Item 2

Item 2.A. of Part 1A of Form ADV requires an adviser to select the basis upon 

which it is eligible to register with the Commission, and Item 2.A.(9) includes as a basis 

that the adviser is eligible for registration because it is a “newly formed adviser” relying 

on rule 203A-2(c) because it expects to be eligible for SEC registration within 120 

days.248 Section 2.A.(9) of Schedule D is entitled “Newly Formed Adviser” and requests 

the adviser to make certain representations. As noted in the Proposing Release, our staff 

has received questions about whether the exemption from the prohibition on Commission 

registration contained in rule 203A-2(c) under the Advisers Act applies only to entities 

that have been “newly formed,” i.e., newly created as corporate or other legal entities. It 

does not only apply to newly created entities and therefore, as proposed, we are deleting 

the phrase “newly formed adviser” from Item 2.A.(9) and Section 2.A.(9) of Schedule D. 

Section 2.A.(9) will be renamed “Investment Adviser Expecting to be Eligible for 

Commission Registration within 120 Days.”249

b. Amendments to Item 4

Item 4 of Part 1A of Form ADV addresses successions of investment advisers, and 

the Instructions to Item 4 provide that a new organization has been created under certain 

 

248 Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of Schedule D. 

249 Amended Form ADV, Part 1A, Item 2.A.(9); see rule 203A-2(c) under the Advisers Act. 
77

circumstances, including if the adviser has changed its structure or legal status (e.g., form 

of organization or state of incorporation). As noted in the Proposing Release, our staff 

frequently receives questions from investment advisers regarding this item and, as 

proposed, we are adding to Item 4 and Section 4 of Schedule D text that is currently 

contained in the Instructions to Item 4 that succeeding to the business of a registered 

investment adviser includes, for example, a change of structure or legal status (e.g., form 

of organization or state of incorporation).250

c. Amendments to Item 7

Item 7 of Part 1A of Form ADV and corresponding sections of Schedule D 

require advisers to report information about their financial industry affiliations and the 

private funds they advise. We are adopting several technical amendments to Item 7. As 

proposed, we are revising Item 7.A., which requires advisers to check whether their

related persons are within certain categories of the financial industry, to clarify that 

advisers should not disclose in response to this item that some of their employees perform 

investment advisory functions or are registered representatives of a broker-dealer, because

this information is required to be reported on Items 5.B.(1) and 5.B.(2) of Part 1A,

respectively. Items 5.B.(1) and 5.B.(2) request information about an adviser’s employees. 

Adding this text to Form ADV should assist filers in filling out the form as well as provide 

more accurate data to us and the general public.251

 

250 Amended Form ADV, Part 1A, Item 4.A. and Section 4 of Schedule D. 

251 Amended Form ADV, Part 1A, Item 7. The staff has provided this clarification and it is currently 

available online at our staff’s Frequently Asked Questions on Form ADV and IARD, available at 

http://www.sec.gov/divisions/investment/iard/iardfaq.shtml. 
78

Item 7.B. of Part 1A of Form ADV asks whether the adviser serves as adviser to

any private fund. Section 7.B.(1) of Schedule D requires advisers to provide information 

about the private funds they manage. We are adding text to Item 7.B. clarifying that 

Section 7.B.(1) of Schedule D should not be completed if another SEC-registered adviser 

or SEC exempt reporting adviser reports the information required by Section 7.B.(1) of 

Schedule D. Currently the instructions only refer to another adviser. We are also 

adopting, as proposed, several amendments to Section 7.B.(1) of Schedule D. Question 8 

of Section 7.B.(1) currently asks whether the private fund is a “fund of funds,” and if it is, 

whether the private fund invests in funds managed by the adviser or a related person of the 

adviser. Below those two questions there is a note informing advisers when they should 

answer yes to the first question regarding whether the private fund is a “fund of funds.” 

We are moving the note to directly after Question 8.(a).252 We believe this change will 

assist filers in answering Question 8.

Question 10 of Section 7.B.(1) of Schedule D asks the adviser to identify the 

category of the private fund. As proposed, we are deleting text in Question 10 that directs 

advisers to refer to the underlying funds of a fund of funds when selecting the type of 

fund, in order to reconcile differences with Form PF, which permits advisers to disregard 

any private fund’s equity investments in other private funds.253 Question 19 of Section 

7.B.(1) of Schedule D asks whether the adviser’s clients are solicited to invest in the 

private fund. We are adding text to Question 19, as proposed, to make clear that the 

 

252 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Questions 8.(a)-(b). 

253 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 10. See Form PF, General 

Instruction 7. 
79

adviser should not consider feeder funds as clients of the adviser to a private fund when 

answering whether the adviser’s clients are solicited to invest in the private fund.254 As 

noted in the Proposing Release, this is a common question that our staff receives and the 

intent of Question 19 is not to capture affiliated feeder funds. Question 21 of Section 

7.B.(1) of Schedule D asks whether the private fund relies on an exemption from 

registration of its securities under Regulation D of the Securities Act of 1933 and Question 

22 asks for the private fund’s Form D file number. We are adopting a clarifying revision 

to Question 21 as proposed to ask if the private fund has ever relied on an exemption from 

registration of its securities under Regulation D, in order to better reflect the intention of 

the Question.255 The current Question 21, if answered in the negative, would not require 

the adviser to provide the private fund’s Form D file number in Question 22, meaning we 

would not receive Form D file numbers in the event there was past reliance on Regulation 

D.256

We are adopting revisions to Question 23.(a)(2) as proposed. Currently, this 

question requires an adviser to check a box to indicate whether the private fund’s financial 

statements are prepared in accordance with U.S. generally accepted accounting principles 

(“GAAP”).257 We are adding text instructing advisers that they are required to answer 

Question 23.(a)(2) only if they answer “yes” to Question 23.(a)(1), which asks whether the 

 

254 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 19. 

255 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 

256 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 

257 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(a)(2). 
80

private fund’s financial statements are subject to an annual audit.258 This revision will 

clarify when an adviser is actually required to answer Question 23.(a)(2). We are also 

revising Question 23.(g) as proposed. The question currently asks whether the private 

fund’s audited financial statements are distributed to the private fund’s investors. We are 

adding “for the most recently completed fiscal year” to clarify the question. In addition, 

we are revising Question 23.(h) as proposed. This question currently asks whether the 

report prepared by the auditing firm contains an unqualified opinion.259 As noted in the

Proposing Release, this question has prompted questions from advisers regarding which 

report and what timeframe the question refers to. To clarify, we are revising the question, 

as proposed, to ask whether all of the reports prepared by the auditing firm since the date 

of the adviser’s last annual updating amendment contain unqualified opinions.260 Finally, 

as proposed, we are adding Question 25.(g), which requests the legal entity identifier, if 

any, for a private fund custodian that is not a broker-dealer, or that is a broker-dealer but 

does not have an SEC registration number. The legal entity identifier is a unique 

identifier associated with a single entity and is intended to provide a uniform 

international standard for identifying parties to financial transactions. Furthermore, the 

reporting of legal entity identifier information on Form ADV facilitates the ability of 

investors and the Commission to link the data reported with data from other filings or 

sources that is reported elsewhere as legal entity identifiers become more widely used by 

 

258 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(a)(2). 

259 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(h). 

260 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(h). 
81

regulators and the financial industry. This information will help our examination staff 

more readily identify the use of particular custodians by private funds.

d. Amendments to Item 8

Based on inquiries from filers, we are adopting the proposed amendments to Item 

8 with a modification to clarify that newly-formed advisers should answer questions in the 

item based on the types of participation and interest they expect to engage in during the 

next year. In the Proposing Release, we did not specify that the instruction was for 

newly-formed advisers, and commenters expressed concern that the proposal would 

make Item 8 the only section in Part 1A requesting forward-looking information, and 

were concerned about the difficulty around gauging the likelihood of future events and 

the possibility for “false positives.”261 We agree and, as adopted here, we have updated 

the Item to address commenters’ concerns. 

Item 8.B.(2) of Part 1A of Form ADV currently asks whether the adviser or any

related person of the adviser recommends the purchase of securities to advisory clients for

which the adviser or any related person of the adviser serves as underwriter, general or 

managing partner, or purchaser representative.262 The current wording has caused

confusion regarding the treatment of purchaser representatives. As proposed, we are

rewording the question to ask whether the adviser or any related person of the adviser 

recommends to advisory clients or acts as a purchaser representative for advisory clients 

with respect to the purchase of securities for which the adviser or any related person of the 

adviser serves as underwriter or general or managing partner. As noted in the Proposing 

 

261 See IAA Letter; Oppenheimer Letter; SIFMA Letter.

262 Form ADV, Part 1A, Item 8.B.(2). 
82

Release, this edit is designed to clarify that the question applies to any related person who 

recommends to advisory clients or acts as a purchaser representative for advisory clients 

with respect to the purchase of securities for which the adviser or any related person of the

adviser serves as underwriter or general or managing partner.263

Item 8.H. of Part 1A of Form ADV asks whether the adviser or any related person 

of the adviser, directly or indirectly, compensates any person for client referrals. We are 

revising Item 8.H. as proposed to break the question into two parts to increase our 

understanding of compensation for client referrals. Revised Item 8.H.(1) will cover 

compensation to persons other than employees for client referrals.264 Revised Item 8.H.(2) 

will cover compensation to employees, in addition to employees’ regular salaries, for 

obtaining clients for the firm.265 Item 8.I. asks whether the adviser or any related person 

of the adviser directly or indirectly receives compensation from any person other than the 

adviser or related person of the adviser for client referrals. We are also adding text to Item 

8.I., as proposed, to clarify that advisers should not include the regular salary that the 

adviser pays to an employee in responding to this item.266 

Two commenters thought that the proposed amendment to Item 8.H was highly 

subjective and needed additional guidance.267 In addition, one commenter suggested that 

 

263 Amended Form ADV, Part 1A, Item 8.B.(2). 

264 Amended Form ADV, Part 1A, Item 8.H.(1). 

265 Amended Form ADV, Part 1A, Item 8.H.(2). 

266 Amended Form ADV, Part 1A, Item 8.I. 

267 See MMI Letter (Item 8.H.(2) should be modified to conform with Item 5 of Part 2B, where 

economic benefits for providing advisory services are disclosed, but not regular salaries or 

bonuses). See also PCA Letter.
83

Part 2B of Form ADV provided adequate disclosure of employee compensation.268 

While we appreciate these comments, we are adopting these amendments as proposed. 

We continue to believe Item 8.H and the accompanying instructions are sufficiently clear 

and are appropriate to accommodate responses from and provide flexibility to varying 

types of advisory businesses and compensation arrangements. As noted in the Proposing 

Release, we are adopting these amendments to Item 8.H to better understand how advisers 

compensate both their staff and third parties for client referrals. The revisions to this item 

do not change the scope of the information collected, but instead provide more precise 

information about compensation for client referrals.

e. Amendments to Section 9.C. of Schedule D

Section 9.C. of Schedule D requests information about independent public 

accountants that perform surprise examinations in connection with the Advisers Act 

custody rule, rule 206(4)-2. We are adopting two changes to Section 9.C. of Schedule D 

as proposed. First, we are adding text requiring an adviser to provide the PCAOBassigned number of the adviser’s independent public accountant. This will improve our 

staff’s ability to cross-reference information submitted through other systems and evaluate

compliance with the custody rule.269 Section 9.C.(6) currently requires advisers to report 

whether any report prepared by an independent public accountant that audited a pooled 

investment vehicle or examined internal controls contained an unqualified opinion. We 

are amending Section 9.C.(6) in a manner similar to Section 7.B.(1) of Schedule D, 

Question 23.(h) as described above to provide clarity to filers. Accordingly, the question 

 

268 JAG Letter.

269 Amended Form ADV, Part 1A, Section 9.C.(3) of Schedule D. 
84

will now ask whether all of the reports prepared by the independent public accountant 

since the date of the last annual updating amendment have contained unqualified 

opinions.270

We received requests from multiple commenters to amend Item 9 of Part 1A and 

Section 9.C. of Schedule D related to custody.271 We appreciate commenters’ 

suggestions, but these suggested amendments to Item 9 or Section 9.C. are outside the 

scope of this rulemaking and we are not amending them at this time. 

f. Amendments to Disclosure Reporting Pages

Item 11 of Part 1A of Form ADV requires registered advisers and exempt 

reporting advisers to provide information about their disciplinary history and the 

disciplinary history of their advisory affiliates. Those advisers who report an event for 

purposes of Item 11 are directed to complete a Disclosure Reporting Page (“DRP”) to 

provide the details of the event. DRPs can be removed from Form ADV under certain 

circumstances, including when “the adviser is registered or applying for registration with 

the SEC and the event was resolved in the adviser’s or advisory affiliate’s favor.”272 As 

proposed, we are amending this text in each DRP to add “or reporting as an exempt 

reporting adviser with the SEC” after “applying for registration with the SEC” to clarify 

that both registered and exempt reporting advisers may remove a DRP from their Form 

ADV record if a criminal, regulatory or civil judicial action was resolved in the adviser’s 

 

270 Amended Form ADV, Part 1A, Section 9.C.(6) of Schedule D. 

271 See ASG Letter; Comment Letter of Pat Hyman (June 11, 2015) (“Hyman Letter”); IAA Letter; 

PCA Letter and Schwab & Co. Letter.

272 Form ADV, Part 1A, Criminal, Regulatory Action and Civil Judicial Action Disclosure Reporting 

Pages. 
85

(or advisory affiliate’s) favor.273 As discussed in the Proposing Release, these 

amendments will make disciplinary reporting uniform across registered and exempt 

reporting advisers, consistent with requiring exempt reporting advisers to report 

disciplinary events on Form ADV.

g. Amendments to Instructions and Glossary

Together with the amendments to Part 1A, we are also adopting, as proposed,

conforming amendments to the General Instructions and the Glossary for Form ADV. As 

discussed above, we are amending the General Instructions to include instructions 

regarding umbrella registration. As proposed, we are also removing outdated references 

to “Special One-Time Dodd-Frank Transition Filing for SEC Registered Advisers” and 

“recent” amendments to Form ADV Part 2 that are no longer needed. We retained one 

sentence from those instructions that specifies that every application for registration must 

include a narrative brochure prepared in accordance with the requirements of Part 2A of 

Form ADV.274 We also added clarifying language that exempt reporting advisers 

submitting other than annual amendments should update corresponding sections of 

Schedules A, B, C and D,275 and provided updated mailing instructions for FINRA.276 In 

 

273 Amended Form ADV, Part 1A, Criminal, Regulatory Action and Civil Judicial Action Disclosure 

Reporting Pages. 

274 Amended Form ADV, General Instructions, Instruction 3. 

275 Amended Form ADV, General Instructions, Instruction 4.

276 Amended Form ADV, General Instructions, Instruction 9.
86

the glossary, we are updating the definition of “Legal Entity Identifier” to reflect recent

advancements in this protocol.277

Where applicable, we are making technical revisions, as proposed, to specify that 

an adviser must “apply for registration” (rather than simply “register”) to more accurately 

reflect the rule text. As proposed, we are also deleting text in the instructions related to 

Item 1.O. because this text is going to appear directly in the corresponding section of Part 

1 of Form ADV. We are adding text clarifying that a change in information related to 

Item 1.O. does not necessitate a prompt other-than-annual amendment (as changes to 

Item 1 otherwise do). 

We have also received numerous comment letters recommending additional 

amendments to clarify other sections of Form ADV.278 While we appreciate commenters 

raising their concerns with us, these suggested recommendations are outside the scope of 

this rulemaking and we decline to take action to further modify Form ADV based on 

these comments.

 

277 The definition of Legal Entity Identifier is: A “legal entity identifier” assigned by a utility 

endorsed by the Global LEI Regulatory Oversight Committee (ROC) or accredited by the Global 

LEI Foundation (GLEIF). See Amended Form ADV, Glossary. In Item 1.P., we are removing 

outdated text referring to the “legal entity identifier” as being “in development” in the first half of 

2011. 

278 See, e.g., ASG Letter (Items 6 and 7); JGAS Letter; PCA Letter (Item 8); NYSBA Committee 

Letter (Items 5 and 8 and Schedule D); PCA Letter (Items 5 and 8); T. Rowe Price Letter 

(definition of “regulatory assets under management” in subadvisory arrangements). BlackRock

also recommended we use XML format for Form ADV filings. See BlackRock Letter.
87

B. Amendments to Investment Advisers Act Rules

1. Amendments to Books and Records Rule 

We are adopting two amendments to the Advisers Act books and records rule, 

rule 204-2, largely as proposed, that will require advisers to maintain additional materials 

related to the calculation and distribution of performance information. 

Rule 204-2(a)(16) currently requires advisers that are registered or required to be 

registered with us to maintain records supporting performance claims in communications 

that are distributed or circulated to ten or more persons.279 Consistent with the proposal, 

we are amending rule 204-2(a)(16) by removing the ten or more persons condition and 

replacing it with “any person.” Accordingly, under the amended rule, advisers will be 

required to maintain the materials listed in rule 204-2(a)(16) that demonstrate the 

calculation of the performance or rate of return in any communication that the adviser 

circulates or distributes, directly or indirectly, to any person. 

We are also adopting amendments to rule 204-2(a)(7). Rule 204-2(a)(7) currently 

requires advisers that are registered or required to be registered with us to maintain 

certain categories of written communications received and copies of written 

 

279 Rule 204-2(a)(16) requires advisers to make and keep “All accounts, books, internal working 

papers, and any other records or documents that are necessary to form the basis for or demonstrate 

the calculation of the performance or rate of return of any or all managed accounts or securities 

recommendations in any notice, circular, advertisement, newspaper article, investment letter, 

bulletin or other communication that the investment adviser circulates or distributes, directly or 

indirectly, to 10 or more persons (other than persons connected with such investment adviser); 

provided, however, that, with respect to the performance of managed accounts, “the retention of 

all account statements, if they reflect all debits, credits, and other transactions in a client's account 

for the period of the statement, and all worksheets necessary to demonstrate the calculation of the 

performance or rate of return of all managed accounts shall be deemed to satisfy the requirements 

of this paragraph.” 
88

communications sent by such advisers.280 Consistent with the proposal, we are amending 

rule 204-2(a)(7) to require advisers to also maintain originals of all written 

communications received and copies of written communications sent by an investment 

adviser relating to the performance or rate of return of any or all managed accounts or 

securities recommendations. 

Several commenters expressed general support for the proposed amendments to 

the books and records rule,281 while other commenters felt the proposed amendments 

would be unnecessary and a significant burden on advisers.282 Several commenters also 

suggested the proposed amendments be modified to exclude one-on-one communications 

that are customized responses from investors or communications with sophisticated 

 

280 Rule 204-2(a)(7) requires advisers to make and keep: “Originals of all written communications 

received and copies of all written communications sent by such investment adviser relating to (i) 

any recommendation made or proposed to be made and any advice given or proposed to be given, 

(ii) any receipt, disbursement or delivery of funds or securities, or (iii) the placing or execution of 

any order to purchase or sell any security.”

281 See, e.g., ABA Committee Letter; CFA Letter; LPL Letter (supporting the proposed amendments 

to rule 204-2(a)(7) but suggesting an exception to rule 204-2(a)(16) for communications addressed 

to a single client regarding that client’s particular account or security in the account); NASAA

Letter; PCA Letter (finding the proposed rule change sufficient but expressing concern with the 

Commission linking the requirement to maintain records pertaining to calculation of individual 

client account performance history, which are communications and not advertising, to the 

enforcement of rule 206(4)-1); Comment Letter of Wells Fargo Funds Management, LLC (Aug. 

11, 2015) (“Wells Fargo Letter”).

282 See, e.g., ACG Letter; Anonymous Letter (citing specific costs of increased training needed to 

implement and possible software updates); ASG Letter (asserting the amended requirement is 

burdensome because advisers do not always maintain copies of individual performance provided 

on an ad hoc basis); PEGCC Letter (stating the Commission significantly understates the burden 

of complying with the proposed amendments); SBIA Letter (noting that while the amendments 

themselves are not burdensome, when they are aggregated with other recordkeeping obligations, 

they could lead to overall compliance burdens for smaller advisers); Schnase Letter (advisers may 

find it difficult to discern whether particular materials are subject to the rule). One commenter 

suggested that the amendments to rule 204-2(a)(7) are not necessary because other recordkeeping 

provisions already require advisers to maintain those records. See IAA Letter. 
89

investors or clients.283 In addition, two commenters raised concerns about the 

applicability of the amendments to rule 204-2 to performance information that predated 

the effective date of the amendments.284

Based on a comment we received,

285 we are making one non-substantive 

modification to the proposed amendments. To clarify and avoid confusion, we are 

adding the new subsection (iv) of rule 204-2(a)(7) immediately following subsection (iii) 

of the rule and preceding the proviso regarding unsolicited market letters and records of 

names and addresses of persons to whom an adviser sent particular items. A commenter 

noted that this placement of the new subsection raised questions about whether the 

proviso also applied to new subsection (iv). The proviso does apply to new subsection 

(iv) and we believe that, by moving subsection (iv) to immediately after subsection (iii) 

and before the proviso, we have addressed the commenter’s concern. 

We are adopting the rest of the amendments to rule 204-2 as proposed. While we 

appreciate the concerns raised by commenters, we continue to believe the veracity of 

performance information is important regardless of whether it is a personalized client 

communication or in an advertisement sent to ten or more persons. As noted in the 

Proposing Release, a recent enforcement action demonstrated to us the disadvantages of 

not requiring investment advisers to maintain records forming the basis of performance 

 

283 PEGCC Letter. See also Comment Letter of Michael D. Berlin (June 8, 2015) (“Berlin Letter”); 

LPL Letter.

284 See Comment Letter of Arnstein & Lehr LLP (Dec. 3, 2015); NRS Letter.

285 See IAA Letter (noting that the new subsection (iv) of rule 204-2(a)(7), as it currently appears, is 

unclear on whether an adviser would be required to maintain records relating to unsolicited market 

letters or other communications discussing the performance of securities that the adviser 

recommended to its clients).
90

calculations or performance communications sent to individuals.286 Moreover, it has 

been our staff’s experience that investment advisers routinely make and preserve 

communications containing performance information and records to support the 

performance claims. Based on our staff’s experience and the confirmation of several 

commenters, we believe that most advisers already maintain this information.287

We believe these records will be useful in examining and evaluating adviser 

performance claims. Investors will benefit to the extent that the amendments reduce the 

incidence of misleading or fraudulent advertising and communications. For these 

reasons, we are adopting the amendments to the Adviser Act books and records rule, rule 

204-2, as proposed. 

These amendments will apply to communications circulated or distributed after 

the compliance date of amended rule 204-2. Advisers that circulate or distribute 

communications after the compliance date that include performance information, 

including information on performance that predates the effective date of these 

amendments, will be required to maintain materials listed in rule 204-2(a)(16) that 

demonstrate the calculation of the performance.288

 

286 In the Matter of Michael R. Pelosi, Investment Advisers Act Release No. 3141 (Jan. 14, 2011); 

Initial Decision Release No. 448 (Jan. 5, 2012); Investment Advisers Act Release No. 3805 (Mar. 

27, 2014) (Commission opinion dismissing proceeding against associated person of registered 

investment adviser charged with providing false and misleading performance information because 

the record lacked an evidentiary basis from which to determine that the performance information 

was materially false or misleading). 

287 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. See also IAA Letter.

288 We note that to the extent this information was previously or is currently included in an 

advertisement, the adviser is already required to maintain the information under rule 204-2(a)(16). 
91

2. Technical Amendments to Advisers Act Rules

We are adopting the proposed technical amendments to several rules under the 

Advisers Act and withdrawing transition rule 203A-5 under the Advisers Act. Consistent 

with the proposal, we are removing transition provisions from rules where the transition 

process is complete. Three of the provisions were added as part of the implementation of 

the Dodd-Frank Act. Two of the provisions were added when we amended Form ADV 

and several Advisers Act rules to require advisers to electronically file their brochures 

with the Commission. One commenter specifically supported removal of the transition 

provisions.289

a. Rule 203A-5 

The Dodd-Frank Act amended section 203A of the Advisers Act to prohibit from 

SEC registration “mid-sized” advisers that generally have assets under management of 

between $25 million and $100 million.290 Rule 203A-5 provided a temporary exemption 

from the prohibition on registration for mid-sized advisers to facilitate their transition to 

state registration.291 As proposed, we are withdrawing rule 203A-5 because the transition 

of mid-sized advisers from SEC to state registration was completed in June 2012.

b. Rule 202(a)(11)(G)-1(e) 

Section 409 of the Dodd-Frank Act created a new exclusion from the definition of 

“investment adviser” in section 202(a)(11)(G) of the Advisers Act for family offices. 

 

289 See NRS Letter.

290 See Section 410 of the Dodd-Frank Act. 

291 See Implementing Release, supra footnote 133.
92

The Commission adopted rule 202(a)(11)(G)-1

292 defining a family office and provided 

two extended transition periods for family offices with certain charitable organization 

clients and family offices relying on the rescinded “private adviser” exemption.293 As 

proposed, we are removing paragraph (e) of rule 202(a)(11)(G)-1 because subparagraph 

(1) of the transition provisions provided for by it expired on December 31, 2013, and 

subparagraph (2) expired on March 30, 2012. 

c. Rule 203-1(e) 

Rule 203-1 outlines the procedures for advisers to register with the Commission. 

Paragraph (e) of the rule was added as part of the implementation of the Dodd-Frank Act 

and allowed companies that were relying on the rescinded “private adviser” exemption294

to remain exempt from registration until March 30, 2012 under certain conditions.295 As 

proposed, we are removing paragraph (e) from Rule 203-1 because the transition for 

private advisers is now complete.

d. Rule 203-1(b), Rule 204-1(c) and Rule 204-3(g)

Rule 203-1 and Rule 204-1 were amended in 2010 to provide transition periods 

for advisers to file narrative brochures required by Part 2A of Form ADV electronically 

 

292 Family Offices, Investment Advisers Act Release No. 3220 (June 22, 2011) [76 FR 37983 (June 

29, 2011)]. 

293 Section 203(b)(3) of the Advisers Act as in effect before Jul. 21, 2011, repealed by section 403 of 

the Dodd-Frank Act. 

294 Id.

295 See Implementing Release, supra footnote 133. The rule 203-1(e) exemption from registration 

requires not only reliance on the former private adviser exemption but also that an adviser have 

fifteen or fewer clients in the preceding twelve months and neither hold itself out to the public as 

an investment adviser nor act as an investment adviser to a registered investment company or 

business development company. 
93

with the Investment Adviser Registration Depository (“IARD”).296 Rule 203-1(b), 

entitled “transition to electronic filing,” requires investment advisers applying for 

registration after January 1, 2011 to file their brochures electronically unless they receive 

a continuing hardship exemption.297 Rule 204-1(c) requires investment advisers that are 

required to file a brochure and had a fiscal year that ended on or after December 31, 2010 

to electronically file a Part 2A brochure as part of their next annual updating amendment. 

As proposed, we are removing paragraph (b) from rule 203-1 and paragraph (c) from rule 

204-1 because the transition to electronic filing is now complete.298 We also are making 

a technical, conforming additional change by removing rule 204-3(g) because it refers to 

the transition provision in rule 204-1(c).299

III. EFFECTIVE AND COMPLIANCE DATES

A. Effective Date

The effective date of the amendments to rules 204-2, 202(a)(11)(G)-1, 203-1, 

204-1 and 204-3, and the amendments to Form ADV is [EFFECTIVE DATE]. Rule 

203A-5 is removed effective [EFFECTIVE DATE]. 

B. Compliance Dates

1. Amendments to Form ADV

 

296 Amendments to Form ADV, Investment Advisers Act Release No. 3060 (Jul. 28, 2010) [75 FR 

49233 (Aug. 12, 2010)]. 

297 The continuing hardship exemption under rule 203-3 will not be withdrawn by these technical 

amendments. 

298 Current paragraphs (c) and (d) of Rule 203-1 are redesignated as (b) and (c) and current 

paragraphs (d) and (e) of Rule 204-1 are redesignated as (c) and (d). 

299 Current paragraph (h) of Rule 204-3 is redesignated as (g). 
94

Several commenters requested a compliance date of at least one year after 

adoption.300 Any adviser filing an initial Form ADV or an amendment to an existing 

Form ADV on or after October 1, 2017 will be required to provide responses to the form 

revisions we are adopting today. Our staff is working closely with FINRA to re-program 

IARD and we understand that the system is expected to be able to accept filings of 

revised Form ADV by October 1, 2017. This date is over one year from adoption. In 

addition, most advisers will not be filing their annual updating amendment until the first 

quarter of 2018, and therefore we believe this compliance period is appropriate.

2. Amendments to Investment Advisers Act Rules 

Our amendments to the books and records rule, 275.204-2, will apply to 

communications circulated or distributed after October 1, 2017. As discussed in Section 

II.B.(1), advisers that circulate or distribute communications after October 1, 2017 that 

include performance information, including information on performance that predates

that date, will be required to maintain the materials listed in 275.204-2(a)(16) that 

demonstrate the calculation of the performance. 

IV. ECONOMIC ANALYSIS

A. Introduction

We are sensitive to the benefits and costs imposed by our rules and understand 

that there will be costs associated with complying with the amendments. The following 

economic analysis identifies and considers the benefits and costs—including the effects

on efficiency, competition, and capital formation—that will result from the amendments 

to Form ADV and the amendments to and rescission of certain rules under the Investment 

 

300 See Anonymous Letter; Capital Research Letter; Dechert Letter; IAA Letter; MMI Letter; SIFMA 

Letter.
95

Advisers Act. The economic effects considered in adopting the amendments are 

discussed below. 

We are adopting amendments to Form ADV and the Advisers Act books and 

records rule 204-2, and technical amendments to several other rules under the Advisers 

Act. In summary, and as discussed in greater detail in Section II. above, we are adopting 

the following amendments to Form ADV and Advisers Act rules: 

 Amendments to Form ADV designed to fill certain data gaps and enhance current 

reporting provided by investment advisers in order to improve the depth and 

quality of the information we collect on investment advisers and to facilitate our 

risk monitoring objectives; 

 Amendments to Form ADV to incorporate “umbrella registration” for private 

fund advisers;

 Clarifying, technical and other amendments to Part 1A of Form ADV;

 Amendments to the Advisers Act books and records rule to require advisers to 

make and keep supporting documentation that demonstrates performance 

calculations or rates of return in any written communications that the investment 

adviser circulates or distributes; and

 Technical amendments to several rules under the Advisers Act to remove 

transition provisions that are no longer necessary.

As discussed in the Proposing Release, we rely on information reported by 

investment advisers on Form ADV to monitor trends, assess emerging risks, inform 

policy choices and rulemaking, and assist our staff in examination and enforcement 
96

efforts.301 We believe that the amendments to Form ADV will improve the information 

provided by investment advisers to the Commission, clients and prospective clients, and 

may improve investor protection by informing policy choices and focusing examination 

activities. We also believe that the amendments to the Advisers Act books and records 

rule may improve investor protections by providing useful information to our 

examination and enforcement staff in evaluating advisers’ performance claims. While, as 

stated above, we believe that most that can rely on umbrella registration are doing so, 

incorporating umbrella registration into Form ADV will make the existence of umbrella 

registration more widely known to advisers, which may result in more eligible advisers 

taking advantage of the opportunity to umbrella register. This could, make filing ADV 

more efficient for such advisers, reducing their filing costs. In addition, we believe that 

incorporating umbrella registration into Form ADV will benefit the Commission, clients 

and prospective clients by improving the consistency and quality of the information that 

private fund advisers disclose about their business. 

The regulatory regime as it exists today for investment advisers serves as the 

economic baseline against which the costs and benefits, as well as the impact on 

efficiency, competition, and capital formation of the amendments are discussed. The 

baseline includes the current requirement for investment advisers to file Form ADV, the 

staff guidance regarding a filing adviser filing a single Form ADV on behalf of itself and 

each relying adviser,302 the current requirements for investment advisers to maintain 

books and records, and other current rules under the Advisers Act. The parties that will 

 

301 Proposing Release, supra footnote 3 at Section III.A.

302 See 2012 ABA Letter, supra footnote 5.
97

be affected by the amendments are: investment advisers that file Form ADV, including 

private fund advisers that rely on, or will rely on, umbrella registration, and investment 

advisers that currently manage, or will manage, separately managed accounts; the 

Commission; current and future advisory clients; and other current and future users of 

investment adviser information reported on Form ADV, including third-party information 

providers.

Based on IARD system data as of May 16, 2016, approximately 12,024 

investment advisers are registered with the Commission, and 3,248 exempt reporting 

advisers file reports with the Commission. Approximately 8,718 investment advisers 

registered with the Commission (73%) reported assets under management attributable to 

separately managed account clients. Of those 8,718 advisers, approximately 2,538 

advisers reported regulatory assets under management attributable to separately managed 

account clients of at least $500 million and less than $10 billion and approximately 545

advisers reported regulatory assets under management attributable to separately managed 

account clients of at least $10 billion.

303

 Advisers with at least $10 billion in regulatory 

assets under management attributable to separately managed accounts will be subject to 

additional reporting on separately managed accounts on Form ADV. Approximately 743

registered advisers to private funds currently submit a single Form ADV on behalf of 

themselves and 2,587 relying advisers, relying on the 2012 ABA Letter. All investment 

 

303 Based on IARD system data as of May 16, 2016. These estimates are approximations because 

Form ADV currently collects information about assets under management by client type and the 

number of clients of each type in broad ranges. Item 5.D.(1)-(3) will require advisers to specify 

their assets under management and number of clients by client type, which will benefit our ability 

to understand and oversee the investment advisers that advise these accounts and recognize 

potential risks.
98

advisers registered or required to be registered with the Commission are subject to the 

Advisers Act books and records rule. 

As we explained in the Proposing Release, we have sought, where possible, to 

quantify the costs, benefits, and effects on efficiency, competition, and capital formation 

expected to result from the amendments to Form ADV and Investment Advisers Act 

rules, and reasonable alternatives.304 In many cases, however, we are unable to quantify 

the economic effects because we lack the information necessary to provide reasonable 

estimates. The economic effects of the amendments also depend upon a number of 

factors which we often cannot estimate. Examples include the extent to which investor 

protection and our ability to oversee investment advisers will improve, and the extent to 

which investors will utilize the information in Form ADV to choose or retain an 

investment adviser. Therefore, some of the discussion below is qualitative in nature. 

Several commenters raised concerns about the burdens and costs associated with these 

amendments, and in some cases suggested that our quantitative estimates in the 

Proposing Release underestimated these costs. We describe their comments below, and 

have modified certain provisions in response to the comments. 

B. Amendments to Form ADV

Certain amendments to Form ADV are designed to address potential gaps in 

information, such as information about advisers’ separately managed accounts, and 

obtain additional information on areas such as social media, additional offices, foreign

clients, and wrap fee accounts. We believe this information will improve the depth and 

quality of information that we collect on investment advisers, which will assist the 

 

304 Proposing Release, supra footnote 3 at Section III.A.
99

Commission in our oversight activities and clients and potential clients in assessing 

advisers.305 We also are adopting amendments to Form ADV to establish a more 

efficient method for multiple private fund adviser entities operating a single advisory 

business to register with us using a single Form ADV. Finally, we are adopting several 

clarifying, technical and other amendments to Form ADV. 

1. Economic Baseline and Affected Market Participants

As noted above and in the Proposing Release, the investment adviser regulatory 

regime currently in effect serves as the economic baseline against which the costs and 

benefits, as well as the impact on efficiency, competition and capital formation, of the 

amendments to Form ADV are discussed. Investment advisers use Form ADV to register 

with the Commission and with the states. Once registered, an investment adviser is 

required to file an annual amendment within 90 days of the end of its fiscal year, and 

more frequently if required by the instructions to Form ADV.306 Form ADV is also used 

by exempt reporting advisers to submit, and periodically update, reports to the 

Commission by completing a limited subset of items on Form ADV. Information filed 

on Form ADV is publicly available through the IAPD website.307 The parties that will be 

affected by the amendments to Form ADV are: investment advisers that file Form ADV 

with the Commission; the Commission; current and future advisory clients; and other 

current and future users of information filed on Form ADV, including third-party 

information providers. 

 

305 See supra Section I.

306 See rule 204-1(a) under the Advisers Act.

307 Certain personal identifying information is not made public.
100

2. Analysis of the Amendments to Form ADV and Alternatives

As discussed in Section II. above, we believe the amendments to Form ADV will 

improve our ability to oversee investment advisers and identify potential risks by 

increasing the amount, consistency, and reliability of the information disclosed by 

investment advisers, which will enhance our staff’s ability to effectively carry out the 

risk-based examination program and other risk monitoring activities, and may improve 

investor protection by informing policy choices and focusing examination activities. The 

amendments to Form ADV will address certain data gaps by requiring advisers to report 

additional information. Clients and potential clients may indirectly benefit to the extent 

that the amendments improve our oversight of investment advisers. 

The enhanced reporting requirements also may directly improve the ability of 

clients and potential clients of investment advisers to make more informed decisions 

about the selection and retention of investment advisers.308 To the extent that clients and 

future clients use the information investment advisers file in Form ADV to differentiate 

between investment advisers, the enhanced reporting requirements may result in a limited 

increase in competition among investment advisers for clients. The amendments will 

likely not have a significant effect on capital formation or on the ability of investors to 

efficiently allocate capital across investments because the amendments do not directly 

relate to the amount of capital investors allocate to investments or their ability to allocate 

capital across investments. We further identify effects on efficiency, competition, and 

capital formation in the discussion below. 

 

308 See supra Section II.A.2.a.
101

a. Information Regarding Separately Managed Accounts

We are adopting amendments to Form ADV that will require investment advisers 

to report information regarding separately managed accounts, which are managed for 

clients other than pooled investment vehicles.

309

 Based on IARD system data, 

approximately 73% of investment advisers registered with the Commission reported 

assets under management attributable to separately managed accounts.310 

We do not currently collect information from investment advisers specific to 

separately managed accounts, but we currently collect detailed information about an 

adviser’s registered investment company and private fund clients. The absence of 

detailed information about separately managed accounts limits the ability of our staff to 

understand, monitor and oversee the investment advisers that advise these accounts and 

recognize the risk exposures relating to these accounts. The newly reported information 

on Form ADV regarding separately managed accounts is intended to enhance the ability 

of our staff to effectively carry out our risk-based examination program and other riskmonitoring activities, as it does with other information on ADV and other filings by the 

Commission. The additional information regarding separately managed accounts will 

also assist us in addressing regulatory issues and identifying areas for additional 

examination and enforcement activities. 

The additional information investment advisers will file relating to separately 

managed accounts will be publicly available.311 As discussed above, we continue to

 

309 See supra Section II.A.1.

310 Based on IARD system data as of May 16, 2016.

311 See supra Section II.A.1.e.
102

believe that public disclosure of information about separately managed accounts on Form 

ADV is appropriate in the public interest as well as for the protection of investors. 

Commenters expressed concern relating to the public disclosure of the separately 

managed account information and its potential impact on competition between 

investment advisers. Many commenters opposing the public disclosure of separately 

managed account information cited the potential cost of disclosure of confidential 

information, particularly for advisers with a small number of separately managed account 

clients.312 In addition, other commenters cited the potential disclosure of proprietary 

investment or trading strategies as a potential cost of publicly releasing the separately 

managed account information.313 

We revised certain items on the form to address commenters’ concerns regarding 

the potential disclosure of confidential or proprietary information. As proposed, Item 

5.D. would have required investment advisers to report the number of clients even for 

investment advisers that manage fewer than five accounts. In addition, under the 

proposed amendments, Section 5.K.(2) of Schedule D would have required investment 

 

312 AIMA Letter; BlackRock Letter; IAA Letter; Invesco Letter; NYSBA Committee Letter;

Oppenheimer Letter; PEGCC Letter; Shearman Letter; SIFMA Letter. One commenter suggested 

that investors may instead invest in a fund structure, or forego investment opportunities with an 

investment adviser altogether, rather than place assets in a separately managed account and risk 

the disclosure of separately managed account information. Schulte Letter. As discussed above, 

the modifications from the proposal should reduce the potential for the disclosure of private or 

sensitive information relating to separately managed accounts, and should alleviate potential 

investor concerns and the effect of the disclosure on their investment decisions. 

313 ABA Committee Letter; Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; NYSBA

Committee Letter; Oppenheimer Letter; Schulte Letter; Shearman Letter; SIFMA Letter.
103

advisers to report the number of accounts and the net asset value of the accounts.314 In 

response to comments, we have revised Item 5.D. by adding a “Fewer than 5 clients” 

column, which allows advisers with fewer than five clients in a particular category to 

avoid reporting the exact number of clients in that category. In addition, Section 5.K.(2) 

in Schedule D will not require investment advisers to report the number of separately 

managed accounts. We believe that these changes mitigate the risk of any client-specific 

information being disclosed. In addition, as we discussed in Section II.A., this 

information would be reported for one or two data points per year, depending on the 

amount of regulatory assets under management attributable to separately managed 

accounts, ninety days after the end of the adviser's fiscal year, and only on an aggregate 

basis for all the separately managed account clients that an adviser manages. Given the 

limited number of data points that advisers to separately managed accounts must report 

on, the fact that the information is reported in aggregate across an adviser’s separately 

managed accounts, and the time lag between those data points and any public reporting, 

we do not believe that this reporting could compromise trading strategies.

In the Proposing Release, we also discussed other alternatives. For example, we 

could have required different information regarding separately managed account 

regulatory assets under management such as information at different time intervals or

with different asset categories. We have determined not to require reporting at a higher 

frequency or in a more granular manner, because, as discussed above, we believe that the 

information we are requiring today will appropriately enhance our staff's ability to 

 

314 Also, investment advisers will be required to report the total dollar amount of borrowings that 

correspond to ranges of gross notional exposure and not the weighted average amount. See supra 

Section II.A.1.c.
104

effectively carry out our risk-based examination program and other risk assessment and 

monitoring activities, and that more frequent or granular reporting requirements may

increase the costs to investment advisers to report the information. One commenter 

suggested as an alternative a separate form for separately managed account reporting that 

would be filed on a confidential basis, but, as discussed above, we believe that given the 

changes discussed above, we have mitigated concerns about client confidentiality. 

We proposed to require at least some information about separately managed 

accounts from all advisers, and additional information from advisers with at least $150 

million in regulatory assets under management. In response to commenters who 

requested modifications to alleviate potential reporting burdens on smaller advisers

relative to the proposal, we are adopting amendments that require less information about 

separately managed accounts than what was proposed for investment advisers managing 

at least $150 and less than $500 million in regulatory assets.315 Another alternative would 

be to require, as proposed, investment advisers with at least $150 million in separately 

managed account regulatory assets under management to provide this additional 

information regarding these accounts. However, the higher threshold we are adopting 

will reduce the number of investment advisers required to provide this additional 

information by approximately 2,800 advisers, thereby reducing costs for those advisers

with at least $150 million but less than $500 million in assets under management that 

would no longer have to report the additional information. As discussed in Section 

II.A.1.c., the $500 million threshold was suggested by commenters and will provide us 

 

315 See supra Section II.A.1.c.
105

information with respect to over 98% of the separately managed account assets that 

would have been reported under the proposed approach.

316

 

Another alternative would be to collect different information regarding 

derivatives in separately managed accounts. For example, commenters raised concerns 

about the utility of gross notional exposure as a measure of derivative risk exposures. 

Several commenters stated that gross notional metrics are not accurate measures of risk 

or leverage,317 and expressed concern that gross notional metrics could be misleading to 

or misunderstood by investors without additional context.318 Other commenters 

suggested alternative measures of derivative risk exposures.319 We recognize that gross 

notional metrics do not always reflect the way in which derivatives are used in a 

separately managed account and are not a risk measure, but rather they are commonly 

used metrics that are comparable to information collected in Form PF regarding private 

funds. On balance, therefore, we continue to believe that, for most types of derivatives 

the gross notional metrics generally provide a measure of the scale of an account's 

derivatives activities that is sufficient for this regulatory purpose, which is to collect 

information about the scale of an account’s derivatives activities, rather than to collect 

specific risk metrics or more granular information regarding the ways in which 

derivatives are used in a separate account.

320

 

 

316 See IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter. 

317 See BlackRock Letter; Dechert Letter; IAA Letter; MFA Letter.

318 See Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; NYSBA Committee Letter.

319 See AIMA Letter; BlackRock Letter; Dechert Letter.

320 See supra Section II.A.1.c.
106

We are also adopting, as proposed, amendments that will require investment 

advisers to report the identity of the custodians that account for at least ten percent of 

each adviser’s total separately managed account regulatory assets under management, 

and the amount held at such custodians. As discussed in the Proposing Release,321

alternatives to the custodian reporting requirements include collecting different 

information, changing reporting thresholds, changing the frequency of reporting, 

obtaining information from other parties and not requiring certain information, such as 

the location of the custodian’s office.322 Although requiring less information would 

decrease the reporting requirements and the costs to investment advisers to file Form 

ADV, as discussed above, we believe that the reporting requirements as adopted will 

provide information important to us and improve the ability of our examination staff to 

identify advisers whose clients use the same custodian in the event a concern is raised 

about a particular custodian. One commenter suggested that we should collect data about 

custodians of separately managed accounts from the custodians themselves, but 

considering that the Commission does not directly regulate all custodians (including 

banks), we do not think this alternative appropriately addresses our regulatory objective. 

b. Additional Information Regarding Investment Advisers

In addition to information regarding separately managed accounts, we are also 

adopting amendments to collect additional information about the business of investment 

advisers and other additional identifying information. For example, we are adopting 

 

321 See Proposing Release, supra footnote 3 at Section II.A.1.

322 See AIMA Letter; IAA Letter; MMI Letter; NRS Letter; Oppenheimer Letter; SIFMA Letter 

regarding the custodian’s office location. See also supra Section II.A.1.d.
107

amendments to require investment advisers to disclose information regarding their use of 

social media platforms. We are also adopting amendments to request additional 

information about an adviser’s participation in and assets under management attributable 

to wrap fee programs. Other amendments include replacing ranges with more precise 

information about the number of advisory clients and the amount of assets under 

management, the total number of offices that conduct investment advisory business, and 

information regarding each adviser’s top twenty-five largest offices in terms of numbers 

of employees. For several items we are requiring additional identifying information. The 

additional identifying information includes the CIK Numbers for all advisers that have 

obtained one or more such numbers, PCAOB-assigned numbers for auditing firms, and 

the SEC file number and the CRD number for sponsors of wrap fee programs. 

We believe the additional information describing the adviser’s business and the 

additional identifying information will be useful to the risk assessment, examination, and 

oversight of investment advisers. For example, the information regarding social media 

platforms will improve our understanding of how advisers use social media to 

communicate with current and potential clients. The additional identifying information 

will improve the ability of our staff and other current and future users of Form ADV 

information to cross-reference information from Form ADV with information from 

filings and other sources to investigate and obtain a more complete understanding of the 

business and relationships of investment advisers, and improve our oversight of 

investment advisers. In addition, to the extent that current and future investment advisory 

clients are interested in the information, the information may improve their ability to 

make informed decisions about the selection and retention of investment advisers.
108

Several commenters expressed concern that the additional information describing 

the advisory business and the additional identifying information would increase the 

burden on investment advisers to file Form ADV.323 In addition, commenters questioned 

the benefits of the additional information and the additional identifying information to 

clients or potential clients and to the Commission. For example, one commenter raised 

concern regarding the usefulness of replacing ranges with the number of advisory clients 

and the regulatory assets under management attributable to each client type.324 In 

addition, commenters believed that information regarding social media would not be 

informative to investors, who may be more likely to obtain the information through the 

adviser’s website or internet searches.325 Several commenters also expressed concern 

that the reporting of adviser offices would impose a significant burden on advisers with 

little or no benefit to either the Commission or investors.

326

 

Alternatives to the amendments regarding disclosure of additional information 

about advisers include the disclosure of different information, more information, or less 

information on topics such as social media or advisers’ offices.

327

 When determining the 

 

323 Several commenters stated that advisers would need to update computer systems to obtain this 

data, and raised concerns about the increased burden that our proposal would place on advisers. 

ASG Letter; IAA Letter; LPL Letter; MMI Letter. Commenters also expressed concerns that 

investment advisers would need to update the additional information on more than an annual basis 

which would increase the burden on investment advisers. See BlackRock Letter; Morningstar 

Letter; NRS Letter; SIFMA Letter. We have clarified that certain information, such as 

information about additional offices, must only be updated on an annual basis, which should help 

address these concerns. 

324 ACG Letter.

325 ASG Letter; JAG Letter; Morgan Letter; Morningstar Letter; NRS Letter; NYSBA Committee 

Letter.

326 ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter.

327 See supra footnote 111 and accompanying text. 
109

specific amendments to Form ADV for adoption, we considered what information would 

be important for our oversight activities and for advisory clients and prospective clients 

to make decisions regarding the selection or retention of investment advisers against the 

costs to investment advisers to report this information. We believe that the amendments 

we are adopting today strike an appropriate balance of providing important information to 

the Commission, advisory clients and prospective clients while mitigating the burden on 

investment advisers to report the information. As noted above, however, we recognize 

that the burden on some large advisers might be significant, especially in the initial 

reporting cycle when they are required to report the additional information for the first 

time. However, we believe that the burden will decrease after the initial filing because in 

subsequent filings, advisers will only be reporting changes to their previously reported 

information. 

Another alternative to the amendments to Form ADV would be for us not to 

require investment advisers to report additional information but instead for us to 

undertake targeted examinations of investment advisers. We believe it is more efficient 

to compile information about advisers that can then be utilized to identify specific 

advisers for examinations. An absence of information about advisers also would reduce 

our ability to identify industry trends and assess risks. 

c. Costs Applicable to Reporting Information Regarding 

Separately Managed Accounts and Additional Information 

on Form ADV

The amendments that will require investment advisers to provide additional 

information about certain aspects of their business will impose additional costs, at least 

 
110

initially, for investment advisers to file Form ADV, but we believe based on our 

experience that much of the information we are requiring is readily available because it is 

used by investment advisers to conduct their business. Costs will vary across advisers, 

depending on the nature and size of an adviser’s business.328 For example, advisers that 

manage a limited number of separately managed accounts or that have smaller amounts 

of assets under management in those accounts will have fewer reporting requirements 

than advisers that manage a large number of separately managed accounts or that have 

larger amounts of assets under management in those accounts. In addition, investment 

advisers with a larger number of offices will have greater reporting requirements than 

investment advisers with fewer offices, particularly in the case of the initial filing. The 

one-time costs to initially report the information on Form ADV will also be greater for 

those investment advisers that currently do not collect or maintain the information. In 

addition, some amendments to Form ADV will require information that will impose a 

fixed filing cost that is not scalable with size, and therefore will have a relatively greater 

impact on small investment advisers. 

To the extent possible, we have attempted to quantify the costs of these 

amendments to Form ADV. Certain commenters questioned the cost estimates of the 

amendments to Form ADV, and some commenters noted that advisers will have to create 

new systems or processes to capture the additional information required and that the 

 

328 Several commenters expressed concern that the proposed amendments would increase the costs for

small advisers. See Comment Letter of Adrian Day Asset Management (May 21, 2015) (“Adrian

Day Letter”); AIMA Letter; Diercks Letter; IAA Letter; SBIA Letter; Schwab & Co. Letter. For a 

discussion of these comments, please see the Final Regulatory Flexibility Analysis in Section V 

infra. 
111

Commission underestimated these costs.329 We believe that much of the information, 

such as regulatory assets under management, should be readily available to advisers, and 

that modifications to the proposed amendments, such as the reporting requirements 

relating to separately managed accounts, help mitigate the costs to investment advisers of 

reporting the additional information. As discussed in Section V., for purposes of the 

increased Paperwork Reduction Act (“PRA”) burden for Form ADV, we estimate that 

each adviser will incur average costs in connection with the amendments to Form ADV 

of approximately $1,273,

330 for a total aggregate cost of $15,306,552.331

 

d. Umbrella Registration

The amendments to Form ADV that will incorporate the concept of umbrella 

registration and establish a method on Form ADV for certain private fund advisers to use 

umbrella registration will simplify, and therefore make more efficient the filing 

procedures for these advisers and provide greater certainty about the availability of 

umbrella registration. The amendments will also improve the consistency and quality of 

 

329 Adrian Day Letter; Financial Engines Letter; IAA Letter; NRS Letter; PCA Letter; SBIA Letter. 

One commenter noted that it would require significant systems work to aggregate gross notional 

exposure calculations at the investment adviser level. SIFMA II Letter. Other commenters also 

noted that investment advisers would need to modify or update computer software systems. ASG 

Letter; MMI Letter. 

 

330 We estimate that each adviser will spend, on average, 3 hours to complete the questions regarding 

separately managed accounts. We further estimate that the amendments to Part 1A that request 

other additional information will take each adviser, on average, 2 hours to complete. As a result, 

we estimate a 5 hour increase in the total average time burden related to the amendments to Form 

ADV. We expect that the performance of this function will most likely be equally allocated 

between a senior compliance examiner and a compliance manager. Data from the Securities 

Industry Financial Markets Association’s Management & Professional Earnings in the Securities 

Industry 2013 (“SIFMA Management and Professional Earnings Report”), modified by 

Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits, and overhead, suggest that costs for a senior 

compliance examiner and a compliance manager are $221 and $288 per hour, respectively. [2.5 

hours x $221 = $553] + [2.5 hours x $288 = $720] = $1,273.

331 12,024 advisers x $1,273 = $15,306,552.
112

the information that private fund advisers disclose about their business and provide a 

more complete picture of groups of private fund advisers that operate as a single 

business, thus allowing for greater comparability across private fund advisers that rely on 

umbrella registration.332 As of May 16, 2016, approximately 743 registered advisers 

indicated on Form ADV that they relied on the 2012 ABA Letter. Additional advisers 

may be eligible to use umbrella registration but do not currently do so. 

Several commenters suggested that the Commission expand the eligibility for 

umbrella registration to even more advisers. For example, many commenters 

recommended expanding eligibility for umbrella registration to non-U.S. filing 

advisers,333 and other commenters suggested expanding eligibility for umbrella 

registration to exempt reporting advisers.334 Other commenters recommended that we 

expand the eligibility for umbrella registration to apply to all related persons of a filing 

adviser.

335

 Although expanding the eligibility for umbrella registration to all related 

persons might decrease the aggregate costs of filing Form ADV, as we discussed above, 

we do not believe umbrella registration is appropriate for advisers that are related but that 

operate separate advisory businesses as it would compromise data quality and complicate 

analyses that rely on data from Form ADV.

 

332 See supra Section II.A.3.

333 ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA Committee Letter; Schulte Letter;

Shearman Letter.

334 ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; MFA Letter; NYSBA 

Committee Letter; SBIA Letter; Schulte Letter; Shearman Letter.

335 ACG Letter; Capital Research Letter; Dechert Letter; Morgan Letter; NRS Letter; NYSBA 

Committee Letter.
113

For purposes of the PRA, we estimate that each adviser that files Schedule R will 

incur average costs of approximately $255,336 for a total aggregate cost of $189,465.337 

We do not believe the amendments to provide for umbrella registration will impose 

significant costs on investment advisers because advisers currently relying on the 2012 

ABA Letter are already reporting much of the information that will be reported on 

Schedule R. We believe that the additional information that will be reported for relying 

advisers on Schedule R, such as the basis for SEC registration and form of organization, 

will be readily available to filing advisers.338

e. Clarifying, Technical and Other Amendments to Form 

ADV

The clarifying, technical and other amendments to Form ADV will make the 

filing process clearer and therefore more efficient for advisers, and increase the reliability 

and the consistency of information provided by investment advisers. More reliable and 

consistent information will improve our staff’s ability to interpret and evaluate the 

information provided by advisers, make comparisons across investment advisers, and 

better identify the investment advisers that may need additional outreach or examination. 

 

336 We estimate that for purposes of the PRA, the filing adviser will spend on average 1 hour 

completing Schedule R on behalf of its relying advisers. We expect that the performance of this 

function will most likely be equally allocated between a senior compliance examiner and a 

compliance manager. Data from the SIFMA Management and Professional Earnings Report, 

modified by Commission staff to account for an 1,800-hour work-year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that 

costs for a senior compliance examiner and a compliance manager are $221 and $288 per hour, 

respectively. (.5 hours x $221 = $111) + (.5 hours x $288 = $144) = $255.

337 743 advisers x $255 = $189,465.

338 One commenter was concerned that relying advisers would in effect be forced to share the details 

of employee compensation on a public filing. See Shearman Letter. The ownership information 

required of relying advisers, however, is consistent with the ownership information currently 

required of filing advisers. 
114

To the extent the clarifying and technical amendments we adopt today would make Form 

ADV easier to understand and complete, the amendments will decrease future filing 

costs, especially for those investment advisers registering with us for the first time. 

As proposed, we are adding questions to Form ADV that request an entity’s legal 

entity identifier, if any.339 As discussed above, the legal entity identifier is a unique 

identifier associated with a single entity and is intended to provide a uniform 

international standard for identifying parties to financial transactions. This information 

will help our examination staff more readily identify the use of particular custodians by 

separately managed accounts and private funds. Furthermore, the reporting of legal 

entity identifier information on Form ADV facilitates the ability of investors and the 

Commission to link the data reported with data from other filings or sources that is 

reported elsewhere as legal entity identifiers become more widely used by regulators and 

the financial industry. For example, this could aid in the performance of market analysis 

studies, surveillance activities, and systemic risk monitoring by the Commission.340 

We do not believe that the clarifying, technical and other amendments to Form 

ADV will result in any additional costs for investment advisers and could result in some 

cost savings to the extent that advisers have fewer questions to research when completing 

the form. We have identified provisions of Form ADV that have caused confusion 

among filers in the past or that have resulted in inconsistent or unreliable information. As 

we discussed above, we believe that the clarifications and revisions to the questions and 

 

339 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(3)(f) (requesting the LEI, if any, for a 

custodian of separately managed accounts that is not a broker-dealer or that is a broker-dealer but 

does not have an SEC registration number) and 7.B.(1), Question 25g (similar question for private 

fund custodians); Schedule R, Section 1.G. (requesting LEI for relying adviser). 

340 We note that, as of May 31, 2016, approximately 6.80% of all registered investment advisers

report a legal entity identifier when filing Form ADV.
115

instructions of Form ADV will increase the efficiency of investment advisers to disclose 

information, and our ability to oversee investment advisers. Finally, given the nature of 

the clarifying, technical and other amendments to Form ADV that we are adopting today, 

we do not believe that these amendments will have an impact on capital formation or 

competition in the asset management industry or the markets in general.

f. Exempt Reporting Advisers

We believe the amendments to Form ADV will have a limited economic effect on 

exempt reporting advisers, including on their costs.341 Exempt reporting advisers are 

currently required to complete only a limited number of items in Part 1A of Form ADV 

(consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and corresponding schedules). We are 

adopting limited amendments to the items that exempt reporting advisers are required to 

complete, including the amendments to Item 1 regarding the use of social media and the 

reporting of information on up to 25 offices.342 We do not know the extent of social 

media use by exempt reporting advisers, and we recognize that these advisers will incur 

some costs associated with social media account reporting. We believe these costs will 

be limited based on the nature of exempt reporting adviser clients, which include venture 

capital funds and private funds. Approximately 15 of the approximately 3,248 exempt 

reporting advisers that file information with the Commission on Form ADV reported that 

they had five or more other offices. Thus, although exempt reporting advisers will incur 

costs to report the additional information, based on our staff’s experience and given the 

 

341 See supra Section II.A.2.c. for a discussion of exempt reporting advisers and Amended Form 

ADV, Part 1A, Schedule D, Section 7.B.(1), Question 15(b). 

342 Exempt reporting advisers will not be eligible to file new Schedule R.
116

nature of the clients these funds advise, we expect that the amendments should result in a 

limited increase in reporting costs relative to other advisers. 

C. Amendments to Investment Advisers Act Rules

As discussed above, we are adopting amendments to the Advisers Act books and 

records rule, and technical amendments to several other rules to remove transition 

provisions where the transition process is complete. The discussion below focuses on the 

amendments to the Advisers Act books and records rule, because the technical 

amendments are clarifying or ministerial in nature and therefore should have little, if any, 

economic effects. 

The amendments to rule 204-2 will require investment advisers to maintain 

additional materials related to the calculation and distribution of performance 

information. The amendments to rule 204-2(a)(16) will require each adviser to maintain 

the materials listed in rule 204-2(a)(16) that demonstrate the calculation of the 

performance or rate of return in any communication that the adviser circulates or 

distributes, directly or indirectly, to any person, rather than ten or more persons as 

currently required by the rule. The amendments to rule 204-2(a)(7) will require each 

adviser to maintain originals of all written communications received and copies of written 

communications sent by the adviser relating to the performance or rate of return of any or 

all managed accounts or securities recommendations. We believe, based on our staff’s 

experience, and several commenters agreed, that most investment advisers currently 

maintain the information that will be required to be maintained under amended rule 204-
117

2.343 Under the amendments, each respondent will be required to retain records in the 

same manner and for the same period of time as currently required under rule 204-2.

1. Economic Baseline and Affected Market Participants

As noted above, the regulatory regime as it exists today for investment advisers 

serves as the economic baseline against which the costs and benefits, as well as the 

impact on efficiency, competition, and capital formation, of the amendments to the 

Advisers Act books and records rule (rule 204-2) will be evaluated. The parties that will 

be directly affected by the amendments to rules under the Advisers Act include: 

investment advisers registered with the Commission; the Commission; and current and 

future investment advisory clients. As discussed above, approximately 12,024 

investment advisers are currently registered with the Commission.

2. Analysis of the Effects of the Amendments to the Advisers Act Books and 

Records Rule

The amendments to the Advisers Act books and records rule (rule 204-2) will 

benefit the clients and prospective clients of investment advisers by improving our ability 

to oversee investment advisers and making available to our examination staff all records 

necessary to evaluate performance information. 

The amendments to the books and records rule will provide our enforcement and 

examination staff with additional information to review an adviser’s performance 

communications, regardless of the number of clients or prospective clients that receive 

performance communications. The rule amendments may increase investor protection by 

increasing the disincentive for misleading or fraudulent communications, which may 

reduce incidents of fraud. In addition, investors may benefit from the amendments to the 

 

343 ABA Committee Letter; Morningstar Letter; PCA Letter.
118

recordkeeping rule as these records will assist our staff in uncovering fraudulent or 

misleading communications regarding performance.

As we discussed in the Proposing Release, to the extent that the amendments to 

the rule reduce misleading or fraudulent communications, the competitive position of 

investment advisers could be improved because clients and potential clients will receive 

more accurate information regarding an adviser’s performance and thus will be better 

able to differentiate among advisers.344 In addition, to the extent that the amendments to 

the rule improve the ability of clients and potential clients to differentiate among 

advisers, potential clients may be more likely to obtain investment advice from an 

investment adviser, which will increase the ability of investment advisers to compete for 

investor capital. The amendments could improve the ability of investors to better or more 

efficiently allocate capital across investments to the extent that the current allocation of 

capital is based on misleading or fraudulent information, which in turn could promote 

capital formation. 

An alternative suggested by several commenters would be to exclude from the 

rule one-on-one communications that are “customized responses from investors or oneon-one communications with sophisticated investors or clients” about their own account 

performance.345 Another alternative would be to require maintenance of records 

supporting performance claims in communications that are distributed or circulated to less 

than the current threshold of ten persons. As discussed above, we believe the veracity of 

performance information is important regardless of whether it is a personalized client 

 

344 Proposing Release, supra footnote 3 at Section III.C.2.

345 PEGCC Letter. See also Berlin Letter; LPL Letter.
119

communication or in an advertisement sent to ten or more persons, and the absence of 

such records can reduce our ability to examine and monitor advisers.346 

Several commenters felt the proposed amendments would be unnecessary and a 

burden on investment advisers. Some raised concerns regarding the potential burden to 

comply with the amendments to rule 204-2,

347 and one commenter noted that while the 

amendments were not themselves burdensome, when aggregated with other 

recordkeeping obligations, could lead to overall compliance burdens for smaller 

advisers.348 Based on our staff’s experience and our analysis of the comments to the 

Proposing Release, however, we believe that most advisers already maintain this 

information.

349

 We also believe that this information is useful to the examination and 

oversight of advisers.

350

 

We estimate that, for purposes of the PRA, advisers will incur an aggregate cost 

of approximately $1,071,338 per year for the total hours advisory personnel will spend in 

complying with the amended recordkeeping requirements.351 A possible non-quantifiable 

cost as a result of the amended recordkeeping requirements will be discouraging advisers 

 

346 See supra Section II.B.1.

347 See ACG Letter; Anonymous Letter; ASG Letter; NRS Letter; PEGCC Letter; SBIA Letter.

348 SBIA Letter.

349 ABA Committee Letter; Morningstar Letter; PCA Letter. 

350 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. See also IAA Letter.

351 We estimate that for purposes of the PRA, the amendments to rule 204-2 will increase the burden 

by 1.5 hours per adviser annually. We expect that the function of recording and maintaining 

records of performance information and communications will be performed by a combination of 

compliance clerks and general clerks at a cost of $65 per hour and $58 per hour, respectively. We 

anticipate that compliance clerks would perform an estimated 0.3 hours of the work created by the 

amendments to rule 204-2 and general clerks would perform the additional 1.2 hours. Therefore, 

the total cost per adviser would be (0.3 hours x $65 = $19.50) + (1.2 hours x $58 = $69.60) = 

approximately $89.10 for a total cost of $1,071,338 (12,024 advisers x $89.10).
120

from creating and communicating custom performance information to individual clients, 

who will then lose the benefit of having that information available to them. Although we 

believe that such a response to the rule will be unlikely, a decrease in communications 

could reduce the ability of clients and potential clients to compare advisers and 

potentially decrease competition. 

We expect that these costs will vary among firms, depending on a number of 

factors, including the degree to which advisers already maintain correspondence, 

performance information, and the inputs and worksheets used to generate performance 

information. Compliance costs also will vary depending on the degree to which 

performance figure determination and the recordkeeping process is automated, and the 

amount of updating to the adviser’s recordkeeping policy that will be required. 

V. PAPERWORK REDUCTION ACT ANALYSIS

The amendments that we are adopting today contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).

352

In the Proposing Release, we solicited comment on the proposed collection of 

information requirements. We also submitted the proposed collections of information to 

the Office of Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 

3507 and 5 CFR 1320.11. The titles for the collections of information we are amending

are: (i) “Form ADV;” and (ii) “Rule 204-2 under the Investment Advisers Act of 1940.” 

An agency may not conduct or sponsor, and a person is not required to respond to, a 

collection of information unless it displays a currently valid OMB control number.

 

352 44 U.S.C. 3501-3520.
121

A. Form ADV

Form ADV (OMB Control No. 3235-0049) is the two-part investment adviser 

registration form. Part 1 of Form ADV contains information used primarily by 

Commission staff, and Part 2 is the client brochure. We are not adopting changes to Part 

2. We use the information to determine eligibility for registration with us and to manage 

our regulatory and examination programs. Clients use certain of the information to 

determine whether to hire or retain an adviser. The collection of information is necessary 

to provide advisory clients, prospective clients, and the Commission with information 

about the adviser and its business, conflicts of interest and personnel. Rule 203-1 under 

the Advisers Act requires every person applying for investment adviser registration with 

the Commission to file Form ADV. Rule 204-4 under the Advisers Act requires certain 

investment advisers exempt from registration with the Commission (“exempt reporting 

advisers”) to file reports with the Commission by completing a limited number of items 

on Form ADV. Rule 204-1 under the Advisers Act requires each registered and exempt 

reporting adviser to file amendments to Form ADV at least annually, and requires 

advisers to submit electronic filings through the IARD. The paperwork burdens 

associated with rules 203-1, 204-1, and 204-4 are included in the approved annual burden 

associated with Form ADV and thus do not entail separate collections of information. 

These collections of information are found at 17 CFR 275.203-1, 275.204-1, 

275.204-4 and 275.279.1 and are mandatory. Responses are not kept confidential. The 

respondents are investment advisers registered with the Commission or applying for 

registration with the Commission and exempt reporting advisers. Based on IARD system 
122

data as of May 16, 2016, approximately 12,024 investment advisers are registered with 

the Commission, and 3,248 exempt reporting advisers file reports with the Commission. 

The currently approved total annual aggregate burden estimate for all advisers 

completing, amending and filing Form ADV (Part 1 and Part 2) with the Commission is 

154,402 hours with a monetized cost of $36,670,427. This collection is based on: (i) 

total annual collection of information burden for SEC-registered advisers to file and 

complete Form ADV (Part 1 and Part 2), including private fund reporting, plus the 

burden associated with amendments to the form, preparing brochure supplements and 

delivering codes of ethics to clients; and (ii) the total annual collection of information 

burden for exempt reporting advisers to file and complete the required items of Part 1A 

of Form ADV, including the private fund reporting, plus the burden associated with 

amendments to the form.

As discussed above, we are adopting amendments to Form ADV that are designed 

to provide additional information about investment advisers and their clients, including 

clients in separately managed accounts, provide for umbrella registration for private fund 

advisers and clarify and address technical and other issues in certain Form ADV items 

and instructions. The amendments we are adopting will increase the information 

requested in Part 1A of Form ADV, and we expect that this will correspondingly increase

the average burden on an adviser filing Form ADV.

As discussed in Sections II.A. and II.B. of this Release, we received several 

comments that addressed whether the amendments to Form ADV and Rule 204-2 are 

necessary, whether there are ways to enhance the quality, utility, and clarity of the 

information to be collected, and whether we could further minimize the burden. Certain 
123

commenters addressed the accuracy of our burden estimates for the proposed collections 

of information, suggesting in general that our estimates were too low.353 We have 

considered these comments and have made certain modifications designed to address 

these and other comments received, and we are increasing our PRA burden estimates 

related to the amendments. 

We discuss below, in three subsections, the estimated revised collection of 

information requirements for Form ADV: first, we provide estimates for the revised 

burdens resulting from the amendments to Part 1A; second, we determine how those 

estimates will be reflected in the annual burden attributable to Form ADV; and third, we 

calculate the total revised burdens associated with Form ADV. The paperwork burdens 

of filing an amended Form ADV, Part 1A will vary among advisers, depending on factors 

such as the size of the adviser, the complexity of its operations, and the number or extent 

of its affiliations. 

1. Changes in Average Burden Estimates

As a result of the differing burdens on advisers to complete Form ADV, we have 

divided the effect of the amendments to the form into three subsections; first we address 

the change to the collection of information for registered advisers as a result of our 

amendments to Part 1A of Form ADV excluding those changes related to private funds; 

second, we discuss the amendments to Form ADV related to registered advisers to private 

funds, including the amendments to Section 7.B. of Schedule D and the new Schedule R

 

353 ACG Letter; Adrian Day Letter; ASG Letter; Anonymous Letter; IAA Letter; NRS Letter; 

PEGCC Letter; PCA Letter; SBIA Letter. See also AIMA Letter (discussed reputational and 

marketing costs associated with separately managed account reporting).
124

that will implement umbrella registration; and third, we address the amendments to Form 

ADV affecting exempt reporting advisers.

a. Estimated Change in Burden Related to Part 1A Amendments (Not 

Including Private Fund Reporting)

We are adopting amendments to Part 1A, some of which are merely technical 

changes or very simple in nature, and others that will require more time for an adviser to 

prepare a response. Advisers should have ready access to all the information necessary to 

respond to the items we are adopting today in their normal course of operations, because 

they likely maintain and use the requested information in connection with managing 

client assets. We anticipate that the responses to many of the questions will be unlikely 

to change from year to year, which will minimize the ongoing reporting burden associated 

with these questions. 

i. Amendments Related to Reporting of Separately Managed 

Account Information

The amendments to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 5.K.(4) and 

Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3) are designed to collect information 

about the separately managed accounts managed by advisers. These amendments will

enhance existing information we receive and permit us to conduct more robust risk 

monitoring with respect to advisers of separately managed accounts. As discussed 

above, the information collected about separately managed accounts will include

regulatory assets under management reported by asset type, borrowings and 

derivatives information, and the identity of custodians that hold at least ten percent of 

separately managed account regulatory assets under management. We believe that 

advisers to separately managed accounts may maintain and use this or similar 
125

information for operational reasons (e.g., trading systems) and for customary account 

reporting to clients in separately managed accounts.

Although we understand that much of the requested information may be used by 

advisers for operational reasons or account reporting, we expect that these amendments

may subject advisers, particularly those that advise a large number of separately 

managed accounts and engage in borrowings and derivatives transactions on behalf of 

separately managed accounts, to an increased paperwork burden. We are adopting new 

Items 5.K.(1) through (4) and Sections 5.K.(1) and 5.K.(3) largely as proposed with 

certain modifications in response to comments we received. With respect to Section 

5.K.(2), in order to minimize the burden on advisers with a smaller amount of 

separately managed account assets under management, we initially proposed to 

require: (1) advisers with regulatory assets under management attributable to separately 

managed accounts of at least $150 million but less than $10 billion to report borrowings 

and derivatives information as of the date the adviser calculates its regulatory assets under 

management for purposes of its annual updating amendment; and (2) advisers with 

regulatory assets under management attributable to separately managed accounts of at 

least $10 billion to report information as of that date and six months before that date. As 

we discussed above,354 at the suggestion of several commenters,355 we increased the 

proposed $150 million reporting threshold to $500 million in order to further alleviate 

the reporting burdens on smaller advisers without compromising our objectives.356 In 

 

354 Supra Section II.A.1.

355 IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter. 

356 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2). 
126

response to commenters, we modified Section 5.K.(2) to base the reporting of 

borrowings and derivatives on regulatory assets under management in separately 

managed accounts, rather than the net asset value of the accounts, as proposed, because 

advisers may not characterize their separately managed accounts using net asset 

value.357 We also eliminated the requirement to report number of accounts. We believe 

that these changes will further decrease the burden on advisers to report information on 

separately managed accounts.

In the Proposing Release, we estimated that each adviser would spend, on 

average, 2 hours completing the questions regarding separately managed accounts in the 

first year a new or existing investment adviser completes these questions.358 A number 

of commenters expressed concern that our estimate of the paperwork burdens associated 

with our proposed questions regarding separately managed accounts was too low.359 

We are revising our estimate of the time that that it will take each adviser to complete

the questions regarding separately managed accounts in the first year a new or existing 

adviser completes these questions from 2 hours to 3 hours.360 We have arrived at this 

 

357 See IAA Letter.

358 Proposing Release, supra footnote 3 at Section IV.A.1.a.i.

359 Adrian Day Letter; ASG Letter (one adviser suggested that outsourcing the work might be costly; 

another adviser reported having the required data but estimated that it would take approximately 1 

hour to compile data in response to Sections 5.K.1(a) and (b)); IAA Letter. See also NYSBA 

Committee Letter (the proposed amendments to Form ADV and the Advisers Act will 

significantly increase the reporting obligations for many advisers); NRS Letter (burden estimate 

for proposed amendments is completely unrealistic and extremely low); SIFMA II Letter (most 

exposure data is gathered at the client or account level and it would require significant systems 

work to aggregate these values at the adviser level). 

360 Based on IARD system data as of May 16, 2016, approximately 8,718 registered investment 

advisers, or approximately 73% of all investment advisers registered with us, reported assets under 

management from clients other than registered investment companies, business development 
127

burden estimate by considering the following: (1) the changes we are making to Part 

1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 5.K.(4) and Schedule D, Sections 5.K.(1), 

5.K.(2) and 5.K.(3); (2) our efforts to further alleviate the reporting burden on advisers 

that manage a smaller amount of separately managed account regulatory assets under 

management; and (3) the comments we received on our proposed burden estimate. We 

recognize that burdens will vary across advisers. Advisers that advise a large number of 

separately managed accounts, or that have significant regulatory assets under 

management attributable to separately managed accounts, will incur a greater burden 

than advisers that have no separately managed account clients or a limited number of 

such clients. Based on our review of advisers’ separately managed account business and 

the new reporting requirements, we believe that, on average, 3 hours is an appropriate 

estimate. 

ii. Other Additional Information Regarding Investment 

Advisers

We are adding several new questions and amending existing questions on Form 

ADV regarding an adviser’s identifying information, advisory business, and financial 

industry affiliations. The revised questions primarily refine or expand existing questions 

or request information we believe that advisers already have for compliance purposes. 

For example, we are requiring each adviser to provide CIK Numbers if it has one or more 

 

companies and pooled investment vehicles, indicating that they have assets under management 

attributable to separately managed accounts. Of those approximately 8,718 advisers, we estimate 

that 2,538 (approximately 29%) reported at least $500 million and less than $10 billion in 

regulatory assets under management from separately managed accounts and 545 (approximately 

6%) reported at least $10 billion in regulatory assets under management from separately managed 

account clients. 
128

such numbers and to provide the address of each of the adviser’s social media pages. 

Other questions require advisers to provide readily available or easily accessible 

information, such as the amendment to Part IA, Item 1.O. that requires advisers to report 

their assets within ranges. However, some of the revised questions may take longer for 

advisers to complete, such as the amendments to Schedule D, Section 1.F that require 

information about an adviser’s 25 largest offices other than its principal office and place 

of business. While this information should be readily available to an adviser because it 

should be aware of its offices, a clerk will be required to manually enter expanded 

information about the adviser’s offices in the first year the adviser responds to the item 

and then make updates in subsequent years. Some commenters thought that additional 

office reporting would be a significant burden on advisers.361 As discussed above in 

Section II.A.2.a., we recognize that the burden on some large advisers might be 

significant, especially in the initial reporting cycle when they are required to report their 

additional offices for the first time. However, we believe that the burden will decrease 

after the initial filing because in subsequent filings, advisers will only be reporting 

changes to their previously reported additional office information. We have clarified that 

advisers will only be required to update the information in Section 1.F. on an annual 

basis, which should help address some of the concerns raised by commenters about the 

burden associated with this amendment.362 

 

361 ACG Letter; CFA Letter; Morningstar Letter (for larger advisers, additional office reporting would 

require substantial time, although that burden would ease after the initial reporting period); 

NYSBA Committee Letter.

362 ASG Letter (updating additional office reporting more than annually would be burdensome); 

Morningstar Letter (the Commission should clarify how often additional office reporting needs to 

be updated).
129

We are adopting a number of amendments to Item 5 in addition to the questions 

relating to separately managed accounts discussed above. Like other new or revised 

items, we believe several of these new Item 5 questions will require advisers to provide 

readily available information, such as the number of clients and regulatory assets under 

management attributable to each category of clients during the last fiscal year. Advisers 

currently provide this information in ranges, and therefore likely already have available 

to them the more precise numbers to report. In addition, information such as whether the 

adviser uses different assets under management numbers in Part 1A vs. Part 2A of Form 

ADV should be readily available. Other revised items will likely present greater burdens

for some advisers but not others, depending on the nature and complexity of their

businesses. For instance, the burden associated with the revised disclosure regarding 

wrap fee programs or non-U.S. clients will depend on whether and to what extent an 

adviser allocates client assets to wrap fee programs or the extent to which the adviser has 

non-U.S. clients.

In the Proposing Release, we estimated that the proposed revisions to Part 1A of 

Form ADV and Schedule D would take each adviser approximately 1 hour, on average, 

to complete in the first year a new or existing adviser responds to the questions.363 Some

commenters expressed concern that our burden estimate was too low,

364 while others 

expressed concern about the impact of the increased overall compliance burden on 

 

363 Proposing Release, supra footnote 3 at Section IV.A.1.a.ii.

364 ASG Letter (amendments will increase the time required to prepare response to Item 5). See 

NYSBA Committee Letter (the proposed amendments to Form ADV and the Advisers Act will 

significantly increase the reporting obligations for many advisers); NRS Letter (burden estimate 

for proposed amendments is completely unrealistic and extremely low). 
130

smaller advisers.365 We are revising our estimate of the time that these amendments to 

Part 1A of Form ADV and Schedule D will take each adviser to complete in the first year 

a new or existing adviser responds to these questions from 1 hour to 2 hours. We have

arrived at this revised burden estimate, in part, by considering the following: (1) the

relative complexity and availability of the information required by the revised items to 

the current form and its approved burden; (2) the number and types of advisers affected by 

the proposed amendments; and (3) the comments we received on our proposed burden 

estimate. We understand that the burden will vary across advisers depending on their 

business and the factors discussed in this section. The burden for some advisers will 

exceed our estimate, and the burden for others will be less due to the nature of their 

business. We believe, on balance, that 2 hours is a reasonable estimate.

iii. Clarifying, Technical and Other Amendments

As discussed above, we are adopting several further amendments to Form ADV 

that are designed to clarify the Form and its instructions and address technical issues. 

These changes primarily refine existing questions. For example, we are deleting the 

phrase “newly formed adviser” from Part IA, Item 2.A.(9) because of questions from 

filers about whether that phrase refers to only newly formed corporate entities. 

Similarly, we are amending Part IA, Item 8.B.(2) to clarify that the question applies to 

any related person who recommends the adviser to advisory clients or acts as a 

purchaser representative. Because these amendments do not change the scope or 

 

365 PCA Letter (Commission grossly underestimated the potential cost for many advisers, particularly 

small advisers); SBIA Letter (Commission should consider the impact of the increased overall 

compliance burden on smaller private fund advisers).
131

amount of information required to be reported on Form ADV, we do not believe that 

these clarifying, technical, and other amendments to Part 1A of Form ADV will increase 

or decrease the average total collection of information burden for advisers in their first 

year filing Form ADV. We did not receive comments regarding reporting burdens 

associated with these technical and clarifying amendments. 

As a result of the amendments to Form ADV Part 1A discussed above, including 

the amendments related to separately managed accounts, additional items, and technical 

and clarifying amendments, we estimate the average total collection of information 

burden will increase 5 hours to 45.74 hours per adviser for the first year that an adviser 

completes Form ADV (Part 1 and Part 2).366

b. Estimated Changes in Burden Related to Private Fund Reporting 

Requirements

We are adopting several amendments to Part 1A, Schedule D, Section 7.B. that 

will refine and enhance existing information we receive about advisers to private funds. 

In addition, as part of our codification of umbrella registration, we are adding a new 

schedule to Part 1A – Schedule R – to be submitted by advisers to private funds that use 

umbrella registration to file a single Form ADV. We believe the information required 

by the amendments to Part 1A, Schedule D, Section 7.B will be readily available or 

easily accessible to advisers to private funds. For example, the PCAOB assigned 

number for a private fund auditor should be readily available or easily accessible to that 

private fund’s adviser. As discussed in Section II.A.2.c., we modified Part 1A, 

 

366

 Currently approved estimate of the average total collection of information burden per SEC 

registered adviser for the first year that an adviser completes Form ADV (40.74 hours) + 3 hours 

to complete the questions about separately managed accounts + 2 hours to complete other 

additional information regarding investment advisers = 45.74 hours.
132

Schedule D, Section 7.B.(1). Question 15(b) regarding sales of private funds to qualified 

clients in response to commenters’ concerns. The question is now limited to 3(c)(1) 

funds, and requires only a “yes” or “no” answer, rather than requiring advisers to report 

the percentage of a private fund held by qualified clients. Other amendments to Section 

7.B. are designed to make the questions easier to answer, but do not cause a change in 

reporting burden, including moving certain “notes” to questions and changes to the 

current question regarding unqualified opinions. The currently approved total annual 

burden estimate for advisers making their initial filing in completing Item 7.B. and 

Schedule D, Section 7.B. is 1 hour per private fund. We do not estimate that the 

amendments to Schedule D, Section 7.B, including the changes from the proposal, will

increase or decrease the total annual burden because the information is readily available 

to advisers. Most of the comments on the amendments to Part 1A, Schedule D, Section 

7.B. concerned the qualified client question, Question 15(b), which we modified as 

discussed above. 

The incorporation of umbrella registration into Form ADV will codify a staff 

position and provide a method for certain private fund advisers that operate as a single 

advisory business to file a single registration form. Umbrella registration will only be 

available if the filing adviser and each relying adviser advise only private funds and 

clients in separately managed accounts that are qualified clients, as defined in rule 205-3 

under the Advisers Act, that are otherwise eligible to invest in the private funds advised 

by the filing or a relying adviser. The filing and relying advisers will also have to 

satisfy certain requirements, including that each relying adviser is controlled by or under 

common control with the filing adviser. There has been staff guidance for single 
133

registration under defined circumstances since 2012,367 and the amendments to Form 

ADV will provide for umbrella registration and simplify the process of umbrella 

registration for advisers that operate as a single advisory business. We are adding a new 

schedule to Part 1A, Schedule R, that will need to be filed with respect to each relying 

adviser, as well as a new question to Schedule D, that will link a private fund reported 

on Form ADV to the specific (filing or relying) adviser that advises it. Schedule R will

require identifying information, basis for Commission registration, and ownership 

information about each relying adviser.

We believe that much of the information we are requiring in Schedule R will be 

readily available to private fund advisers because it is information that they are already 

reporting either on Form ADV filings for separate advisers or on a single Form ADV 

filing, in reliance on the staff guidance. Accordingly, although these new requirements 

will cause an increase in the information collected, the increased burden should largely 

be attributable to data entry and not data collection. Furthermore, some advisers who 

currently separately file Form ADV for each of their advisers may cumulatively have a 

reduced Form ADV burden by switching to umbrella registration. We also believe that 

new filing advisers using umbrella registration will readily have information available 

about their relying advisers, because they are operating as a single advisory business. In 

addition, filing advisers will be able to check a box indicating that the relying adviser’s 

address is the same as the filing adviser, rather than provide the relying adviser’s 

address. We did not receive comments on the burdens specific to Schedule R.

 

367 See 2012 ABA Letter, supra footnote 5.
134

There is no currently approved annual burden estimate for completing Schedule R 

because it is a new Schedule. Taking into account the scope of information we are 

requesting, our understanding that much of the information is readily available and 

currently required on Form ADV, and the fact that private fund advisers that file an 

umbrella registration in reliance on staff guidance had on average three relying 

advisers,368 we continue to estimate that advisers to private funds that elect to rely on 

umbrella registration will spend on average 1 hour per filing adviser completing new 

Schedule R for the first time.

c. Estimated Changes in Burden Related to Exempt Reporting 

Adviser Reporting Requirements 

Exempt reporting advisers are required to complete a limited number of items in 

Part 1A of Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and corresponding

schedules), are not required to complete Part 2 and will not be eligible to file new 

Schedule R. The amendments to Part 1A will revise only Items 1 and 7 for exempt 

reporting advisers. We believe that most exempt reporting advisers are unlikely to be 

required to do additional reporting in response to the new requirements. In addition, the

information required by these revisions should be readily available to any adviser as part 

of their ongoing operations and management of client assets.

369

 For instance, we estimate 

that almost all exempt reporting advisers currently have five or fewer offices (the number 

 

368 Based on IARD system data as of May 16, 2016, approximately 743 investment advisers rely on 

the 2012 ABA Letter to file Form ADV on behalf of themselves and 2,587 relying advisers, an 

average of approximately 3 relying advisers per filing adviser.

369 One commenter suggested that it would be burdensome for exempt reporting advisers to begin 

collecting information on the qualified client status of their investors. As discussed above, we 

have made revisions to address this concern. SBIA Letter.
135

of offices currently required by Form ADV) and thus will not have to provide 

information on additional offices.370 Accordingly, we do not expect that the amendments 

will increase or decrease the currently approved total annual burden estimate of two 

hours per exempt reporting adviser initially completing these items on Form ADV, other 

than Item 7.B. We also do not expect that the amendments will increase or decrease the 

currently approved total annual burden estimate of 1 hour per private fund per exempt 

reporting adviser initially completing Item 7.B. and Section 7.B. of Schedule D. 

2. Annual Burden Estimates

a. Estimated Annual Burden Applicable to All Registered Investment 

Advisers

i. Estimated Initial Hour Burden (Not Including Burden 

Applicable to Private Funds) For First Year Adviser To 

Complete Form ADV (Part 1 and Part 2)

We estimate that, as a result of the amendments to Form ADV Part 1A discussed 

above, other than those applicable to private funds, the average total collection of 

information burden per respondent will increase 5 hours to 45.74 hours per adviser for the 

first year that an adviser completes Form ADV (Part 1 and Part 2). 

Approximately 12,024 investment advisers are currently registered with the 

Commission.371 Not including private fund reporting, the estimated aggregate annual 

 

370 Based on IARD system data as of May 16, 2016, approximately 15 exempt reporting advisers

reported on Form ADV that they had five or more other offices.

371 Based on IARD system data as of May 16, 2016. We include currently registered advisers in the 

estimated initial hour burden calculation because, for purposes of estimating burdens under the 

Paperwork Reduction Act, we assume that every new and existing registered adviser completes an 

initial registration in a three year period, which is the period after which estimates are required to 

be renewed.
136

burden applicable to these advisers will be 549,978 hours372 (60,120 hours of it 

attributable to the amendments).373 As with the Commission’s prior Paperwork 

Reduction Act estimates for Form ADV, we believe that most of the paperwork burden 

will be incurred in advisers’ initial submission of the amended Form ADV, and that over 

time this burden will decrease substantially because the paperwork burden will be limited 

to updating information.374 Amortizing the burden imposed by Form ADV over a threeyear period to reflect the anticipated period of time that advisers will use the revised Form 

will result in an average annual burden of an estimated 183,326 hours per year375 (20,040

hours per year of it attributable to the amendments),376 or approximately 15.25 hours per 

year for each adviser currently registered with the Commission.377

Based on IARD system data, we estimate that there will be approximately 1,000 

new investment advisers filing Form ADV with us annually. Therefore, we estimate that 

the total annual aggregate burden estimate applicable to these advisers for the first year 

that they complete Form ADV but excluding private fund reporting requirements is 

45,740 hours (1,000 advisers x 45.74 hours). Amortizing the burden imposed by Form 

ADV for new registrants over a three-year period to reflect the anticipated period of time 

that advisers will use the revised Form will result in an average annual aggregate burden 

 

372 45.74 hour per-adviser burden x 12,024 advisers = 549,978 hours.

373 5 hour per-adviser additional burden x 12,024 advisers = 60,120 hours.

374 We discuss the burden for advisers making annual updating amendments to Form ADV in Section 

iii below.

375 549,978 hours/3 = 183,326 hours.

376 60,120 hours/3 = 20,040 hours.

377 183,326 hours/12,024 advisers = 15.25 hours.
137

estimate of 15,247 hours per year378 (1,667 of it attributable to the amendments).379 We 

therefore estimate the total annual aggregate hour burden to be 198,573 hours per year.380

ii. Estimated Initial Hour Burden Applicable to Registered 

Advisers to Private Funds

The amount of time that a registered adviser managing private funds will incur to 

complete Item 7.B. and Section 7.B. of Schedule D will vary depending on the number of

private funds the adviser manages. Of the advisers currently registered with us, we

estimate that approximately 4,469 registered advisers advise a total of 30,896 private

funds, and, on average, 300 Commission-registered advisers annually will make their 

initial filing with us reporting approximately 1,100 private funds.381 The currently 

approved annual burden estimate for advisers making their initial filing in completing 

Item 7.B. and Schedule D, Section 7.B. is 1 hour per private fund. As a result, we 

estimate that the private fund reporting requirements that are applicable to registered 

investment advisers will add 31,996 hours to the overall annual aggregate burden estimate 

applicable to registered advisers.382 As noted above, we believe most of the paperwork 

burden will be incurred in connection with advisers’ initial submission of Form ADV, 

and that over time the burden will decrease substantially because it will be limited to 

 

378 45,740 hours/3 = 15,247 hours.

379 5,000 hours/3 = 1,667 hours.

380 15,247 hours for new registrants + 183,326 hours for existing registrants = 198,573 hours.

381 Based on IARD system data as of May 16, 2016. We include existing funds of currently 

registered advisers in the estimated initial hour burden calculation because, for purposes of 

estimating burdens under the Paperwork Reduction Act, we assume that every existing registered 

adviser completes an initial filing completing Item 7.B. and Schedule D, Section 7.B. per fund in a 

three year period, which is the period after which estimates are required to be renewed.

382 1 hour x 30,896 private funds = 30,896 hours. 1 hour x 1,100 private funds = 1,100 hours. 30,896

hours + 1,100 hours = 31,996 hours.
138

updating (instead of compiling) information. Amortizing this burden over three years, as 

we did above with respect to the initial filing of the rest of the form, results in an annual 

aggregate average estimated burden of 10,665 hours per year.383

We also are adding a new Schedule R to Form ADV for umbrella registration. Of

the advisers currently registered with us, we estimate based on current Form ADV filings 

that approximately 743 registered advisers currently submit a single Form ADV on behalf 

of themselves and approximately 2,587 relying advisers.

384

 Taking into account the 

scope of information we are requesting and our understanding that much of the 

information is readily available and is already reported by advisers, we estimate that 

advisers to private funds that elect to rely on umbrella registration will spend 1 hour per 

filing adviser completing new Schedule R. As a result, we estimate that umbrella 

registration will add 743385 hours to the annual burden estimate applicable to registered 

advisers. We estimate that, on average, 51 SEC registered advisers annually will make 

their initial filing with us as filing advisers, increasing the overall annual burden for 

advisers to private funds an additional 51 hours, or 794 hours in total. Amortizing these 

hours for a three year period as with the rest of the burdens associated with Form ADV, 

results in an annual aggregate average burden of 265 additional hours per year.386

 

383 31,996 hours/3 = 10,665 hours.

384 Based on IARD system data as of May 16, 2016.

385

 743 filing advisers x 1 hour per completing Schedule R = 743 hours.

386 794 hours/3 = 265 hours.
139

iii. Estimated Annual Burden Associated With Amendments, 

New Brochure Supplements, and Delivery Obligations

The current approved collection of information burden for Form ADV has three 

elements in addition to those discussed above: (1) the annual burden associated with 

annual and other amendments to Form ADV; (2) the annual burden associated with 

creating new Part 2 brochure supplements for advisory employees throughout the year; 

and (3) the annual burden associated with delivering codes of ethics to clients as a result 

of the offer of such codes contained in the brochure. We anticipate that our amendments 

to Form ADV will increase the currently approved annual burden estimate associated 

with annual amendments to Form ADV from 6 hours to 8 hours per adviser, but will not 

impact interim updating amendments to Form ADV.

387

 

We continue to estimate that, on average, each adviser filing Form ADV through 

the IARD will likely amend its form two times during the year. We estimate, based on 

IARD system data, that advisers, on average, make one interim updating amendment (at 

an estimated 0.5 hours per amendment) and one annual updating amendment each year. 

Our estimate for the annual updating amendment in the Proposing Release was 7 hours 

per amendment each year. Based on the comments we received regarding separately 

 

387 Certain commenters were concerned about the burden on advisers of updating social media 

information via interim updating amendments. See BlackRock Letter; Oppenheimer Letter; 

SIFMA Letter. As discussed in Section II.A.2.a., we clarified that we are limiting the required 

social media reporting to an adviser’s accounts on publicly available social media platforms where 

the adviser controls the content. We believe changes to such platforms will be less frequent than 

changes, for example, to platforms where an adviser does not control the content. Therefore, we 

do not believe that updating social media reporting via interim updating amendments will increase 

the currently approved annual burden estimate associated with interim updating amendments. 
140

managed account reporting that are discussed above,388 we are increasing the estimate to

8 hours per amendment each year.389

In addition, the currently approved annual burden estimates are that each 

investment adviser registered with us will, on average, spend 1 hour per year making 

interim amendments to brochure supplements,

390 and an additional 1 hour per year to 

prepare new brochure supplements as required by Part 2.391 The currently approved 

annual burden estimate is that advisers spend an average of 1.3 hours annually to meet 

obligations to deliver codes of ethics to clients upon request.

392

 We are not changing 

these estimates as the amendments do not affect these requirements. The increase in the 

annual burden estimate associated with annual amendments to Form ADV and the 

increase in the number of registered investment advisers since the last approval of this 

collection, increase the total annual burden for advisers registered with us attributable to 

amendments, brochure supplements and obligations to deliver codes of ethics to 141,883

hours.393

 

388 AIMA Letter; ASG Letter; IAA Letter; SIFMA Letter. See also Adrian Day Letter; NRS Letter. 

389 (12,024 advisers x 0.5 hours/other than annual amendment) + (12,024 advisers x 8 hours/annual 

amendment) = 102,204 hours.

390 12,024 hours attributable to interim amendments to the brochure supplements = 12,024 advisers x 

1 hour = 12,024 hours.

391 12,024 hours attributable to new brochure supplements = 12,024 advisers x 1 hour = 12,024 hours.

392 15,631 hours for the delivery of codes of ethics = 12,024 advisers x 1.3 hours = 15,631 hours.

393 102,204 hours + 12,024 hours + 12,024 hours + 15,631 hours = 141,883 hours.
141

iv. Estimated Annual Cost Burden

The currently approved total annual collection of information burden estimate for 

Form ADV has a one-time initial cost for outside legal and compliance consulting fees in 

connection with the initial preparation of Part 2 of Form ADV. We do not anticipate that 

the amendments we are adopting to Form ADV will affect the per adviser cost burden 

estimates for outside legal and compliance consulting fees. In addition to the estimated 

legal and compliance consulting fees, investment advisers of private funds incur costs 

with respect to the requirement for investment advisers to report the fair value of private 

fund assets. We did not receive any comments regarding these specific costs.

We expect that 1,000 new advisers will register annually with the Commission. 

We estimate that the initial cost related to preparation of Part 2 of Form ADV will be 

$4,400 for legal services and $5,000 for compliance consulting services, in each case, for 

those advisers who engage legal counsel or consultants. We anticipate that a quarter of 

these advisers will seek the help of outside legal services and half will seek the help of 

compliance consulting services. Accordingly, we estimate that 250 of these advisers will 

use outside legal services, for a total annual aggregate cost burden of $1,100,000,394 and 

500 advisers will use outside compliance consulting services, for a total annual aggregate 

cost burden of $2,500,000,395 resulting in a total annual aggregate cost burden among all 

 

394 25% x 1000 SEC registered advisers = approximately 250 advisers. $4,400 for legal services x 

250 advisers = $ 1,100,000.

395 50% x 1000 SEC registered advisers = 500 advisers. $5,000 for consulting services x 500 advisers 

= $2,500,000.
142

respondents of $3,600,000 for outside legal and compliance consulting fees related to 

drafting narrative brochures.396

We estimate that 6% of registered advisers have at least one private fund client 

that may not be audited. These advisers therefore may incur costs to fair value their 

private fund assets. Based on IARD system data as of May 16, 2016, 4,469 registered 

advisers currently advise private funds. We therefore estimate that approximately 268

registered advisers may incur costs of $37,625 each on an annual basis, for an aggregate 

annual total cost of $10,083,500.

397

 

Together, we estimate that the total cost burden among all respondents for outside 

legal and compliance consulting fees related to third party or outside valuation services 

and for drafting outside legal and compliance consulting fees to be $13,683,500.

398

b. Estimated Annual Burden Applicable to Exempt Reporting 

Advisers

i. Estimated Initial Hour Burden

Based on IARD system data as of May 16, 2016, there are approximately 3,248

exempt reporting advisers currently filing reports with the SEC.399 The paperwork 

burden applicable to these exempt reporting advisers consists of the burden attributable to 

 

396 $1,100,000 + $2,500,000 = $3,600,000.

397 268 advisers x $37,625 = $10,083,500. 

398 $3,600,000 + $10,083,500 = $13,683,500.

399 Based on IARD system data as of May 16, 2016. We include existing exempt reporting advisers 

and their private funds in the estimated initial hour burden calculation because, for the purpose of 

estimating burdens under the Paperwork Reduction Act, we assume that every new and existing 

exempt reporting adviser completes an initial Form ADV in a three year period, which is the 

period after which estimates are required to be renewed.
143

completing a limited number of items in Form ADV Part 1A as well as the burden 

attributable to the private fund reporting requirements of Item 7.B. and Section 7.B. of 

Schedule D. 

The currently approved estimate of the average total collection of information 

burden per exempt reporting adviser for the first year that an exempt reporting adviser 

completes a limited subset of Part 1 of Form ADV, other than Item 7.B. and Section 7.B. 

of Schedule D, is 2 hours. As discussed above, we do not anticipate that our amendments 

to Form ADV will affect the per exempt reporting adviser burden estimate. Based on 

IARD system data, we estimate that there will be 500 new exempt reporting advisers 

filing Form ADV annually. Therefore, we estimate that the total aggregate annual burden 

applicable to the existing and new exempt reporting advisers for the first year that they 

complete Form ADV but excluding private fund reporting requirements increases to

7,496 hours.400 Amortizing the burden imposed by Form ADV over a three-year period 

to reflect the anticipated period of time that advisers will use the revised Form ADV 

results in an average annual aggregate burden estimate of 2,499 hours per year.401

As discussed above, we estimate the burden of completing Item 7.B. and Section 

7.B. of Schedule D to be 1 hour per private fund. We do not anticipate that our 

amendments to Form ADV will affect the per exempt reporting adviser burden of 

completing Item 7.B. and Section 7.B. of Schedule D. Based on IARD system data as of 

May 16, 2016, we estimate that, on average, the 3,248 exempt reporting advisers report

 

400 2 hours x (3,248 reporting exempt reporting advisers + 500 new exempt reporting advisers) = 

7,496 hours.

401 7,496 hours/3 = 2,499 hours.
144

11,915 funds. In addition, we estimate that the 500 new exempt reporting advisers 

making their initial filing will report approximately 1,000 funds, resulting in a total 

aggregate annual burden of 12,915 hours.402 Amortizing this total burden over three 

years as we did above for registered advisers results in an average annual aggregate 

burden estimate of 4,305 hours per year,403 or approximately 1 hour per year, on average, 

for each exempt reporting adviser.404

ii. Estimated Annual Burden Associated With Amendments 

and Final Filings

In addition to the burdens associated with initial completion and filing of the 

portion of the form that exempt reporting advisers are required to prepare, we estimate 

that, based on IARD system data, each exempt reporting adviser will amend its form 2

times per year. On average, these consist of one interim updating amendment (at an 

estimated 0.5 hours per amendment)405 and one annual updating amendment (at an 

estimated 1 hour per amendment)406 each year. In addition, we anticipate 200 final filings 

by exempt reporting advisers annually (at an estimated 0.1 hours per filing).407 We do not 

anticipate that our amendments to Form ADV will affect the per exempt reporting adviser 

burden for amendments or final filings. However, based on the increase in the number of 

 

402 11,915 funds + 1,000 funds = 12,915 funds. 12,915 x 1 hour = 12,915 hours.

403 12,915 hours/3 years = 4,305 hours per year.

404 4,305 hours per year/3,748 exempt reporting advisers = 1.1 hours per year.

405 3,248 exempt reporting advisers x .5 hours = 1,624 hours.

406 3,248 exempt reporting advisers x 1 hour = 3,248 hours.

407 200 final filings x 0.1 hours = 20 hours.
145

exempt reporting advisers, the total annual burden associated with exempt reporting 

advisers filing amendments and final filings has increased to 4,892 hours.408

3. Total Revised Burdens

The revised total annual aggregate collection of information burden for SEC 

registered advisers to file and complete the revised Form ADV (Parts 1 and 2), including 

the initial burden for both existing and anticipated new registrants, private fund reporting, 

plus the burden associated with filing amendments to the form, preparing brochure 

supplements and delivering codes of ethics to clients, is estimated to be approximately 

351,386 hours per year, for a monetized total of approximately $89,427,737.

409

The revised total annual collection of information burden for exempt reporting 

advisers to file and complete the required Items of Part 1A of Form ADV, including the 

 

408 1,624 hours + 3,248 hours + 20 hours = 4,892 hours. Exempt reporting advisers are not required 

to complete Part 2 of Form ADV and so will not incur an hour burden to prepare new brochure 

supplements or the cost for preparation of the brochure. Exempt reporting advisers also do not 

have an obligation to deliver codes of ethics to clients when requested as required by Part 2 of 

Form ADV.

409 198,573 hours per year attributable to initial preparation of Form ADV + 10,665 hours per year 

attributable to initial private fund reporting requirements + 265 hours per year for initial umbrella 

registration + 141,883 hours per year attributable to filing amendments, brochure supplements and 

obligations to deliver codes of ethics = 351,386 hours. One commenter stated that the work of 

compliance is generally carried out by the Chief Compliance Officer with limited assistance from 

others. PCA Letter. However, based on our experience, we expect that at most Commission 

registered advisers, the performance of this function will most likely be equally allocated between 

a senior compliance examiner and a compliance manager, or persons performing similar functions. 

Data from the SIFMA Management and Professional Earnings Report, modified by Commission 

staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for 

bonuses, firm size, employee benefits and overhead, suggest that costs for these positions are $221 

and $288 per hour, respectively. (175,693 hours x $221) + (175,693 hours x $288) = $89,427,737.
146

burdens associated with private fund reporting, amendments to the form and final filings, 

will be approximately 11,696 hours per year, for a monetized total of $2,976,632.

410

 

We estimate that with today’s amendments to Form ADV, the revised total 

aggregate annual hour burden for the form will be approximately 363,082 hours and the

monetized total will be approximately $92,404,369.

411

 This is an increase of 208,680

hours and $55,733,942 from the currently approved annual aggregate burden estimates,412

which is attributable primarily to the currently approved burden estimates not considering 

the amortized annual burden of Form ADV on existing registered advisers and exempt 

reporting advisers; but also to the larger registered investment adviser and exempt 

reporting adviser population since the most recent approval, adjustments for inflation, and 

the amendments to Form ADV. The resulting blended average per adviser burden for 

Form ADV is 23.77 hours(for a monetized total of $6,051),413 which consists of an 

average annual burden of 29.22 hours414 for each of the estimated 12,024 SEC registered 

advisers, and 3.60 hours415 for each of the estimated 3,248 exempt reporting advisers. 

 

410 2,499 hours per year attributable to initial preparation of Form ADV + 4,305 hours per year 

attributable to initial private fund reporting requirements + 4,892 hours per year for amendments 

and final filings = 11,696 hours. We expect that the performance of this function will most likely 

be equally allocated between a senior compliance examiner and a compliance manager, or persons 

performing similar functions. Data from the SIFMA Management and Professional Earnings 

Report, modified by Commission staff to account for an 1,800-hour work-year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that 

costs for these positions are $221 and $288 per hour, respectively. (5,848 x $221) + (5,848 x 

$288) = $2,976,632.

411 351,386 hours + 11,696 hours = 363,082 hours. $89,427,737 + $2,976,632 = $92,404,369.

412 363,082 hours - 154,402 hours = 208,680 hours. $92,404,369 - $36,670,427 (currently approved 

monetized burden estimate) = $55,733,942.

413 363,082 hours/(12,024 registered advisers + 3,248 exempt reporting advisers) = 23.77 hours. 

$92,404,369/(12,024 registered advisers + 3,248 exempt reporting advisers) = $6,051.

414 351,386 hours/12,024 registered advisers = 29.22 hours.
147

Registered investment advisers are also expected to incur an annual cost burden of 

$13,683,500, an increase of $10,083,500 from the current approved cost burden estimate

of $3,600,000. The increase in annual cost burden is attributable to the currently 

approved burden not considering the cost to advisers to fair value private fund assets. 

B. Rule 204-2

Rule 204-2 (OMB Control No. 3235-0278) requires investment advisers 

registered, or required to be registered under section 203 of the Act, to keep certain books 

and records relating to their advisory business. The collection of information under rule 

204-2 is necessary for the Commission staff to use in its examination and oversight 

program. The information provided to the Commission in connection with staff 

examinations, investigations and oversight programs would be kept confidential subject 

to the provisions of applicable law. The collection of information is mandatory.

The amendments to rule 204-2 will require investment advisers to make and keep 

the following records: (i) documentation necessary to demonstrate the calculation of the 

performance the adviser distributes to any person, and (ii) all written communications 

received or sent relating to the adviser’s performance. 

The currently approved total annual burden for rule 204-2 is based on an estimate 

of 10,946 registered advisers subject to rule 204-2 and an estimated average burden of 

181.45 burden hours each year per adviser, for a total annual aggregate burden estimate 

of 1,986,152 hours. Based upon updated IARD system data as of May 16, 2016, the 

 

415 11,696 hours/3,248 exempt reporting advisers = 3.60 hours.
148

approximate number of investment advisers is 12,024. As a result of the increase in the 

number of advisers registered with the Commission since the current total annual burden 

estimate was approved, the total burden estimate has increased by 195,603 hours.416 We 

estimate that most advisers provide, or seek to provide, performance information to their 

clients. Under the amendments, each adviser will be required to retain the records in the 

same manner, and for the same period of time, as other books and records under the 

rule.417 We believe based on staff experience, and several commenters confirmed,418 that 

the documentation necessary to support the performance calculations is customarily

maintained, or required to be maintained by advisers already in account statements or 

portfolio management systems. We also believe that most advisers already maintain this 

information in their books and records, in order to show compliance with the Advisers 

Act advertising rule, rule 206(4)-1. In the Proposing Release, we estimated that the 

proposed amendments to rule 204-2 would increase the burden by approximately .5 hours 

per adviser annually. We received several comments suggesting that our estimated 

burden increase was significantly too low.419 While we continue to believe that most 

advisers currently maintain this information, after considering the commenters’ concerns, 

 

416 12,024 advisers x 181.45 hours = 2,181,755 hours. 2,181,755 hours – 1,986,152 hours = 195,603

hours.

417 Specifically, the records must be maintained in an easily accessible place for at least five years 

from the end of the fiscal year during which the last entry was made in such record, the first two 

years in an appropriate office of the investment adviser. See rule 204-2(e)(1).

418 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter.

419 ACG Letter; Anonymous Letter (estimates a training burden of 4-8 hours per effected employee in 

the first year; estimates that there will be additional expenses for data analysis and storage); 

PEGCC Letter (argues that, with respect to the proposed amendments to rule 204-2, the 

Commission significantly understated the burden on advisers and presented little evidence to 

support its burden estimate). See ASG Letter.
149

we now estimate that the amendments to rule 204-2 will increase the burden by 

approximately 1.5 hours per adviser annually for a total annual aggregate increase of 

18,036 hours.420 The revised annual aggregate burden estimate will be 2,199,791

hours.421 The revised average burden estimate of the recordkeeping requirements under 

rule 204-2 per SEC-registered adviser will be approximately 183 hours per year.

422

 The 

burden may be less than 1.5 hours for those advisers that currently maintain this 

information, and we acknowledge that the burden may be greater than 1.5 hours for 

advisers that frequently provide performance information to clients and do not currently 

maintain this information. We believe that, on average, 1.5 hours is an appropriate 

estimate for this collection of information. 

Advisers will likely use a combination of compliance clerks and general clerks to 

make and keep the information and records required under the rule. The currently 

approved total annual aggregate cost burden is $108,708,557.10. We estimate the hourly 

wage for compliance clerks to be $65 per hour, including benefits, and the hourly wage 

for general clerks to be $58 per hour, including benefits.423 For each adviser, 183 annual

burden hours will be required to make and keep the information and records required 

under the rule. We anticipate that compliance clerks will perform an estimated 32 hours 

 

420 12,024 advisers x 1.5 hours = 18,036 hours.

421 1,986,152 (current approved burden) + 195,603 (burden for additional registrants) + 18,036

(burden for amendments) = 2,199,791 hours.

422 2,199,791 hours/12,024 advisers = 183 hours.

423 Our hourly wage rate estimate for a compliance clerk and general clerk is based on data from the 

SIFMA Office Salaries in the Securities Industry Report 2013 (“SIFMA Office Salaries Report”), 

modified by Commission staff to account for an 1,800-hour work-year and inflation, and 

multiplied by 2.93, to account for bonuses, firm size, employee benefits and overhead.
150

of this work, and general clerks will perform the remaining 151 hours. The total annual 

cost per respondent therefore will be an estimated $10,838,

424 for a total annual aggregate 

burden cost estimate of approximately $130,316,112,

425 an increase of $21,607,555 from 

the currently approved total annual aggregate cost per respondent.426 The increase in cost 

is attributable to a larger registered investment adviser population since the most recent

PRA approval, an adjustment for inflation in the hourly wage estimates for a compliance 

clerk and general clerk, and the rule 204-2 amendments discussed in this Release.

VI. FINAL REGULATORY FLEXIBILITY ANALYSIS

The Commission has prepared the following Final Regulatory Flexibility Act 

Analysis, in accordance with section 4(a) of the Regulatory Flexibility Act, in relation to

our amendments to Form ADV and rule 204-2 and our technical amendments to certain 

other rules under the Advisers Act.427 We prepared an Initial Regulatory Flexibility 

Analysis ("IRFA") in the Proposing Release.428

A. Need for and Objectives of the Amendments

We are adopting amendments to Form ADV that are designed to provide the 

Commission with additional information about registered investment advisers, including

information about separately managed accounts, provide for umbrella registration for 

 

424 (32 hours per compliance clerk x $65) + (151 hours per general clerk x $58) = ($2,080 + $8,758) = 

$10,838.

425 $10,838 per adviser x 12,024 advisers = approximately $130,316,112.

426 $130,316,112 - $108,708,557 = $21,607,555.

427 5 U.S.C. 604(a).

428 See Proposing Release, supra footnote 3 at Section V.
151

multiple investment advisers operating as a single advisory business, and provide 

technical, clarifying and other amendments to certain Form ADV provisions. The 

amendments to Form ADV will improve the depth and quality of the information 

provided by investment advisers to the Commission and the public. 

We are also amending the Advisers Act books and records rule to require advisers 

to make and keep supporting documentation that demonstrates performance calculations 

or rates of return in any written communications that the adviser circulates or distributes, 

directly or indirectly, to any person. We believe that the amendments to the books and 

records rule will improve investor protections by providing useful information in 

examining and evaluating advisers’ performance claims.

Finally, we are adopting technical amendments to certain rules under the Advisers 

Act to remove transition provisions where the transition process is complete.

B. Significant Issues Raised by Public Comments

The Commission is sensitive to the burdens that the Form ADV and rule 

amendments may have on small advisers. In the Proposing Release, we requested 

comment on matters discussed in the IRFA. In particular, we sought comments on the 

number of small entities, particularly small advisers, to which the amendments to Form 

ADV and Advisers Act rules would apply, and the impact of those amendments on the 

small entities, including whether the effects would be economically significant.
152

The Commission received one comment letter specifically addressing the IRFA429

in addition to several comment letters that discussed the impact of the proposed 

amendments to Form ADV on smaller advisers.430 With respect to the reporting on Form 

ADV regarding separately managed accounts, several commenters suggested decreasing 

the burden on small advisers by increasing the threshold for reporting derivatives and 

borrowings information in Schedule D, Section 5.K.(2) to $500 million from the 

proposed $150 million.431 As discussed above, we are persuaded by commenters that this 

is a sensible accommodation that would allow us to meet our regulatory objectives while 

alleviating reporting burdens on smaller advisers, and have raised the minimum threshold 

for reporting information about the use of borrowings and derivatives in separately 

managed accounts to advisers with at least $500 million in separately managed account 

regulatory assets under management, from the proposed threshold of $150 million.

432

 A 

commenter also suggested not requiring advisers with less than $150 million in separately 

managed account assets to report any separately managed account information, including 

in Sections 5.K.(1) and 5.K.(3).433 As discussed in Section II.A.1. of this Release, we 

recognize that this reporting will impose some burden on all advisers with separately 

managed accounts, but we believe that gathering this information is important for us to 

gain a full understanding of assets held in separately managed accounts managed by 

 

429 PCA Letter.

430 Adrian Day Letter; AIMA Letter; Diercks Letter; IAA Letter; SBIA Letter; Schwab & Co. Letter.

431 IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter.

432 See Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2).

433 AIMA Letter; see also ASG Letter (suggesting establishing a minimum regulatory assets under 

management threshold above which reporting requirements would be imposed).
153

investment advisers of different sizes. We also have limited both the scope of 

information to be reported and the frequency of reporting, which lessens the burden on 

small advisers. 

One commenter described more generally the burdens of the amendments to Form 

ADV on smaller private fund advisers.434 Other commenters noted that smaller advisers 

may not have additional staff to meet any increased burdens in reporting, and that smaller 

advisers may not have the staffing that we assume in calculating monetary burdens on 

advisers.435 Another commenter noted that the requirement to report information about 

additional offices may have a disproportionate impact on smaller advisers.436 

With respect to the amendments that we proposed to the Books and Records rule, 

one commenter noted that while the amendments were not themselves burdensome, when 

aggregated with other recordkeeping obligations, could lead to overall compliance 

burdens for smaller advisers.437 While we acknowledge commenters’ concerns, records 

from advisers of all sizes are required for our staff to be able to conduct its oversight of 

advisers, including examinations and investigations. Further, based on our staff’s 

experience and the information provided by several commenters,

438 we believe that most 

advisers already maintain this information. Thus, we are adopting the amendments 

largely as proposed.

 

434

 See SBIA Letter.

435 Adrian Day Letter; Diercks Letter; PCA Letter.

436 NRS Letter.

437 SBIA Letter.

438 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter.
154

With respect to the amendments to Form ADV and the Advisers Act rules 

generally, we believe that they will improve the depth and quality of information 

provided by investment advisers to the Commission and the public and our oversight of 

advisers. Information about advisers of all sizes is required for the Commission and its 

staff to perform their roles in overseeing advisers. Accordingly, we are not modifying the 

reporting requirements for smaller advisers. 

C. Small Entities Subject to the Rule and Rule Amendments

The amendments to Form ADV and the Advisers Act rules affect all advisers 

registered with the Commission and exempt reporting advisers, including small entities. 

Under Commission rules, for the purposes of the Advisers Act and the Regulatory 

Flexibility Act, an investment adviser generally is a small entity if it: (1) has assets under 

management having a total value of less than $25 million; (2) did not have total assets of 

$5 million or more on the last day of the most recent fiscal year; and (3) does not control, 

is not controlled by, and is not under common control with another investment adviser 

that has assets under management of $25 million or more, or any person (other than a 

natural person) that had total assets of $5 million or more on the last day of its most 

recent fiscal year. 439

Our rule and Form ADV amendments will not affect most advisers that are small 

entities (“small advisers”) because they are generally registered with one or more state 

securities authorities and not with us. Under section 203A of the Advisers Act, most 

small advisers are prohibited from registering with the Commission and are regulated by 

 

439 Rule 0-7(a) under the Advisers Act.
155

state regulators. Based on IARD system data, we estimate that as of May 16, 2016, 

approximately 526 advisers that are small entities are registered with the Commission.440 

Because these advisers are registered, they, like all SEC-registered investment advisers, 

will all be subject to the amendments to Form ADV, rule 204-2 and other Advisers Act 

rules. 

The only small entity exempt reporting advisers that are subject to the 

amendments are exempt reporting advisers that maintain their principal office and place 

of business in Wyoming or outside the United States. Advisers with less than $25 million 

in assets under management generally are prohibited from registering with us unless they 

maintain their principal office and place of business in Wyoming or outside the United 

States. Exempt reporting advisers are not required to report regulatory assets under 

management on Form ADV and therefore we do not have a precise number of exempt 

reporting advisers that are small entities. Exempt reporting advisers are required to report 

in Part 1A, Schedule D the gross asset value of each private fund they manage.441 Based 

on responses to that question, we estimate that there is approximately 1 exempt reporting 

adviser with its principal office and place of business in Wyoming that meets the 

definition of small entity. Advisers with their principal office and place of business 

outside the United States may have additional assets under management other than what 

is reported in Schedule D. Based on IARD filings, approximately 14.3% of registered 

investment advisers with their principal office and place of business outside the U.S. are 

small entities. Based on IARD system data as of May 16, 2016, there are approximately 

 

440 Based on SEC-registered investment adviser responses to Form ADV, Item 5.F and Item 12.

441 See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A., Question 11.
156

1,428 exempt reporting advisers with their principal office and place of business outside 

the U.S. We estimate that 14.3% of those advisers, approximately 204 exempt reporting 

advisers, are small entities.

D. Projected Reporting, Recordkeeping, and Other Compliance 

Requirements

The amendments to Form ADV and rule 204-2 impose certain reporting, 

recordkeeping, and compliance requirements on all Commission-registered advisers, 

including small advisers. All Commission-registered small advisers are required to file 

Form ADV and include the new information required by the amendments, and all 

Commission-registered small advisers are subject to the amended recordkeeping 

requirements. Our technical amendments to other Advisers Act rules do not impose 

different reporting, recordkeeping, or other compliance requirements on small advisers. 

Form ADV Amendments

The amendments to Form ADV require registered investment advisers to report 

different or additional information than what is currently required. Approximately 526

small advisers currently registered with us are subject to these requirements. We expect 

these 526 small advisers to spend, on average, 5 hours to respond to the new and 

amended questions, not including items relating to private fund reporting, which is 
157

discussed below.

442

 We expect the aggregate cost to small advisers associated with this 

process is $669,335.

443

 

In addition, of these 526 small advisers, we estimate that 3 small advisers

currently rely on the 2012 ABA Letter to act as filing advisers for their relying 

advisers.444 We expect that our changes to codify umbrella registration will take 3

hours445 in the aggregate, at a cost to small advisers of $764.446 We do not know how 

many additional small advisers will use umbrella registration as incorporated into Form 

ADV. 

We do not estimate any increase or decrease in burden related to our amendments 

for small private fund advisers, other than the hours related to Schedule R, or for exempt 

 

442 See Section V. of this Release.

443 We expect that performance of this function will most likely be equally allocated between a senior 

compliance examiner and a compliance manager. Data from the SIFMA Management and 

Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work 

year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, 

and overhead, suggest that costs for these positions are $221 and $288 per hour, respectively. 526 

small advisers x 5 hours = 2,630 hours. [1,315 hours x $221 = $290,615] + [1,315 hours x $288 = 

$378,720] = $669,335.

444 Based on IARD system data as of May 16, 2016.

445 For purposes of the Paperwork Reduction Act, we estimated in Section V of this Release that 

amendments to codify umbrella registration will take an additional 1 hour per filing adviser.

446 As discussed in connection with the Paperwork Reduction Act, we expect that performance of this 

function will most likely be equally allocated between a senior compliance examiner and a 

compliance manager. Data from the SIFMA Management and Professional Earnings Report, 

modified by Commission staff to account for an 1,800-hour work year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that 

costs for these positions are $221 and $288 per hour, respectively. 3 filing advisers x 1 hour = 3

hour. [1.5 hours x $221 = $332] + [1.5 hours x $288 = $432] = $764.
158

reporting advisers. The total estimated costs associated with our amendments to Form 

ADV that we expect will be borne by small advisers is $670,099.

447

Amendments to Books and Records Rule

Our amendments to rule 204-2’s performance information recordkeeping 

provisions require investment advisers to make and keep the following records: (i) 

documentation necessary to demonstrate the calculation of the performance the adviser 

distributes to any person, and (ii) all written communications received or sent relating to 

the adviser’s performance. These amendments will create reporting, recordkeeping, and 

other compliance requirements for small advisers. As discussed in the Paperwork 

Reduction Act Analysis in Section V. above, the amendments to rule 204-2 will increase 

the burden by approximately 1.5 hours per adviser. We expect the aggregate cost to 

small advisers associated with our amendments is $46,700.

448

E. Agency Action to Minimize Effect on Small Entities

The Regulatory Flexibility Act directs the Commission to consider significant 

alternatives that would accomplish the stated objective, while minimizing any significant 

adverse impact on small entities. In connection with the Form ADV and rule 

amendments, the Commission considered the following alternatives: (i) the establishment 

 

447 $669,335+ $764 = $670,099. These costs are discussed in Paperwork Reduction Act Analysis in 

Section V. of this Release.

448 As discussed in connection with the Paperwork Reduction Act, we expect that performance of this 

function will most likely be allocated between compliance clerks and general clerks with 

compliance clerks performing 17% of the function and general clerks performing 83% of the 

function. Data from the SIFMA Office Salaries Report modified by Commission staff to account 

for an 1,800-hour work year and inflation, and multiplied by 2.93 to account for bonuses, firm 

size, employee benefits, and overhead, suggest that costs for these positions are $65 per hour and 

$58 per hour, respectively. 526 small advisers x 1.5 hours = 789 hours. [0.17 x 789 hours x $65 = 

$8,718] + [0.83 x 789 hours x $58 = $37,982] = $46,700.
159

of differing compliance or reporting requirements that take into account the resources 

available to small advisers; (ii) the clarification, consolidation, or simplification of 

compliance and reporting requirements under the Form ADV and rule amendments for 

such small entities; (iii) the use of performance rather than design standards; and (iv) an 

exemption from coverage of the Form ADV and rule amendments, or any part thereof, 

for such small entities.

Regarding the first and second alternatives, the adopted amendments require 

reporting on separately managed accounts on Schedule 5.K.(2) of Form ADV only for 

advisers with $500 million or more of regulatory assets under management attributable to 

separately managed accounts. Further, we require semi-annual information filed annually 

for those advisers with regulatory assets under management attributable to separately 

managed accounts of at least $10 billion, and annual information for other advisers.449 

Requiring no reporting on these items for advisers with less than $500 million, and less 

detailed reporting for advisers with less than $10 billion, is designed to balance our 

regulatory needs for this type of information while seeking to minimize the reporting 

burden on advisers that manage a smaller amount of separately managed account assets

where appropriate.

Regarding the first and fourth alternatives for the other amendments to Form 

ADV and Advisers Act rules, we do not believe that different compliance or reporting 

requirements or an exemption from coverage of the Form ADV and rule amendments, or 

any part thereof, for small entities, would be appropriate. Information about advisers of 

 

449 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1). 
160

all sizes is required for the Commission and its staff to perform their role in overseeing 

investment advisers. Accordingly, we are not modifying the reporting requirements for 

smaller advisers. 

Regarding the second alternative for the other amendments to Form ADV and the 

Advisers Act rules, we considered whether further clarification, consolidation, or 

simplification of the compliance requirements was feasible or necessary. In response to 

commenters, we clarified certain instructions and items, which apply to all advisers filing 

Form ADV. The remaining Form ADV amendments do not change that all SECregistered advisers use a single form, Form ADV, and an existing filing system, IARD, 

for reporting and registration purposes, and this does not change for small entities. With 

respect to the rule 204-2 amendments, we believe that the same requirements should 

apply to all advisers to permit our staff to more effectively examine them.

Regarding the third alternative, we considered using performance rather than 

design standards with respect to the amendments to Form ADV and rule 204-2 but, for 

the Commission and its staff to perform their role in overseeing advisers, advisers must 

provide certain registration information and maintain books and records in a uniform and 

quantifiable manner so that it is useful to our regulatory and examination program.

VII. STATUTORY AUTHORITY

The Commission is adopting amendments to Form ADV under section 19(a) of 

the Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) and 28(e)(2) of the 

Securities Exchange Act of 1934 [15 U.S.C. 78w(a) and 78bb(e)(2)], section 319(a) of 

the Trust Indenture Act of 1939 [15 U.S.C. 7sss(a)], section 38(a) of the Investment 

Company Act of 1940 [15 U.S.C. 80a-37(a)], and section 203(c)(1), 204 and 211(a) of 
161

the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)]. The 

Commission is amending rule 204-2 pursuant to the authority set forth in sections 204 

and 211 of the Advisers Act [15 U.S.C. 80b-4 and 80b-11]. The Commission is 

amending rule 202(a)(11)(G)-1 pursuant to authority in sections 202(a)(11)(G) and 206A 

of the Advisers Act [15 U.S.C. 80b-2(a)(11)(G) and 80b-6A]. The Commission is 

amending rule 203-1 pursuant to authority in section 206A of the Advisers Act [15 

U.S.C. 80b-6A]. The Commission is rescinding rule 203A-5 and amending rule 204-1 

pursuant to authority in sections 204 and 211(a) of the Advisers Act [15 U.S.C. 80b-4 and 

80b-11(a)]. The Commission is amending rule 204-3 pursuant to authority in sections 

204, 206(4) and 211(a) of the Advisers Act [15 U.S.C. 80b-4, 80b-6(4) and 80b-11(a)]. 

List of Subjects in 17 CFR Parts 275 and 279

Reporting and recordkeeping requirements; Securities. 

TEXT OF RULE AND FORM AMENDMENTS

For the reasons set forth in the preamble, title 17, chapter II of the Code of 

Federal Regulations is amended as follows.

PART 275 – RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 

1940

1. The general authority citation for part 275 continues to read as follows, and 

the sectional authority for § 275.230A-5 is removed. 

Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 80b-3, 

80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise noted.

* * * * *

§ 275.202(a)(11)(G)-1 [Amended]
162

2. Amend Section 275.202(a)(11)(G)-1 by removing paragraph (e).

§ 275.203-1 [Amended]

3. Section 275.203-1 is amended by:

a. In the first sentence of paragraph (a) removing the phrase “Subject to 

paragraph (b), to” and adding in its place “To”;

b. Removing paragraph (b);

c. In the NOTE TO PARAGRAPHS (a) AND (b), revising the paragraph 

heading; 

d. Redesignating paragraphs (c) and (d) as paragraphs (b) and (c); and

e. Removing paragraph (e).

The revision reads as follows:

§ 275.203-1 Application for investment adviser registration. 

(a) * * *

NOTE TO PARAGRAPH (a): * * * 

* * * * *

§ 275.203A-5 [Removed and Reserved]

4. Section 275.203A-5 is removed and reserved.

§ 275.204-1 [Amended]

5. Section 275.204-1 is amended by:

a. In the first sentence of paragraph (b)(1) removing the phrase “Subject 

to paragraph (c) of this section, you” and adding in its place “You”;

b. Removing paragraph (c); and 
163

c. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d).

§ 275.204-2 [Amended]

6. Section 275.204-2 is amended by:

a. Revising paragraph (a)(7); and

b. In paragraph (a)(16) removing the phrase “to 10 or more persons” and 

adding in its place “to any person”.

The revision reads as follows:

§ 275.204-2 Books and records to be maintained by investment advisers

(a) * * *

(7) Originals of all written communications received and copies of all written 

communications sent by such investment adviser relating to:

(i) Any recommendation made or proposed to be made and any advice given or 

proposed to be given;

(ii) Any receipt, disbursement or delivery of funds or securities;

(iii) The placing or execution of any order to purchase or sell any security;

(iv) The performance or rate of return of any or all managed accounts or securities 

recommendations: Provided, however: 

(A) That the investment adviser shall not be required to keep any unsolicited 

market letters and other similar communications of general public distribution not 

prepared by or for the investment adviser, and
164

(B) That if the investment adviser sends any notice, circular or other 

advertisement offering any report, analysis, publication or other investment advisory 

service to more than 10 persons, the investment adviser shall not be required to keep a 

record of the names and addresses of the persons to whom it was sent; except that if such 

notice, circular or advertisement is distributed to persons named on any list, the 

investment adviser shall retain with the copy of such notice, circular or advertisement a 

memorandum describing the list and the source thereof.

* * * * *

§ 275.204-3 [Amended]

7. Section 275.204-3 is amended by:

a. Removing paragraph (g); and 

b. Redesignating paragraph (h) as paragraph (g).

PART 279 – FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS 

ACT OF 1940

8. The authority citation for Part 279 continues to read as follows:

Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq.

9. Form ADV [referenced in §279.1] is amended by:

a. In the instructions to the form, revising the sections entitled “Form ADV: 

General Instructions.” The revised version of Form ADV: General Instructions is 

attached as Appendix A;
165

b. In the instructions to the form, revising the section entitled “Form ADV: 

Instructions for Part 1A.” The revised version of Form ADV: Instructions for Part 1A is 

attached as Appendix B;

c. In the instructions to the form, revising the section entitled “Form ADV: 

Glossary of Terms.” The revised version of Form ADV: Glossary of Terms is attached 

as Appendix C;

d. In the form, revising Part 1A. The revised version of Form ADV, Part 1A, 

is attached as Appendix D.

Note: The text of Form ADV does not and the amendments will not appear 

in the Code of Federal Regulations.

By the Commission.

August 25, 2016

Brent J. Fields

Secretary