Amendments to Form ADV and Investment Advisers Act Rules, 33717-33838 [2015-12778]

Download as PDF Vol. 80 Friday, No. 113 June 12, 2015 Part III Securities and Exchange Commission mstockstill on DSK4VPTVN1PROD with PROPOSALS3 17 CFR Parts 275 and 279 Amendments to Form ADV and Investment Advisers Act Rules; Proposed Rule VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\12JNP3.SGM 12JNP3 33718 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 275 and 279 [Release No. IA–4091; File No. S7–09–15] RIN 3235–AL75 Amendments to Form ADV and Investment Advisers Act Rules Securities and Exchange Commission. ACTION: Proposed rule. AGENCY: The Securities and Exchange Commission is proposing 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 proposing 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: Comments should be received on or before August 11, 2015. ADDRESSES: Comments may be submitted by any of the following methods: SUMMARY: mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/proposed.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. S7–09– 15 on the subject line; or • Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–09–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Web site (https://www.sec.gov/rules/ proposed.shtml). Comments are also available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s Web site. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: Bridget D. Farrell, Senior Counsel, Sarah A. Buescher, Branch Chief, or Daniel S. Kahl, Assistant Director, at (202) 551– 6787 or IArules@sec.gov, Investment Adviser Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to rules 204–2 [17 CFR 275.204–2], 202(a)(11)(G)–1 [17 CFR 275.202(a)(11)(G)–1], 203–1 [17 CFR 275.203–1], and 204–1 [17 CFR 275.204–1] under the Investment Advisers Act of 1940 [15 U.S.C. 80b] (‘‘Advisers Act’’ or ‘‘Act’’),1 and amendments to Form ADV [17 CFR 279.1] under the Advisers Act. The Commission is also proposing to rescind rule 203A–5 [17 CFR 275.203A–5] under the Advisers Act. Table of Contents I. Background II. Discussion A. Proposed Amendments to Form ADV 1. Information Regarding Separately Managed Accounts 2. Additional Information Regarding Investment Advisers 3. Umbrella Registration 4. Proposed Clarifying, Technical and Other Amendments to Form ADV B. Proposed Amendments to Investment Advisers Act Rules 1. Proposed Amendments to Books and Records Rule 2. Proposed Technical Amendments to Advisers Act Rules III. Economic Analysis A. Introduction B. Proposed Amendments to Form ADV 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. PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 1. Economic Baseline and Affected Market Participants 2. Benefits 3. Costs 4. Alternatives C. Proposed Amendments to Advisers Act Rules 1. Economic Baseline and Affected Market Participants 2. Benefits 3. Costs 4. Alternatives D. Request for Comment IV. Paperwork Reduction Act Analysis A. Form ADV 1. Changes in Average Burden Estimate and New Burden Estimates 2. Annual Burden Estimates 3. Total Revised Burdens B. Rule 204–2 C. Request for Comment V. Initial Regulatory Flexibility Analysis A. Reason for the Proposed Action B. Objectives and Legal Basis C. Small Entities Subject to the Rule and Rule Amendments D. Reporting, Recordkeeping and Other Compliance Requirements E. Duplicative, Overlapping or Conflicting Federal Rules F. Significant Alternatives G. Solicitation of Comments VI. Consideration of Impact on the Economy VII. Statutory Authority Text of Rule and Form Amendments 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 I. Background Form ADV is used by investment advisers to register with the Commission and with the states. The information collected on Form ADV serves a vital role in our regulatory program and our ability to protect investors. Our staff uses Form ADV data to prepare for, conduct, and implement our risk-based examination program of investment advisers, and that data also assists our staff in conducting investigations and bringing enforcement actions. In addition to providing information about each investment adviser, Form ADV data is also aggregated by our staff across investment advisers to obtain census data and to monitor industry trends. Census data and industry trend information inform our regulatory program and the assessment of emerging risks. Importantly, Form ADV also benefits clients and prospective clients because the information filed by advisers is available to the public on our Web site.2 2 Information on Form ADV is available to the public through the Investment Adviser Public Disclosure System (‘‘IAPD’’), which allows the E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 We have amended Form ADV several times to improve our ability to oversee investment advisers. Most recently we significantly enhanced reporting requirements for advisers to private funds in connection with the DoddFrank Wall Street Reform and Consumer Protection Act’s (‘‘Dodd-Frank Act’s’’) 3 private fund adviser registration requirements.4 Today, we are proposing a more limited set of amendments to Part 1A of Form ADV in three areas: Revisions to fill certain data gaps and to enhance current reporting requirements; amendments to incorporate ‘‘umbrella registration’’ for private fund advisers; and clarifying, technical and other amendments to existing items and instructions.5 Several of the proposed amendments to Form ADV relate to separately managed accounts. Investment advisers manage assets of pooled investment vehicles, including registered and unregistered funds. Advisers also manage assets of other clients, such as pension plans, endowments, foundations, other institutional clients and retail clients, through separately managed accounts. We currently collect detailed information about pooled investment vehicles,6 but little specific information regarding separately managed accounts. The proposed amendments to Form ADV would require an adviser to provide certain aggregate information on separately managed accounts it advises, including information on regulatory assets under management, investments and use of derivatives and borrowings.7 Other examples of information we propose to public to access the most recent Form ADV filing made by an investment adviser and is available at https://www.adviserinfo.sec.gov. 3 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010). 4 See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Act Release No. 3221 (June 22, 2011), [76 FR 42950 (July 19, 2011)] (‘‘Implementing Release’’). 5 In general, this release discusses the Commission’s proposed rule and form amendments that would 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 Form ADV Part 1B as part of their state registrations. We will accept any comments and forward them to the North American Securities Administrators Association (‘‘NASAA’’) for consideration by the state securities authorities. We request that you clearly indicate in your comment letter which of your comments relate to these items. Commenters alternatively may send comments relating to these items directly to NASAA at the following email address: NASAAcomments@nasaa.org. 6 See, e.g., Form ADV, Part 1A, Section 7.B.(1) of Schedule D; and Form PF [17 CFR 279.9]. 7 Proposed Form ADV, Part 1A, Item 5.K.(1)–(4) and Section 5.K.(1)–(3) of Schedule D. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 collect from advisers include information on the use of social media and information on an adviser’s other offices.8 These items, and others discussed below, are designed to improve the depth and quality of the information we collect on investment advisers and to facilitate our risk monitoring initiatives. We also are proposing amendments to Part 1A that would establish a more efficient method for the registration of multiple private fund adviser entities operating a single advisory business on one Form ADV (‘‘umbrella registration’’). Form ADV was designed to accommodate the typical registration of an investment adviser that is a single legal entity. Advisers of private funds frequently are organized using multiple legal entities, and the staff has provided guidance to private fund advisers regarding umbrella registration within the confines of the current form.9 The proposed amendments to incorporate umbrella registration into Form ADV would make the availability of umbrella registration more widely known to advisers. Uniform filing requirements for umbrella registration in Form ADV also would provide more consistent data about, and create a clearer picture of, groups of advisers that operate as a single business by grouping Form ADV data for each legal entity registered under the umbrella. Uniform filing requirements also would allow for greater comparability across private fund advisers. The last group of amendments we are proposing to Part 1A are clarifying, technical, and other amendments that are informed by our staff’s experience with the form and responding to inquiries by advisers and their service providers. Among other things, these amendments should assist filers and their service providers by making the form easier to understand and complete. We also are proposing several amendments to Advisers Act rules unrelated to the revisions to Form ADV described above. First, we are proposing amendments to the books and records rule, rule 204–2, that would 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. The proposed amendments also would 8 Proposed Form ADV, Part 1A, Items 1.I. and 1.F and Sections 1.I. and 1.F of Schedule D. 9 See American Bar Association, Business Law Section, SEC Staff Letter (Jan. 18, 2012), available at https://www.sec.gov/divisions/investment/ noaction/2012/aba011812.htm (the ‘‘2012 ABA Letter’’). PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 33719 require advisers to maintain originals of all written communications received and copies of written communications sent by an investment adviser related to the performance or rate of return of any or all managed accounts or securities recommendations.10 As discussed more fully below, we believe that these proposed amendments would better protect investors from fraudulent performance claims. Finally, we are proposing 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 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 proposal 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 proposal, including data regarding separately managed accounts and are cited in the discussion below.11 II. Discussion A. Proposed Amendments to Form ADV 1. Information Regarding Separately Managed Accounts Several of the amendments to Form ADV that we are proposing today are designed to collect more specific information about advisers’ separately managed accounts.12 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 investment companies (i.e., private 10 Rule 204–2 under the Advisers Act. Notice Seeking Comment on Asset Management Products and Activities, 79 FR 77488 (Dec. 24, 2014) (‘‘FSOC Request for Comment’’). 12 In response to the FSOC Request for Comment, supra note 11, some commenters expressed support for collecting additional information regarding separately managed accounts. See, e.g., Comment Letter of Americans for Financial Reform (March 27, 2015); Comment Letter of State Street Corporation (March 25, 2015); and Comment Letter of The Systemic Risk Council (March 25, 2015). Other commenters did not support additional reporting regarding separately managed accounts. See, e.g., Comment Letter of Money Management Institute (March 25, 2015) and Comment Letter of Wellington Management Group LLP (March 25, 2015). 11 See E:\FR\FM\12JNP3.SGM 12JNP3 33720 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 funds)) to be separately managed accounts. We currently collect detailed information about pooled investment vehicles that advisers manage, but little specific information regarding separately managed accounts.13 The proposed amendments are designed to enhance our staff’s ability to effectively carry out our risk-based examination program and other risk assessment and monitoring activities with respect to these separately managed accounts and their investment advisers. The proposed amendments regarding separately managed accounts would require more detailed information than we currently receive in response to Item 5 of Part 1A and Section 5 of Schedule D.14 Item 5 and Section 5 currently require advisers to provide information about their advisory business including percentages of types of clients and assets managed for those clients. We propose to collect information specifically about separately managed accounts, including types of assets held, and the use of derivatives and borrowings in the accounts. Advisers that report that they have regulatory assets under management attributable to separately managed accounts in response to Item 5.K.(1) would be required to complete several questions in Sections 5.K.(1), 5.K.(2) and 5.K.(3) of Schedule D regarding those accounts. First, we propose to require advisers to report the approximate percentage of separately managed account regulatory assets under management invested in ten broad asset categories, such as exchange-traded equity securities and U.S. government/agency bonds.15 These categories are designed to collect general information about the broad categories of assets held in separately managed accounts. We believe that collecting information about the types of assets held in these accounts would 13 Registered investment companies and business development companies report information about their portfolio holdings and investment strategies on reports filed with the Commission, including in their registration statements and shareholder reports. Today, in a contemporaneous release, we are proposing rule and form amendments for registered investment companies that are designed to modernize the reporting of information to the Commission. See Investment Company Reporting Modernization, Investment Company Act Release No. 31610, May 20, 2015. Investment advisers to private funds file reports with the Commission on Form PF. Form PF also collects information about private fund parallel managed accounts. 14 See section II.A.2. for a discussion of other proposed amendments to Item 5 of Part 1A. 15 Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)–(b). The Glossary to Proposed Form ADV includes ‘‘Sovereign Bonds,’’ ‘‘Investment Grade’’ and ‘‘Non-Investment Grade,’’ which are terms used in the list of asset categories. The definitions are consistent with those in Form PF. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 allow us to better monitor this segment of the investment advisory industry by, for instance, allowing us to identify advisers that specialize in certain asset classes. Advisers would report this information annually. For advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts, we propose to collect both mid-year and year-end data on an annual basis. Second, we propose to require advisers with at least $150 million in regulatory assets under management attributable to separately managed accounts to report information on the use of borrowings and derivatives in those accounts.16 For advisers with at least $150 million but less than $10 billion in regulatory assets under management attributable to separately managed accounts, we propose reporting of the number of accounts that correspond to certain categories of gross notional exposure, and the weighted average amount of borrowings (as a percentage of net asset value) in those accounts.17 For purposes of this proposed item, gross notional exposure 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 net asset value of the account. Reporting on the use of borrowings and derivatives would only be required with respect to separately managed accounts with a net asset value of at least $10 million. Advisers with at least $10 billion in regulatory assets under 16 The $150 million threshold is consistent with Form PF, which requires investment advisers registered with the Commission that advise one or more private funds and have at least $150 million in private fund assets under management to file Form PF. 17 The Glossary to Proposed Form ADV includes ‘‘gross notional value’’, ‘‘borrowings’’ and ‘‘net asset value.’’ The Glossary to Proposed Form ADV defines ‘‘borrowings’’ as ‘‘[S]ecured borrowings and unsecured borrowings, collectively. Secured borrowings are obligations for borrowed money in respect of which the borrower has posted collateral or other credit support and should include any reverse repos (i.e., any sale of securities coupled with an agreement to repurchase the same (or similar) securities at a later date at an agreed price). Unsecured borrowings are obligations for borrowed money in respect of which the borrower has not posted collateral or other credit support.’’ The Glossary to Proposed Form ADV defines ‘‘gross notional value’’ 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.’’ The Glossary to Proposed Form ADV defines ‘‘net asset value’’ as ‘‘With respect to any client, the gross assets of the client’s accounts minus any outstanding indebtedness or other accrued but unpaid liabilities.’’ These definitions are consistent with those in Form PF. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 management attributable to separately managed accounts would have to report the gross notional exposure and borrowing information described above, as well as the weighted average gross notional value of derivatives (as a percentage of the net asset value) in each of six different categories of derivatives.18 We are proposing to collect information about gross notional exposure, borrowings, and gross notional value of derivatives because we believe it is important for us to better understand the use of derivatives and borrowings by advisers in separately managed accounts.19 We are proposing to use these measures because they are commonly used metrics in assessing the use of derivatives and are comparable to information collected on Form PF regarding private funds. This reporting would be required for advisers managing at least $150 million in regulatory assets under management attributable to separately managed accounts, but all advisers to separately managed accounts would be required to report in Section 5.K.(1) the percentage of separately managed account assets held in derivatives. Advisers would be 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. In addition, advisers with at least $10 billion in separately managed account regulatory assets under management would be required to report both midyear and year-end information as part of their annual filing.20 Note that we are not proposing that advisers file information semi-annually. Rather, when filing an annual amendment, the adviser would be required to provide information as of each semi-annual period. Requiring less detailed reporting for advisers that manage less than $10 billion in separately managed account assets, and requiring reporting on borrowings and derivatives only with respect to separately managed accounts with a net asset value of at least $10 18 Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a). 19 In response to the FSOC Request for Comment, supra note 11, several commenters discussed a variety of measures for reporting leverage (which includes derivatives and borrowings). See, e.g., Comment Letter of the Asset Management Group of the Securities Industry and Financial Markets Association and the Investment Adviser Association (March 25, 2015); Comment Letter of BlackRock, Inc. (March 25, 2015); Comment Letter of Fidelity Investments (March 25, 2015); and Comment Letter of Managed Funds Association (March 25, 2015). 20 Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a). E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 million, are designed to balance our regulatory need for this information while seeking to minimize the reporting burden on smaller advisers where appropriate. Our staff estimates that approximately six percent of advisers that manage separately managed accounts would be required to provide the more detailed semi-annual information.21 The proposed amendments are designed to provide mid-year and end of year data points to assist our staff in identifying the use of borrowings and derivative exposures in large separately managed accounts as part of the staff’s risk assessment and monitoring programs, and to allow Commission staff to identify and monitor trends in borrowings and derivatives transactions in separately managed accounts. Finally, we propose 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.22 Information about assets held, custodians and the use of borrowings and derivatives in separately managed accounts is similar to information collected about pooled investment vehicles, and it would significantly improve our understanding of this segment of advisers’ accounts. This information would allow examination staff to identify advisers whose clients use the same custodian in 21 We propose to focus the proposed semi-annual reporting requirements on the top five to ten percent of registered investment advisers to separately managed accounts. Based on IARD data as of April 1, 2015, of the 8,500 registered investment advisers that reported regulatory assets under management from clients other than registered investment companies, business development companies and pooled investment vehicles (indicating that they have assets under management attributable to separately managed accounts) approximately 535 (approximately 6.3%) reported at least $10 billion in regulatory assets under management attributable to separately managed account clients. Having additional information about these larger advisers assists the staff in risk assessment. 22 Proposed Form ADV, Part 1A, Item 5.K.(4) and Schedule D, Section 5.K.(3). We acknowledge that advisers that have custody (or whose related persons have custody) of client assets also currently report the number of persons who act as qualified custodians for their clients in connection with advisory services provided to clients in response to Part 1A, Item 9.F. The proposed item would provide the Commission with more detailed information about custodians by requiring advisers to separately managed accounts to identify all custodians, not just qualified custodians, that service ten percent or greater of separately managed account client assets, and would require a response whether or not the adviser or the adviser’s related person has custody of assets in separately managed accounts. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 the event, for example, a concern is raised about a particular custodian.23 Advisers frequently have client accounts at many custodians as a result of client requirements. Accordingly, we are proposing a ten percent threshold in order to focus the proposed reporting requirements on the identification of custodians that serve a significant number of advisers’ separately managed account clients. We request comment on the changes we propose to make to Form ADV regarding separately managed accounts. • Advisers would be required to update separately managed account information annually. Should we require more frequent reporting, such as quarterly reporting? Should an adviser be required to update information on separately managed accounts any time the adviser files an other-than-annual amendment to Form ADV? Is it appropriate to require semi-annual data in annual reporting instead of semiannual reporting for advisers that manage at least $10 billion in separately managed accounts? Why or why not? • In order to better understand the use of derivatives in separately managed accounts, would we need more data points from each adviser than the annual and semi-annual proposed data points? Why or why not? • Are the $10 million, $150 million and $10 billion thresholds appropriate? Why or why not? Should we require advisers that manage less than $150 million in assets under management attributable to separately managed accounts to report additional information about those accounts or report semi-annual information? • Should we ask about the investment strategies used in separately managed accounts as opposed or in addition to asset types? If so, how should we define the investment strategies so that information reported to us is meaningful? Should we use some or all of the investment strategies listed in Form PF for private funds? 24 Is there other information about separately managed accounts that we should consider instead? • Is there any overlap among the proposed asset types? If so, which particular types? Are there any additional asset types that should be included? 23 Information about custodians of separately managed accounts also would complement similar information that we obtain for pooled investment vehicles. See Form ADV, Part 1A, Schedule D, Section 7.B.(1), Question 25. Registered investment companies are required to identify their custodians, see, e.g., Form N–1A, Item 19(h)(3) [17 CFR 274.11A]. 24 See, e.g., Form PF, Section 1c, Item B., Question 20. PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 33721 • Would disclosure of aggregate holdings, derivatives and borrowings in separately managed accounts raise concerns, in light of Section 210(c) of the Advisers Act, regarding the identity, investments, or affairs of any clients owning those accounts when clients are not identified? If so, please explain, and address whether there are ways in which the Commission could address these concerns and still request comparable information. • Would the disclosure of information about separately managed accounts in the aggregate be useful for risk monitoring and data analysis purposes? Why or why not? • Are the proposed definitions related to Schedule D, Section 5.K.(1) and (2) sufficiently clear to allow advisers to provide the requested information? If not, please explain why and provide alternative definitions or suggestions. Would a definition of ‘‘derivatives’’ improve the reporting requirements? If so, how should that term be defined? For instance, should it be defined broadly to include instruments whose price is dependent on or derives from one or more underlying assets? Alternatively, should it be defined to mean futures and forward contracts, options, swaps, security-based swaps, combinations of the foregoing, or any similar instruments, or should it be defined in some other manner? If, so, how? • Are gross notional exposures and gross notional values appropriate measures of the use of derivatives? Are there alternative or additional measures that we should consider? • Would the disclosure of information about separately managed accounts affect or influence business or other decisions by advisers? • Is ten percent an appropriate threshold for information on custodians that serve a significant number of separately managed accounts? Should it be higher or lower? If so, why? • Should we require advisers to report information about the use of securities lending and repurchase agreements in separately managed accounts? If so, is there specific information we should collect, and should we require information only from advisers that manage a large amount of separately managed account assets? Are securities lending arrangements and repurchase agreements used by separately managed accounts to such an extent that we should require all advisers that manage separately managed accounts to report this information? • Is there additional information we should collect that would assist us in E:\FR\FM\12JNP3.SGM 12JNP3 33722 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules learning more about separately managed accounts? • Is the information required to answer these proposed questions readily available to advisers? If not, why? mstockstill on DSK4VPTVN1PROD with PROPOSALS3 2. Additional Information Regarding Investment Advisers In addition to the proposals outlined above regarding separately managed accounts, we are proposing to add several new questions and amend existing questions on Form ADV regarding identifying information, an adviser’s advisory business, and affiliations. These items, developed through our staff’s experience in examining and monitoring investment advisers, are designed to enhance our understanding and oversight of investment advisers and to assist our staff in its risk-based examination program. Additional Identifying Information We propose several amendments to Item 1 of Part 1A of Form ADV to improve certain identifying information that we obtain. 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 1934.25 We propose to remove this question from Item 1.N. and add a question to Item 1.D. that would require an adviser to provide all of its CIK Numbers if it has one or more such numbers assigned,26 regardless of public reporting company status.27 Requiring registrants to provide all of their assigned CIK numbers, if any, would improve our staff’s ability to use and coordinate Form ADV information with information from other sources to investigate relationships relating to investment advisers. Item 1.I of Part 1A of Form ADV currently asks whether an adviser has one or more Web sites, and Section 1.I. of Schedule D requests the Web site address. We propose to amend Item 1.I. to ask whether the adviser has one or more Web sites or Web sites for social media platforms, such as Twitter, Facebook and LinkedIn, and request the social media addresses in addition to the adviser’s Web site address in Section 1.I. of Schedule D.28 Along with 25 Form ADV, Part 1A, Item 1.N. 26 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 another capacity, such as a transfer agent. 27 Proposed Form ADV, Part 1A, Item 1.D.(3). 28 Proposed Form ADV, Part 1A, Item 1.I. and Section 1.I. of Schedule D. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 Web sites, advisers increasingly utilize social media to communicate and it would be useful for this information to be available to us and the general public. Our staff could 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 identifying and monitoring new platforms. Current and prospective clients could use this information to learn more about advisers and make more informed decisions regarding the selection of advisers. We propose amending Item 1.F of Part 1A of Form ADV and Section 1.F. of Schedule D 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.29 In order to assist Commission examination staff to learn more about an investment adviser’s business and identify locations to conduct examinations, we are now proposing that advisers provide us with the total number of offices at which they conduct investment advisory business and provide information in Schedule D about their 25 largest offices in terms of number of employees.30 We propose 25 offices as the number to be reported because it would 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.31 In addition to providing contact information for the 25 largest offices, we propose to amend Section 1.F. of Schedule D to require advisers to report each office’s CRD branch number (if applicable) and the number of employees who performed 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 29 Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D. 30 Proposed Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D. 31 IAPD Investment Adviser Registered Representative State Data as of April 1, 2015 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. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 from each office. This information would 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. In addition, if the staff wanted to focus on offices that conducted a combination of activities, such as those that engaged in municipal advisory activities as well as investment advisory activities, it would have that information readily available. 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 propose to amend 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, and, if so, to report the name and IRS Employer Identification Number (if any) of that other person. Our examination staff has observed a wide spectrum of both quality and effectiveness of outsourced chief compliance officers and firms. Identifying information for these thirdparty service providers, like others on Form ADV,32 would allow us to identify all advisers relying on a particular service provider and could be used to improve our ability to assess potential risks. We propose to amend Item 1.O. to require advisers to report their own assets within a range.33 We added this item in 2011, and it currently requires an adviser to check a box to indicate if it has assets of $1 billion or more, in connection with the Dodd-Frank Act’s requirements concerning certain incentive-based compensation arrangements.34 Requiring advisers to report assets within a given range would provide more accurate data for use in Commission rulemaking arising from ongoing Dodd-Frank Act implementation.35 We request comment on the proposed changes to Item 1 of Part 1A and Section 1 of Schedule D. 32 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. 33 Proposed Form ADV, Part 1A, Item 1.O. 34 See Implementing Release, supra note 4; Section 956 of the Dodd-Frank Act. We also propose to move 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. 35 See, e.g., Section 165(i) of the Dodd-Frank Act, which requires the Commission and other financial regulators to establish methodologies for the conduct of stress tests required by section 165 of the Act. E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • Are there concerns with providing all CIK numbers assigned to an adviser? If so, please explain those concerns. • Are there concerns with providing social media information for advisers? If so, please explain those concerns. Are there ways that we could address these concerns and still request comparable information? • Would the proposed social media information be useful to investors? Why or why not? • Is there additional social media information that we should collect? Should we ask advisers whether they permit employees to have social media accounts associated with the advisers’ business? And, if so, should we ask advisers to identify the number or percentage of employees that have those accounts? How burdensome would it be for advisers to report that information? • As proposed, information would be required regarding an adviser’s 25 largest offices. We selected 25 in order to balance the burden to investment advisers with providing this information with our need for information about additional offices. If instead we were to require all offices to be reported, would the burden on advisers be significant? Should we decrease the number of offices or provide another standard to identify the offices that should be reported? • Would additional information about an adviser’s offices be helpful to investors? Why or why not? • Are there concerns related to disclosure of information regarding outsourced chief compliance officers? If so, please explain those concerns. • In addition to the identification of outsourced chief compliance officers, should we also request information about advisers’ use of third-party compliance auditors? If so, what information should we request? • Are there any concerns related to disclosing the range of an adviser’s own assets? If so, please explain those concerns. Should the ranges be different than proposed? Why or why not? • Are the proposed requirements clearly stated? • Do advisers readily have access to the data and information requested by these proposed changes? Additional Information About Advisory Business In addition to the proposed amendments to Item 5 regarding separately managed accounts discussed above, we are proposing a number of other amendments to Item 5. Item 5 currently requires an adviser to provide approximate ranges for three important data points concerning the adviser’s VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 business—the number of advisory clients, the types of advisory clients, and regulatory assets under management attributable to client types.36 We propose to amend these items to require an adviser to report the number of clients 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.37 Replacing ranges with more precise information would provide more accurate information about investment advisers and would significantly enhance our ability to analyze data across investment advisers because providing actual numbers of clients and regulatory assets under management allows us to see the scale and concentration of assets by client type. 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 should be readily available to advisers because, among other reasons, 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 propose to require reporting on the number of clients for whom an adviser provided advisory services but does not have regulatory assets under management in order to obtain a more complete understanding of the adviser’s advisory business.38 This information also would assist in our risk assessment process and increase the effectiveness of our examinations. We are proposing 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 reported in Part 1A of Form ADV would be required 36 Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)– (2). 37 Proposed Form ADV, Part 1A, Item 5.D.(1)–(2). The categories of clients are the same as those in Item 5.D. of the current Form ADV, except that we propose 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. 38 Proposed 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. PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 33723 to check a box noting that election.39 This information would allow our examination staff to review across advisers the extent to which advisers report assets under management in Part 2A that differ from the regulatory assets under management reported in Part 1A of Form ADV. Having this information would 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. In addition, we propose to add a question asking the approximate amount of an adviser’s regulatory assets under management that is attributable to nonU.S. clients 40 to complement the current requirement that each adviser report the percentage of its clients that are non-U.S. persons, which, based on our experience, is not always a reliable indicator of an adviser’s relationships with non-U.S. clients.41 Our examination staff could use this information to better understand the extent of investment advice provided to non-U.S. clients which would assist us in our risk assessment process. Section 5.G.(3) of Schedule D currently requires the SEC File Number for registered investment companies and business development companies advised by the adviser. We propose 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 business development company that is advised by the adviser.42 This information 39 Proposed 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 (March 3, 2008) [73 FR 13958 (March. 14, 2008)]. 40 Proposed Form ADV, Part 1A, Item 5.F.(3). 41 Form ADV, Part 1A, Item 5.C.(2). For example, an adviser may report a significant percentage of clients that are non-U.S. persons, but the regulatory assets under management attributable to those clients is a small percentage of the adviser’s regulatory assets under management. 42 Proposed Form ADV, Part 1A, Section 5.G.(3) of Schedule D. The Glossary to Proposed Form ADV includes ‘‘parallel managed account,’’ which would be defined as: ‘‘With respect to any registered E:\FR\FM\12JNP3.SGM Continued 12JNP3 33724 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 would be helpful because it would 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. This information also would show the extent of any shift in assets between parallel managed accounts and registered investment companies or business development companies. Finally, we propose to amend Item 5 to obtain additional information concerning wrap fee programs.43 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 propose to amend Item 5.I. to require an adviser to report the total amount of regulatory assets under management attributable to acting as a sponsor and/or portfolio manager of a wrap fee program.44 Section 5.I.(2) of Schedule D currently requires advisers to list the name and sponsor of each wrap fee program for which the adviser serves as portfolio manager. We propose amending Section 5.I.(2) to add questions that would require an adviser to provide any SEC File Number and CRD Number for sponsors to those wrap fee programs.45 This information would 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. Wrap fee accounts are held by a large number of retail clients, and we believe additional information about the capacity in which advisers serve these accounts would help us better protect investors. We request comment on the additional changes we propose to make to Item 5 and related sections of Schedule D. investment company 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 business development company that you advise.’’ 43 Form ADV, Glossary 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 proposing any change to this definition. 44 Proposed Form ADV, Part 1A, Item 5.I. 45 Proposed Form ADV, Part 1A, Section 5.I.(2) of Schedule D. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 • Please describe any benefits or concerns with using more precise numbers in Item 5, rather than ranges. • Is there any overlap among the categories of clients, and if so, among which particular categories? How could we address any overlaps? • Please describe any concerns with providing information on: (a) The number of clients for whom investment advisers provide advisory services but do not have regulatory assets under management; (b) the regulatory assets under management attributable to nonU.S. clients; or (c) parallel managed accounts. Are there other types of information advisers could report that would meet our goals? • Would the additional information on wrap fee programs be helpful to investors and other market participants? Should any additional information be required? • Would advisers readily have access to the data requested? • Are the proposed requirements clearly stated? 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 private funds managed by the adviser. We are proposing amendments to Sections 7.A. and 7.B.(1) of Schedule D that would require advisers to provide identifying numbers (e.g., Public Company Accounting Oversight Board (‘‘PCAOB’’) registration numbers 46 and CIK numbers 47) in several questions to allow us to better compare information across data sets and understand relationships of advisers to other financial service providers. We are also proposing a new question that would require advisers to report the percentage of a private fund owned by qualified clients, as defined in rule 205–3 under the Advisers Act.48 This information would help us better understand the nature of investors in private funds. We request comment on the proposed changes to Sections 7.A. and 7.B.(1) of Schedule D. • Would advisers readily have access to the data requested? • Please describe any concerns with providing: (a) Identifying numbers; or 46 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(e). 47 Proposed Form ADV, Part 1A, Section 7.A of Schedule D, Question 4(b). 48 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 15(b). PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 (b) the percentage of a private fund owned by qualified clients. • Are the requirements clearly stated? 3. Umbrella Registration The Dodd-Frank Act, among other things, repealed the private adviser exemption that used to be in section 203(b)(3) of the Advisers Act.49 As a result, many previously unregistered advisers to private funds,50 including hedge funds and private equity funds, were required to register under the Advisers Act. Today, about 4,364 registered investment advisers provide advice on approximately $10.1 trillion in assets to approximately 28,532 private funds clients.51 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,52 Form ADV is designed to accommodate the registration request of an adviser structured as a single legal entity. As a result, a private fund adviser organized as a group of related advisers could have to file multiple registration forms for the same 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 Web site. Our staff provided guidance to private fund advisers before the compliance date of the Dodd-Frank Act private fund adviser registration requirements 49 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. 50 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.’’ 51 Based on IARD data as of April 1, 2015. 52 We will 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 (July 6, 2011)] (‘‘Exemptions Release’’); see also In the Matter of TL Ventures Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) (settled action). E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 designed to address concerns raised by advisers.53 The guidance provided conditions under which the staff believed one adviser (the ‘‘filing adviser’’) may file a single Form ADV on behalf of itself and other advisers that are controlled by or under common control with the filing adviser (each, a ‘‘relying adviser’’), provided that they conduct a single advisory business (collectively an ‘‘umbrella registration’’). We believe that the staff’s position has been successful in addressing the registration concerns that can arise from the legal structures of private fund advisers. Most advisers that can rely on umbrella registration are doing so, with approximately 750 filing advisers and approximately 2,500 relying advisers filing umbrella registrations.54 The method outlined in the staff guidance for filing Form ADV on behalf of multiple entities is limited, however, by the form being designed for a single legal entity, and in some cases complicates data collection and analysis on umbrella registrants and can confuse filers and the public.55 The amendments to Part 1A that we propose would yield additional and more consistent data about, and create a clearer picture of, groups of private fund advisers that operate as a single business, while codifying the concept of umbrella registration and simplifying the process of registration for such advisers. The amendments also would allow for greater comparability across private fund advisers. Under the amendments we are proposing, umbrella registration would be available where a filing adviser and one or more relying advisers conduct a 53 See 2012 ABA Letter. The Division of Investment Management previously provided noaction 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), Question G1, available at https://www.sec.gov/divisions/ investment/noaction/aba120805.htm (the ‘‘2005 ABA Letter’’). 54 Based on IARD data as of April 1, 2015. 55 Under the guidance provided by the staff, for example, umbrella registration is appropriate where a relying adviser is not prohibited from registering with the Commission by section 203A of the Advisers Act. See 2012 ABA Letter, supra note 9. However, a relying adviser does not currently have a way to answer Item 2 regarding the basis on which it is eligible for SEC registration. In addition, relying advisers often must list owners and executive officers in a confusing manner in Schedules A and B which were not designed to accommodate multiple advisers and do not always provide the Commission staff with useful information on the owners of each relying adviser. Also, the filing adviser currently discloses its reliance on the 2012 ABA Letter in the Miscellaneous Section of Schedule D. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 single private fund advisory business and each relying adviser is controlled by or under common control with the filing adviser. As proposed, umbrella registration would only be available in the scenario of a private fund adviser operating as a single business through multiple legal entities. At this time, we do not believe umbrella registration would be 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.56 In addition, providing for disparate businesses to register on a single Form ADV as it is designed today would limit investors’ ability to assess information on investment advisers because, based on our experience, reporting information about multiple advisers’ businesses together on a single form would make Part 1A difficult to understand. Accordingly, we are proposing amendments to Form ADV’s General Instructions that would establish conditions for an adviser to assess whether umbrella registration is available. The conditions, which are indicia of a single advisory business, include the following: 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 with each of its clients, regardless of whether any client 56 The filing of a single Form ADV for exempt reporting advisers in a manner similar to the filing of an umbrella registration for registered advisers also would not be available as the conditions of a single advisory business are designed, in part, to reflect requirements that only apply to registered advisers, including the requirement for compliance policies and procedures pursuant to rule 206(4)–7 under the Advisers Act and for a code of ethics pursuant to rule 204A–1 under the Advisers Act. 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. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 33725 or the filing adviser or relying adviser providing the advice is a United States person; 57 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.58 The conditions are drawn from our experience with examining investment advisers and are designed to capture advisers to private funds that operate as a single business through commonality of the application of the Advisers Act and rules to all entities, implementation of compliance requirements, and advisory services. They are designed to include advisers to private funds (as discussed in condition 1) that operate as a single business. Conditions 2 and 4 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 address the requirement that the filing and relying advisers operate as a single business. Advisers that operate under common supervision and control and have a single set of compliance policies and procedures and code of ethics are likely to operate as a 57 As we have previously stated, we do not apply most of the substantive provisions of the Advisers Act to the non-U.S. clients of a non-U.S. adviser registered with the Commission. See Exemptions Release, supra note 52, at section II.D. 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. 58 Under this approach, 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. E:\FR\FM\12JNP3.SGM 12JNP3 33726 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules single business. Finally, the conditions are the same as those 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 proposal).59 In addition, we propose to amend the General Instructions 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.60 To satisfy the requirements of Form ADV while using umbrella registration, the filing adviser would be 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 proposed revisions to the form’s Instructions and Form ADV would further specify those questions that should be answered solely with respect to the filing adviser and those that require the filing adviser to answer on behalf of itself and its relying adviser(s).61 Additionally, we propose amending the Glossary to add the following three terms: (i) ‘‘Filing adviser;’’ 62 (ii) ‘‘relying adviser;’’ 63 and (iii) ‘‘umbrella registration.’’ 64 We also are proposing a new schedule to Part 1A—Schedule R—that would have to be filed for each relying adviser.65 Schedule R would require identifying information, basis for SEC registration, and ownership information 59 See 2012 ABA Letter, supra note 9, Question 4. 60 See Proposed Form ADV General Instruction 5. e.g., statements added to Proposed Form ADV, Instructions and Part 1A, Items 1, 2, 3, 7, 10 and 11. 62 ‘‘Filing Adviser’’ would mean: ‘‘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 Proposed Form ADV Glossary. 63 ‘‘Relying Adviser’’ would mean: ‘‘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 Proposed Form ADV Glossary. 64 ‘‘Umbrella Registration’’ would mean: ‘‘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 Proposed Form ADV Glossary. 65 Advisers that choose to file an umbrella registration would be directed by Item 1.B. to complete a new Schedule R for each relying adviser. Proposed Form ADV, Part 1A, Item 1.B.(2). about each relying adviser, some of which is already filed by an adviser relying on the staff guidance.66 This new schedule would consolidate in one location important information for each relying adviser and address 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 accommodate umbrella registration.67 Finally, we propose to add a new question to Schedule D that would require advisers to identify the filing advisers and relying advisers that manage or sponsor private funds reported on Form ADV. This information would allow us to identify the specific adviser managing the private fund reported on Form ADV if it is part of an umbrella registration.68 Advisers registering in reliance on the staff’s umbrella registration approach outlined in the 2012 ABA Letter do not provide information about each relying adviser’s address, CRD, unique identifier numbers, basis for registration or form of organization. Our proposal would require this information to be reported. We believe that certain information that we propose requiring as part of umbrella registration (such as mailing address and basis for registration) would be the same for nearly all relying advisers, and the filing adviser could check a box indicating that the mailing address of the relying advisers is the same as that of the filing adviser. Advisers relying on the 2012 ABA Letter do not currently identify the filing adviser or relying adviser that advises private funds reported on Section 7.B.(1) of Schedule D, and our proposal would require this information to be reported. We believe that this information would help us better understand the management of private mstockstill on DSK4VPTVN1PROD with PROPOSALS3 61 See, VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 66 Schedule R would require 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 do not include categories that would make the relying adviser ineligible for umbrella registration, such as serving as an adviser to a registered investment company. 67 Under the staff’s guidance in the 2012 ABA Letter, an adviser reports in its Form ADV (Miscellaneous Section of Schedule D) that it and its relying advisers are together filing a single Form ADV in reliance on the position expressed in the letter and identifies each relying adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and identifying it as such by including the notation ‘‘(relying adviser).’’ See 2012 ABA Letter, supra note 9, Question 4. 68 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 3(b). PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 funds, would provide information to contact relying advisers, and would help us better understand the relationship between relying advisers and filing advisers. We request comment on the changes we propose to make to Form ADV regarding umbrella registration. • Should we amend Form ADV to accommodate umbrella registration? Why or why not? • Would these amendments be helpful for private fund advisers and investors? • Is umbrella registration appropriate or should we require separate registration by each adviser? • Would umbrella registration provide more consistent and clear information about groups of private fund advisers that operate as a single business? Why or why not? • Are there additional or different conditions we should consider for umbrella registration? • Should we require that the availability of umbrella registration be expanded to include advisers with clients that are not primarily private funds, and if so, what are the legal structures that it should accommodate and are the proposed conditions sufficient to capture only single advisory businesses? • We are not proposing to make filing an umbrella registration mandatory, because we believe it is appropriate to permit advisers to file a separate Form ADV for each relying adviser if they choose to do so.69 Should umbrella registration be required? Should firms indicate if they could, but chose not to, rely on umbrella registration? • Are the proposed amendments to the instructions and Form ADV sufficient to implement umbrella registration? If not, what amendments are necessary? • Should we require more, less or different information on proposed Schedule R? What information should be added or deleted? 4. Proposed Clarifying, Technical and Other Amendments to Form ADV We are proposing several amendments to Form ADV that are designed to clarify the form and its instructions. We believe these proposed amendments to Form ADV would make the filing process clearer and therefore more efficient for advisers, and increase the reliability and the consistency of information provided by investment 69 Under the proposed amendments, multiple private advisers operating a single advisory business may elect to apply separately for registration. E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Proposed Amendments to Item 2 information would improve our staff’s ability to interpret, understand, and place in context the information provided by advisers, and also would allow our staff to make comparisons across investment advisers, and improve the risk assessment and examination program. Many of these proposed amendments are derived from questions frequently received by our staff. Proposed 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.70 Section 2.A.(9) of Schedule D. is entitled ‘‘Newly Formed Adviser’’ and requests the adviser to make certain representations. 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 we propose to delete the phrase ‘‘newly formed adviser’’ from Item 2.A.(9) and Section 2.A.(9) of Schedule D. Section 2.A.(9) would be renamed ‘‘Investment Advisers Expecting to be Eligible for Commission Registration within 120 Days.’’ 71 mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Proposed 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 circumstances, including if the adviser has changed its structure or legal status (e.g., form of organization or state of incorporation). Our staff frequently receives questions from investment advisers regarding this item and we propose 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).72 70 Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of Schedule D. 71 Proposed Form ADV, Part 1A, Item 2.A.(9); see rule 203A–2(c) under the Advisers Act. 72 Proposed Form ADV, Part 1A, Item 4.A. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 Proposed 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 propose several technical amendments to Item 7. We propose to revise 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 should instead 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.73 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 propose 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 also propose 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 currently a note informing advisers when they should answer yes to the first question regarding whether the private fund is a ‘‘fund of funds.’’ We propose renaming the first question as Question 8(a), moving the note to directly after Question 8(a), and making the second question Question 8(b).74 We believe these proposed changes would 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. We 73 Proposed 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 https://www.sec.gov/divisions/investment/iard/ iardfaq.shtml. 74 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Questions 8(a)–(b). PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 33727 propose to delete 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.75 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 propose to add text to Question 19 to make clear that the 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.76 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 propose a clarifying revision to Question 21 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.77 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.78 We propose a revision to Question 23(a)(2). 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’’).79 We propose to add 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 private fund’s financial statements are subject to an annual audit.80 This revision will clarify when an adviser is actually required to answer Question 23(a)(2). We also propose to 75 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 10. See General Instruction 7 to Form PF. 76 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 19. 77 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 78 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 79 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(a)(2). 80 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(a)(2). E:\FR\FM\12JNP3.SGM 12JNP3 33728 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 revise Question 23(g). The question currently asks whether the private fund’s audited financial statements are distributed to private fund investors. We propose adding ‘‘for the most recent fiscal year’’ to clarify the question. In addition, we propose to revise Question 23(h). This question currently asks whether the report prepared by the auditing firm contains an unqualified opinion.81 This question has prompted questions from advisers regarding which report and what timeframe the question refers to. We propose to clarify the question to ask whether all of the reports prepared by the auditing firm since the date the adviser last filed its annual updating amendment contain unqualified opinions.82 Finally, we propose adding Question 25(g), which would request the legal entity identifier, if any, for a private fund custodian that is not a broker-dealer, or that is a brokerdealer but does not have an SEC registration number. This information would help our examination staff more readily identify the use of particular custodians by private funds. Proposed Amendments to Item 8 In order to address a frequent question from filers, we propose to clarify that advisers should answer Item 8 based on the types of participation and interest the adviser expects to engage in during the next year. Item 8.B.(2) of Part 1A of Form ADV currently asks whether the adviser or any related person of the adviser recommended 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.83 The current wording has caused confusion regarding the treatment of purchaser representatives. We are proposing to reword 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. This proposed 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 78 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 79 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(a)(2). 80 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(a)(2). VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 of the adviser serves as underwriter, general or managing partner.84 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 proposing revisions to Item 8.H. to break the question into two parts to increase our understanding of compensation for client referrals. Proposed Item 8.H.(1) would cover compensation to persons other than employees for client referrals.85 Proposed Item 8.H.(2) would cover compensation to employees, in addition to employees’ regular salaries, for obtaining clients for the firm.86 Item 8.I. asks whether the adviser or any related person of the adviser directly or indirectly receives compensation from any person for client referrals. We have also proposed wording to clarify that Item 8.I. is not designed to include the regular salary that the adviser pays to an employee.87 We have proposed these edits to better understand how advisers compensate both their staff and third parties for client referrals. The proposed revisions to this item do not change the scope of the information collected, but instead provide more precise information about compensation for client referrals. Proposed 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 propose two changes to Section 9.C. of Schedule D. First, we propose to add text requiring an adviser to provide the PCAOB registration number of the adviser’s independent public accountant to improve our staff’s ability to cross-reference information submitted through other systems and monitor compliance with the custody rule.88 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 propose to amend 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 would now ask whether all of the reports 81 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(h). 82 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(h). 83 Form ADV, Part 1A, Item 8.B.(2). 84 Proposed Form ADV, Part 1A, Item 8.B.(2). 85 Proposed Form ADV, Part 1A, Item 8.H.(1). PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 prepared by the independent public accountant since the date of the last annual updating amendment have contained unqualified opinions.89 Proposed 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.’’ 90 We propose 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 (or advisory affiliate’s) favor.91 This proposal would make disciplinary reporting uniform across registered and exempt reporting advisers, consistent with requiring exempt reporting advisers to report disciplinary events on Form ADV. Proposed Amendments to Instructions and Glossary Together with the proposed amendments to Part 1A, we are also proposing conforming amendments to the General Instructions and the Glossary for Form ADV. As discussed above, we propose to amend the General Instructions to include instructions regarding umbrella registration. We also propose to remove 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 propose to update the definition of ‘‘Legal Entity Identifier’’ to reflect recent advancements in this protocol.92 88 Proposed Form ADV, Part 1A, Section 9.C.(3) of Schedule D. 89 Proposed Form ADV, Part 1A, Section 9.C.(6) of Schedule D. 80 Form ADV, Part 1.A., Criminal, Regulatory Action and Civil Judicial Action Disclosure Reporting Pages. 91 Proposed Form ADV, Part 1A, Criminal, Regulatory Action and Civil Judicial Action Disclosure Reporting Pages. E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Where applicable, we propose to make technical revisions to specify that an adviser must ‘‘apply for registration’’ (rather than simply ‘‘register’’) to more accurately reflect the rule text. We also propose to delete text in the instructions related to Item 1.O. because this text is proposed to appear directly in the corresponding section of Part 1 of Form ADV. We propose to add 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 request comment on our proposed clarifying, technical and other amendments. • Are the proposed amendments necessary? Should we consider different or additional amendments? If so, please specify. • Are there any ambiguities or concerns that we should address in the form, instructions or glossary? • Should we ask additional questions in Section 7.B.(1) of Schedule D regarding an adviser’s reliance on Regulation D? If so, what additional information should we request? • Are the proposed amendments regarding payment for client referrals in Item 8 clear? Why or why not? B. Proposed Amendments to Investment Advisers Act Rules 1. Proposed Amendments to Books and Records Rule mstockstill on DSK4VPTVN1PROD with PROPOSALS3 We are proposing two amendments to the Advisers Act books and records rule, rule 204–2, that would require investment 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.93 93 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.’’ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 Although 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, the books and records rule requires such records only when the communication is distributed to ten or more persons. We are proposing to amend rule 204– 2(a)(16) by removing the ten or more persons condition and replacing it with ‘‘any person.’’ Accordingly, advisers would 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. 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. 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 communications sent by such advisers.94 We are proposing to amend 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. We believe these records would be useful in examining and evaluating adviser performance claims. A recent enforcement action demonstrated to us the disadvantages of not requiring investment advisers to maintain records forming the basis of performance calculations or performance communications sent to individuals.95 Based on our staff’s experience, we believe that most advisers already 94 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.’’ 95 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). PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 33729 maintain this information as part of their compliance with rule 206(4)–1 under the Advisers Act, which regulates advertisements by investment advisers. The proposed amendments would provide our examination staff with additional information to review an adviser’s compliance with rule 206(4)– 1 and would assist us in enforcing rule 206(4)–1 in cases of fraudulent advertising. Investors would benefit to the extent that the proposed amendments reduce the incidence of misleading or fraudulent advertising. We request comment on the proposed amendments to rule 204–2. • Do investment advisers currently maintain these records? If so, are there concerns with making these required records? • Are there alternate means that would be sufficient to collect performance information and client communications regarding performance? • Are there exceptions that we should consider? 2. Proposed Technical Amendments to Advisers Act Rules We are proposing technical amendments to several rules under the Advisers Act and the withdrawal of transition rule 203A–5 under the Advisers Act. The proposed amendments would remove 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 provisions were added when we amended Form ADV and several Advisers Act rules to require advisers to electronically file their brochures with the Commission. 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.96 Rule 203A– 5 provided a temporary exemption from the prohibition on registration for midsized advisers to facilitate their transition to state registration.97 We propose withdrawing rule 203A–5 because the transition of mid-sized advisers from SEC to state registration was completed in June 2012. 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 96 See 97 See E:\FR\FM\12JNP3.SGM Section 410 of the Dodd-Frank Act. Implementing Release, supra note 4. 12JNP3 33730 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules section 202(a)(11)(G) of the Advisers Act for family offices. The Commission adopted rule 202(a)(11)(G)–1 98 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.99 We propose 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. 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’’ exemption 100 to remain exempt from registration until March 30, 2012 under certain conditions.101 We propose removing paragraph (e) from Rule 203–1 because the transition for private advisers is now complete. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Rule 203–1(b) and Rule 204–1(c) 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 with the Investment Adviser Registration Depository (‘‘IARD’’).102 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.103 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 98 Family Offices, Investment Advisers Act Release No. 3220 (June 22, 2011) [76 FR 37983 (June 29, 2011)]. 99 Section 203(b)(3) of the Advisers Act as in effect before July 21, 2011, repealed by section 403 of the Dodd-Frank Act. 100 Id. 101 See Implementing Release, supra note 4. 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. 102 Amendments to Form ADV, Investment Advisers Act Release No. 3060 (July 28, 2010) [75 FR 49233 (Aug. 12, 2010)]. 103 The continuing hardship exemption under rule 203–3 will not be withdrawn by these technical amendments. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 amendment. We propose removing paragraph (b) from rule 203–1 and paragraph (c) from rule 204–1 because the transition to electronic filing is now complete.104 We request comment on these proposed changes. • Is there any benefit to keeping any of these provisions? III. Economic Analysis A. Introduction The Commission is sensitive to the benefits and costs of its rules. The following economic analysis identifies and considers the benefits and costs— including the effects on efficiency, competition, and capital formation— that would result from the proposed amendments to Form ADV and the proposed amendments to and rescission of certain rules under the Investment Advisers Act. The economic effects of the proposed amendments are discussed below and have informed the policy choices described in this release. We are proposing 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 proposing the following amendments to Form ADV and Advisers Act rules: • Amendments to Form ADV that are 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 that would 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. We rely on information reported by investment advisers to us on Form ADV to monitor trends, assess emerging risks, inform policy choices and rulemaking, and assist Commission staff in examination and enforcement efforts. We believe that the proposed amendments to Form ADV would improve the information provided by investment advisers to the Commission, clients and prospective clients and would improve investor protection by informing policy choices and focusing examination activities. We also believe that the proposed amendments to the Advisers Act books and records rule would improve investor protections by providing useful information to evaluate advisers’ performance claims. 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 proposed amendments are discussed. The baseline includes the current requirement for investment advisers to file Form ADV, the staff guidance that permits filing advisers to file a single Form ADV on behalf of itself and each relying adviser,105 the current requirements for investment advisers to maintain books and records, and other current rules under the Advisers Act. The parties that would be affected by the proposed 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 April 2015, approximately 11,600 investment advisers are registered with the Commission, and 2,914 exempt reporting advisers file reports with the Commission. Approximately 8,500 investment advisers registered with us (73%) reported assets under management attributable to separately managed account clients. Of those 8,500 advisers, approximately 5,366 advisers reported regulatory assets under management attributable to separately managed account clients of at least $150 million but less than $10 billion and approximately 535 advisers reported regulatory assets under management attributable to separately managed account clients of at least $10 billion.106 105 See 104 We propose redesignating current paragraphs (c) and (d) of Rule 203–1 as (b) and (c) and redesignating current paragraphs (d) and (e) of Rule 204–1 as (c) and (d). PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 2012 ABA Letter, supra note 9. on IARD data as of April 1, 2015. These estimates are approximations because Form ADV currently collects information about assets under management by client type and the number of 106 Based E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts would be subject to proposed additional reporting on separately managed accounts on Form ADV. Approximately 750 registered advisers to private funds currently submit a single Form ADV on behalf of themselves and 2,500 relying advisers, relying on the 2012 ABA Letter. All investment advisers registered or required to be registered with us are subject to the Advisers Act books and records rule. We have sought, where possible, to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from the proposed amendments to Form ADV and Investment Advisers Act rules, and reasonable alternatives. As discussed below, in certain cases, we are unable to quantify the economic effects because we lack the information necessary to provide reasonable estimates. The economic effects of the proposal also depend upon a number of factors some of which we cannot estimate, such as the extent to which investor protection and our ability to oversee investment advisers will improve, and the extent to which investors would utilize the information in Form ADV to choose or retain an investment adviser. Therefore, some of the discussion below is qualitative in nature. We request comment on all aspects of the economic effects of the amendments that we are proposing, such as the costs and benefits, effects on efficiency, competition and capital formation, and reasonable alternatives to the proposed amendments. We request that commenters identify sources of data and information as well as provide data and information to assist us in analyzing the economic consequences of the proposed rulemaking. B. Proposed Amendments to Form ADV Some of the proposed amendments to Form ADV are designed to address certain gaps in information, such as information about advisers’ separately managed accounts. We are also proposing to collect additional information on Form ADV on topics such as social media, offices, foreign clients, and wrap fee accounts. These items are designed to improve the depth and quality of information that we clients of each type in broad ranges. Proposed Item 5.D.(1)–(2) would 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. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 collect on investment advisers, which would be important for oversight activities. We are also proposing amendments to Form ADV to establish a more efficient method for advisers to private funds that are organized as multiple legal entities to register with us using a single Form ADV (‘‘umbrella registration’’). Finally, we are proposing a number of clarifying, technical and other amendments to Form ADV. 1. Economic Baseline and Affected Market Participants As noted above, 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 proposed amendments to Form ADV are discussed. Form ADV is used by investment advisers to register with the SEC 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 end, and more frequently if required by the instructions to Form ADV.107 Form ADV is also used by exempt reporting advisers to submit, and periodically update, reports to us by completing a limited subset of items on Form ADV. Information filed on Form ADV is publicly available through the IAPD Web site.108 The parties that would be directly affected by the proposed 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. 2. Benefits As discussed in section II. above, the proposed amendments to Form ADV would improve our ability to oversee investment advisers and identify potential risks by increasing the amount, usefulness, consistency, and reliability of the information disclosed by investment advisers, which would enhance our staff’s ability to effectively carry out the risk-based examination program and other risk monitoring activities, and could improve investor protection by informing policy choices and focusing examination activities. The enhanced reporting requirements should also improve the ability of clients and potential clients of investment advisers to make more 107 See Rule 204–1(a) under the Advisers Act. personal identifying information is not made public. 108 Certain PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 33731 informed decisions about the selection and retention of investment advisers. We are proposing that advisers report additional information on Form ADV regarding separately managed accounts, which are clients other than registered investment companies, business development companies and other pooled investment vehicles, such as private funds, and are designed to meet the needs of institutional and individual investors. Based on IARD data, more than 73% of investment advisers registered with us indicate that they manage assets of separately managed accounts.109 We do not currently collect additional information specific to separately managed accounts managed by investment advisers. We currently collect detailed information about registered investment companies and private funds, but only limited information regarding the management of separately managed accounts. The absence of information about separately managed accounts, such as information about investments, compared to the information we receive describing registered investment companies and private funds, limits our ability to understand, monitor and oversee the investment advisers that advise these accounts, and recognize the potential risks relating to these accounts.110 The proposed amendments are intended to enhance our ability to effectively carry out our risk-based examination program and other riskmonitoring activities in relation to advisers of separately managed accounts. The additional information regarding separately managed accounts would assist us in addressing regulatory issues, anticipating the implications of various regulatory actions that we may consider, and identifying areas for additional examination and enforcement activities. The proposed amendments are also intended to improve our ability to monitor risks related to those advisers that manage greater amounts of regulatory assets under management in separately managed accounts, while reducing the potential reporting burden for those advisers that manage lesser amounts of regulatory assets under management in these accounts. In addition to information regarding separately managed accounts, the proposed amendments to Form ADV include requests for additional information that we believe would be useful to our risk assessment, examination and oversight of 109 Based on IARD data as of April 1, 2015. e.g., Form N–1A for investment companies and Form PF for private funds. 110 See, E:\FR\FM\12JNP3.SGM 12JNP3 mstockstill on DSK4VPTVN1PROD with PROPOSALS3 33732 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules investment advisers. For example, we propose requesting information regarding social media platforms used by investment advisers. This information would assist our staff with examinations and provide them with better awareness of an adviser’s social media activities and how advisers use social media to communicate with their clients and prospective clients. We also are proposing to request additional information about an adviser’s participation in and assets under management attributable to wrap fee programs. These programs are widely used by individual retail clients, and we believe it would be useful for us and the public to learn more about an adviser’s participation in these programs. For example, if our staff identifies an issue with a particular wrap fee program, then this information also would assist the staff in identifying other advisers associated with the program. Other proposed items that would assist our examination activities include replacing ranges with more precise information about the number of advisory clients and related assets under management, the total number of offices that conduct investment advisory business, and information regarding each adviser’s top 25 largest offices in terms of employees. For several items, we are proposing additional identifying information, such as the CIK numbers for all advisers that have obtained one or more of them, PCAOB registration numbers for auditing firms, and the SEC file number and the CRD number for sponsors of wrap fee programs. The identifiers will improve our ability and that of other current and future users of Form ADV information to cross-reference information from Form ADV with information from other sources to investigate and obtain a more complete understanding of the business and relationships of investment advisers. The proposed amendments to Form ADV that would incorporate the concept of umbrella registration and establish a method on Form ADV for certain private fund advisers to use umbrella registration would clarify, simplify, and therefore make more efficient the filing procedures for these advisers and provide greater certainty about the availability of umbrella registration. The proposed amendments also would improve the consistency and quality of 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. As of April 1, 2015, approximately 750 registered VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 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. The proposed clarifying, technical and other amendments to Form ADV would 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 would 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. To the extent the proposed clarifying and technical amendments would make Form ADV easier to understand and complete, the proposed amendments would decrease future costs, especially for those investment advisers registering with us for the first time. As discussed above, an improvement in our ability to oversee the business and assess the risks of investment advisers would benefit clients and prospective clients of investment advisers. To the extent that these proposed amendments would allow our staff to identify potential risks at investment advisers before any clients are disadvantaged, clients and potential clients would benefit. In addition, an increase in the amount, consistency and usefulness of information disclosed by investment advisers would allow advisory clients and potential advisory clients to make more informed decisions about the selection and retention of investment advisers. For example, these proposed amendments should allow prospective clients to review, either directly from Form ADV or through third-party information providers, additional or more precise information about the number of clients and amount of regulatory assets under management attributable to various client types which may provide useful information about an adviser’s experience and business practices. As another example, the proposed amendments should allow clients and potential clients to identify the social media platforms of an investment adviser from which additional information about the adviser may be available. An increase in the ability of clients and potential clients to differentiate investment advisers could result in a limited increase in competition among investment advisers for clients. The proposed amendments would likely not have a significant effect on capital formation or on the ability of investors to efficiently allocate PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 capital across investments because the proposed amendments do not directly relate to the amount of capital investors allocate to investments or their ability to allocate capital across investments. 3. Costs The proposed amendments to Form ADV would require investment advisers to provide additional information about certain aspects of their business, including separately managed accounts, social media platforms, wrap fee programs and offices. Reporting this additional information would impose additional costs on investment advisers, but we believe that much of the information we propose requesting on Form ADV would be readily available because, based on our experience, we understand that it is information used by advisers to conduct their business. Costs would vary across advisers, depending on the nature of an adviser’s business and its business model. For example, advisers that manage a limited number of separately managed accounts or that manage smaller amounts of assets under management in those accounts would have fewer reporting requirements than advisers that manage a large number of or assets in such accounts. In addition, advisers with a large number of offices would be required to report more information on a greater number of offices than what is currently required in Form ADV. To the extent possible, we have attempted to quantify these costs. As discussed in section IV., for purposes of the increased Paperwork Reduction Act burden for Form ADV, we estimate that each adviser would incur average costs in connection with the proposed amendments to Form ADV of approximately $750,111 for a total aggregate cost of $8,700,000.112 The proposed amendments regarding the reporting of information about 111 We estimate that each adviser will spend, on average, 2 hours to complete the proposed questions regarding separately managed accounts. We further estimate that the proposed amendments to Part 1A that request other additional information would take each adviser, on average, 1 hour to complete. As a result, we estimate a three hour increase in the total average time burden related to the proposed amendments to Form ADV. We expect that the performance of this function would 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 to account for an 1,800-hour work-year 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 $217 and $283 per hour, respectively. [1.5 hours × $217 = $325.5] + [1.5 hours × $283 = $424.5] = $750. 112 11,600 advisers × $750 = $8,700,000. E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 separately managed accounts may have a limited impact on competition between advisers that manage a significant number of separately managed accounts and those that manage a small number of such accounts. If disclosure of aggregate information about separately managed accounts resulted in public disclosure of sensitive information about a small number of clients’ derivative exposures because an adviser has only one or a very small number of separately managed account clients, then that adviser could be competitively disadvantaged compared with an adviser with numerous separately managed account clients because of concerns that the public disclosure of derivatives exposures would indirectly reveal sensitive information about a particular separately managed account client. We believe that this possible concern is mitigated by the fact that the proposed item does not require the disclosure or reporting of positions or specific exposures or of client identities. Regarding the proposed amendments to Form ADV that would codify umbrella registration, we estimate that each adviser that files Schedule R would incur average costs of approximately $250,113 for a total aggregate cost of $187,500.114 We do not believe the proposed amendments to provide for umbrella registration would impose significant costs on investment advisers because advisers currently relying on the 2012 ABA Letter are already reporting much of the information that would be reported on proposed Schedule R. The additional information that would be reported for relying advisers on Schedule R, such as basis for SEC registration and form of organization, should be readily available to filing advisers. We do not believe that the proposed clarifying, technical and other amendments to Form ADV would 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 113 We estimate that for purposes of the PRA, the filing adviser would spend on average 1 hour completing the proposed Schedule R on behalf of its relying advisers. We expect that the performance of this function would most likely be equally allocated between a senior compliance examiner and a compliance manager. Data from the SIFMA Management and Professional Earnings Report, modified to account for an 1,800- hour work-year 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 $217 and $283 per hour, respectively. [.5 hours × $217 = $108.5] + [.5 hours × $283 = $141.5] = $250. 114 750 advisers × $250 = $187,500. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 provisions of Form ADV that have caused confusion among filers in the past or that have resulted in inconsistent or unreliable information. Discussed above, the proposed clarifications and revisions to the questions and instructions of Form ADV would increase the efficiency of investment advisers to disclose information, and our ability to oversee investment advisers. We do not anticipate that the proposed clarifying, technical and other amendments would have a significant impact on competition or capital formation because they do not directly relate to investors’ ability to differentiate among investment advisers or the amount of capital that investors allocate to investments or their ability to efficiently allocate capital across securities. We do not believe the proposed amendments to Form ADV would increase costs for exempt reporting advisers. Exempt reporting advisers are 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) and would not be eligible to file proposed Schedule R. We are proposing limited amendments to the items that exempt reporting advisers are required to complete, including the proposed amendments to Item 1 regarding the use of social media and the reporting of information on up to 25 offices. Of the approximately 2,914 exempt reporting advisers that file information with us on Form ADV, approximately 17 reported that they had five or more other offices. Therefore, there would be a minimal increase in costs for these advisers to report this information. 4. Alternatives Alternatives to the proposed amendments to Form ADV include the disclosure of different additional information from investment advisers. For example, with respect to separately managed accounts, we could have proposed requiring information as of each quarter, proposed other reporting thresholds to differentiate smaller and larger amounts of regulatory assets under management, or proposed narrower asset categories. Other examples include additional information describing an adviser’s use of social media platforms, and additional information about the size and operations of offices. When determining the specific proposed amendments to Form ADV for purposes of this proposal, we considered what information would be important for our oversight activities and for advisory clients and prospective PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 33733 clients, and the costs to investment advisers to provide this information. Additional information could improve our ability to oversee investment advisers and protect advisory clients and potential advisory clients, and increase clients’ ability to make more informed decisions about the selection and retention of investment advisers. However, we currently believe the onetime and ongoing reporting costs for investment advisers to provide this information in addition to what we have proposed could be significant when compared to its potential benefits. Another alternative to the proposed 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 examination. An absence of information about advisers would reduce our ability to identify industry trends and assess risks. C. Proposed Amendments to Investment Advisers Act Rules As discussed above, we are proposing 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 proposed 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 proposed amendments to rule 204–2 would require investment advisers to maintain records supporting performance claims in communications that are distributed or circulated to any person. Advisers also would be required to maintain originals of all written communications received and copies of all written communications sent relating to the performance or rate of return of any or all managed accounts or securities recommendations. The proposal would require investment advisers to maintain records that they have already created, rather than create new records. We believe that most investment advisers currently maintain the information proposed to be required under the rule, as part of their compliance with the Advisers Act advertising rule (rule 206(4)–1) or as a result of their implementation of recordkeeping controls to comply with the current requirements of rule 204–2. Under the proposed amendments, each E:\FR\FM\12JNP3.SGM 12JNP3 33734 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules respondent would be required to retain records in the same manner and for the same period of time as currently required under rule 204–2. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 1. Economic Baseline and Affected Market Participants As noted above, 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 proposed amendments to the Advisers Act books and records rule (rule 204–2). The parties that would be directly affected by the proposed 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 11,600 investment advisers are currently registered with the Commission. 2. Benefits The proposed amendments to the Advisers Act books and records rule (rule 204–2) would 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 proposed amendments to the books and records rule would provide our enforcement and examination staff with additional information to review an adviser’s compliance with the Advisers Act advertising rule, rule 206(4)–1, regardless of the number of clients or prospective clients that receive performance communications. The increased efficiency in examining and enforcing the rule may increase investor protection by increasing the disincentive for misleading or fraudulent communications, which may reduce the incidence of fraud. In addition, investors may benefit from the proposed amendments to the books and records rule as these records would assist us in enforcing rule 206(4)–1 against, for example, fraudulent performance advertising. To the extent that the proposed amendments to the rule reduce misleading or fraudulent communications, the competitive position of investment advisers could be improved because clients and potential clients would receive more accurate information regarding an adviser’s performance and thus would be better able to differentiate advisers based on skill. In addition, to the extent that the proposed amendments to the rule VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 improve the ability of clients and potential clients to differentiate advisers based on skill, potential clients may be more likely to obtain investment advice from an investment adviser, which would increase the ability of investment advisers to compete for investor capital. The proposed 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. 3. Costs We estimate that for purposes of the PRA, advisers would incur an aggregate cost of approximately $324,800 per year for the total hours advisory personnel would spend in complying with the proposed recordkeeping requirements.115 A possible nonquantifiable cost as a result of the proposed recordkeeping requirements would be discouraging advisers from creating and communicating custom performance information to individual clients, who would then lose the benefit of having that information available to them. Although we believe that such a response to the rule would be unlikely, a decrease in communications could reduce the ability of clients and potential clients to compare advisers and potentially decrease competition. Included in this cost estimate is our expectation that these costs would 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 would 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 would be required. 4. Alternatives An alternative to the proposed amendments to rule 204–2 would be to 115 We estimate that for purposes of the PRA, the proposed amendments to rule 204–2 would increase the burden by 0.5 hours per adviser annually. We expect that the function of recording and maintaining records of performance information and communications would be performed by a combination of compliance clerks and general clerks at a cost of $64 per hour and $53 per hour, respectively. We anticipate that compliance clerks will perform an estimated 0.1 hours of this work and clerical staff will perform the remaining 0.4 hours. Therefore the total cost per adviser would be (0.1 hours × $64 per hour = $6.4) + (0.4 hour × $53 = $21.2) = approximately $28 for a total cost of $324,800 (11,600 advisers × $28). PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 not propose the amendments. The proposed amendments are designed to address a potential recordkeeping gap that could limit our ability to examine and oversee advisers and ultimately protect investors. The proposed amendment to require maintenance of the performance calculations and communications regardless of the number of clients or potential clients that receive the information would address this issue. An alternative that would require maintenance of records supporting performance claims in communications that are distributed or circulated to less than the current threshold of ten persons could reduce our ability to examine and oversee advisers. We believe that the limited costs of these amendments are appropriate given its benefits. D. Request for Comment We request comment on our estimates and assumptions regarding the costs and benefits of the proposed amendments to Form ADV and certain rules under the Investment Advisers Act. Commenters are requested to provide empirical data to support their views. In addition to our general request for comment on the costs and benefits of the proposed amendments, we request the following specific comment on certain aspects of our economic analysis. • To what extent would clients and prospective clients use information reported in Form ADV to select or retain investment advisers? Are there other benefits to clients and prospective clients or to other interested parties not outlined above? • To what extent would advisers benefit from incorporation of umbrella registration into Form ADV? • Do commenters expect that advisers would incur costs in addition to, or that differ from, the costs we outlined above? In particular, do commenters expect that advisers would incur costs different from the costs we outline above with respect to the collection or retention of additional information? • What are the benefits and costs of the proposed reporting thresholds for separately managed account information? Are there other thresholds that would increase benefits and be just as costly or provide similar benefits and be more cost effective? Please explain. • Would any of the effects of these proposed amendments be large enough to affect the behavior of investment advisers or their clients? For instance, would the public disclosure of aggregate separately managed account information raise confidentiality concerns, and would disclosure impact a client’s E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules selection of an investment adviser? Please explain. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 IV. Paperwork Reduction Act Analysis Certain provisions of our proposal contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’),116 and we are submitting 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 proposing to amend 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. 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 proposing changes to Part 2 at this time. 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 116 44 U.S.C. 3501–3520. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 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 data as of April 2015, approximately 11,600 investment advisers are registered with the Commission, and 2,914 exempt reporting advisers file reports with the Commission. The currently approved total annual burden estimate for all advisers of completing, amending and filing Form ADV (Part 1 and Part 2) with the Commission is 154,402 hours. This burden is based on an average total hour burden of 40.74 hours per Commissionregistered adviser for the first year that an adviser completes Form ADV but excluding private fund reporting.117 As discussed above, we are proposing 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 proposing would increase the information requested in Part 1A of Form ADV, and we expect that this would correspondingly increase the average burden to an adviser filing Form ADV. We discuss below, in three subsections, the estimated revised collection of information requirements for Form ADV: First, we provide estimates for the revised and new burdens resulting from the proposed 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. 1. Changes in Average Burden Estimates and New Burden Estimates As a result of the differing burdens on advisers to complete Form ADV, we have divided the effect of the proposed 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 proposed amendments to Part 1A of Form ADV excluding those changes related to private funds; second, we 117 The currently approved one-time initial cost burden for outside legal and compliance consulting fees in connection with initial preparation of Part 2 of Form ADV is $3,600,000. We are not proposing any amendments to Part 2 of Form ADV and therefore we are not modifying this estimate. PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 33735 discuss the proposed amendments to Form ADV related to registered advisers to private funds, including the proposed amendments to Section 7.B. of Schedule D and the proposed new Schedule R that would implement umbrella registration; and third, we address the proposed amendments to Form ADV affecting exempt reporting advisers. a. Estimated Change in Burden Related to Part 1A Proposed Amendments (Not Including Private Fund Reporting) We are proposing amendments to Part 1A, some of which are merely technical changes or very simple in nature, and others that would require more time for an adviser to prepare a response. The paperwork burdens of filing an amended Form ADV, Part 1A would 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. Advisers should have ready access to all the information necessary to respond to the proposed items in their normal course of operations because, among other things, they likely maintain and use the proposed requested information in connection with managing client assets. We anticipate that the responses to many of the questions would be unlikely to change from year to year, which would minimize the ongoing reporting burden associated with these questions. i. Proposed Amendments Related to Reporting of Separately Managed Account Information The proposed 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. Those proposed amendments would 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 would include regulatory assets under management reported by asset type, borrowings and derivatives information, and the identity of custodians that account for at least ten percent of separately managed account regulatory assets under management. We believe much of this information is readily available to advisers to separately managed accounts because, among other things, they may maintain and use this or similar information for operational reasons (e.g., trading systems) and for customary account E:\FR\FM\12JNP3.SGM 12JNP3 33736 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules reporting to clients in separately managed accounts. Although we understand that much of the proposed information is readily available to advisers to separately managed accounts, we expect that these amendments could 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. For this and other reasons, as we explained above, we propose to minimize the burden on advisers with a smaller amount of separately managed account assets under management by proposing to require 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, while those advisers with regulatory assets under management attributable to separately managed accounts of at least $10 billion would report information as of that date and six months before that date. Considering the proposed changes in 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) as well as our efforts to mitigate the reporting burden to advisers that manage a smaller amount of separately managed account regulatory assets under management, we estimate that each adviser will spend, on average, 2 hours to complete the questions regarding separately managed accounts in the first year a new or existing investment adviser completes these questions.118 ii. Other Additional Information Regarding Investment Advisers mstockstill on DSK4VPTVN1PROD with PROPOSALS3 We are proposing to add several new questions and amend existing questions on Form ADV regarding identifying information, an adviser’s advisory business, and affiliations. The proposed questions primarily refine or expand existing questions or request 118 Based on IARD data, as of April 1, 2015, approximately 8,500 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 companies and pooled investment vehicles, indicating that they have assets under management attributable to separately managed accounts. Of those approximately 8,500 advisers, we estimate approximately 535 (approximately 6.3%) reported at least $10 billion in regulatory assets under management from separately managed account clients. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 information we believe that advisers already have for compliance purposes. For example, we propose to require each adviser to provide Central Index Key (CIK) numbers if it has one or more such numbers and to provide identifying information for social media platforms that it uses. Other proposed questions would require advisers to provide readily available or easily accessible information, such as the proposed amendment to Part IA, Item 1.O. that would require advisers to report their assets within ranges. However, some of the proposed questions may take longer for advisers to complete, such as the proposed amendments to Schedule D, Section 1.F that would require information about an adviser’s 25 largest offices other than its principal office and place of business. While this information is readily available to an adviser because it should be aware of its offices, a clerk would be required to manually enter expanded information about the adviser’s offices in the first year the adviser responds to the proposed item and then make updates in subsequent years. We are proposing 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 would merely require advisers to provide readily available or easily accessible 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 proposed items would 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 proposed disclosure regarding wrap fee programs or non-U.S. clients would 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. We estimate that these proposed amendments 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 these proposed questions. We have arrived at this estimate, in part, by comparing the PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 relative complexity and availability of the information required by the proposed amended items to the current form and its approved burden, and by considering the advisers affected by the proposed amendments. iii. Proposed Clarifying, Technical and Other Amendments We are proposing several further amendments to Form ADV that are designed to clarify the Form and its instructions and address technical issues. These proposed changes primarily refine existing questions, such as 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, and the proposed amendments to 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 proposed changes do not change the scope or amount of information required to be reported on Form ADV, we do not believe that these proposed clarifying, technical and other amendments to Part 1A of Form ADV would increase or decrease the average total collection of information burden for advisers in their first year filing Form ADV. As a result of the proposed amendments to Form ADV Part 1A discussed above, including the proposed amendments related to separately managed accounts, additional items and technical and clarifying amendments, we estimate the average total collection of information burden would increase 3 hours to 43.74 hours per adviser for the first year that an adviser completes Form ADV (Part 1 and Part 2).119 b. Estimated Changes in Burden Related to Private Fund Reporting Requirements We propose several amendments to Part 1A, Schedule D, Section 7.B. that refine and enhance existing information we receive about advisers to private funds. In addition, as part of our proposal to provide for umbrella registration, we propose 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. 119 Currently approved estimate of the average total collection if information burden per SEC registered adviser for the first year that an adviser completes Form ADV (40.74 hours) + 2 hours to complete the proposed questions about separately managed accounts + 1 hour to complete other additional information regarding investment advisers = 43.74 hours. E:\FR\FM\12JNP3.SGM 12JNP3 mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules We believe the information required by the few proposed amendments to Part 1A, Schedule D, Section 7.B would be readily available or easily accessible to advisers to private funds, such as information about the percentage of a private fund owned by qualified clients, and the PCAOB registration number for a private fund auditor. 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 proposed amendments to Schedule D, Section 7.B would increase or decrease the total annual burden because the information is readily available to advisers. The proposal to incorporate umbrella registration into Form ADV would 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 would 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 would 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 registration under defined circumstances since 2012,120 and the proposed amendments to Form ADV would provide for umbrella registration and simplify the process of umbrella registration for advisers constituting a single advisory business. We are proposing a new schedule to Part 1A, Schedule R, that would have to be filed with respect to each relying adviser, as well as a new question to Schedule D that would link private funds reported on Form ADV to the specific (filing or relying) adviser that advises it. Schedule R would require identifying information, basis for SEC registration, and ownership information about each relying adviser. We believe that much of the information we are proposing to include in Schedule R should be readily 120 See 2012 ABA Letter, supra note 9. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 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 proposed requirements would be 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 should the new process be codified and Schedule R available. We also believe that new filing advisers using umbrella registration would readily have information available about relying advisers, because they are operating as a single advisory business. There is no currently approved annual burden estimate of completing Schedule R because it is a new Schedule. Taking into account the scope of information we propose to request, our understanding that much of the information is readily available and currently required on Form ADV, and our belief that many private fund advisers that file an umbrella registration will have only a small number of relying advisers,121 we 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), and are not required to complete Part 2 and would not be eligible to file proposed Schedule R. The proposed amendments to Part 1A would revise only Items 1 and 7 for exempt reporting advisers. We believe the information required by these proposed revisions should be readily available to any adviser as part of their ongoing operations and management of client assets, and, moreover, are unlikely to require additional reporting for most exempt reporting advisers. For instance, we estimate that almost all exempt reporting advisers currently have five or 121 Based on IARD data as of April1, 2015, approximately 750 investment advisers rely on the 2012 ABA Letter to file Form ADV on behalf of themselves and 2,500 relying advisers, an average of approximately 3 relying advisers per filing adviser. PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 33737 fewer offices (the number of offices currently required by Form ADV) and thus would not have to provide information on additional offices.122 Accordingly, we do not expect that the proposed amendments would increase or decrease the currently approved total annual burden estimate per exempt reporting adviser initially completing these items in Form ADV, other than Item 7.B., of 2 hours. We also do not expect that the proposed amendments would increase or decrease the currently approved total annual burden estimate per exempt reporting adviser initially completing Item 7.B. and Section 7.B. of Schedule D of 1 hour per private fund. 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 Completes Form ADV (Part 1 and Part 2) We estimate that, as a result of the proposed amendments to Form ADV Part 1A discussed above, other than those applicable to private funds, the average total collection of information burden per respondent would increase 3 hours to 43.74 hours per adviser for the first year that an adviser completes Form ADV (Part 1 and Part 2). Approximately 11,600 investment advisers are currently registered with the Commission.123 Not including private fund reporting, the estimated aggregate annual burden applicable to these advisers would be 507,384 hours 124 (34,800 hours of it attributable to the proposed amendments).125 As with the Commission’s prior Paperwork Reduction Act estimates for Form ADV, we believe that most of the paperwork burden would be incurred in advisers’ initial submission of the amended Form ADV, and that over time this burden would decrease substantially because the paperwork burden would be limited 122 Based on IARD data as of April 1, 2015, only 17 ERAs reported on Form ADV that they had five or more other offices. 123 Based on IARD data as of April 1, 2015. 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. 124 43.74 hour per-adviser burden × 11,600 advisers = 507,384 hours. 125 3 hour per-adviser additional burden × 11,600 advisers = 34,800 hours. E:\FR\FM\12JNP3.SGM 12JNP3 33738 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules to updating information.126 Amortizing the burden imposed by Form ADV over a three-year period to reflect the anticipated period of time that advisers would use the revised Form would result in an average annual burden of an estimated 169,128 hours per year 127 (11,600 hours per year of it attributable to the proposed amendments),128 or 14.58 hours per year for each adviser currently registered with the Commission.129 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 burden applicable to these advisers for the first year that they complete Form ADV but excluding private fund reporting requirements is 43,740 hours (1,000 advisers x 43.74 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 would use the revised Form would result in an average annual burden of an estimated 14,580 hours per year 130 (1,000 of it attributable to the proposed amendments).131 We therefore estimate the total hour burden to be 183,708 hours per year.132 ii. Estimated Initial Hour Burden Applicable to Registered Advisers to Private Funds The amount of time that a registered adviser managing private funds would 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 4,364 registered advisers advise a total of 28,532 private funds, and, on average, 300 SEC-registered advisers annually would make their initial filing with us reporting approximately 1,100 private funds.133 The currently approved mstockstill on DSK4VPTVN1PROD with PROPOSALS3 126 We discuss the burden for advisers making annual updating amendments to Form ADV in section iii below. 127 507,384 hours/3 = 169.128 hours. 128 34,800 hours/3 = 11,600 hours. 129 169,128 hours/11,600 advisers = 14.58 hours. 130 43,740 hours/3 = 14,580 hours. 131 3,000 hours/3 = 1,000 hours. 132 14,580 hours for new registrants + 169,128 hours for existing registrants = 183,708 hours. 133 Based on IARD data as of April 1, 2015. 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, Item 7.B per fund in a three year period, which is the period after which estimates are required to be renewed. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 annual burden estimate for advisers making their initial filing in completing Item 7.B. and Schedule D, Item 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 would add 29,632 hours to the overall annual burden applicable to registered advisers.134 As noted above, we believe most of the paperwork burden would be incurred in connection with advisers’ initial submission of Form ADV, and that over time the burden would decrease substantially because it would be limited to 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 average estimated burden of 9,877 hours per year.135 We also propose a new Schedule R to Form ADV for umbrella filing. Of the advisers currently registered with us, we estimate based on current Form ADV filings that approximately 750 registered advisers currently submit a single Form ADV on behalf of themselves and approximately 2,500 relying advisers.136 Taking into account the scope of information we propose to request 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 would add 750 137 hours to the annual burden applicable to registered advisers. We estimate that, on average, 65 SEC registered advisers annually would make their initial filing with us as filing advisers, increasing the overall annual burden for advisers to private funds an additional 65 hours, or 815 hours in total. Amortizing these hours for a three year period as with the rest of the burdens associated with Form ADV, results in 272 additional hours per year.138 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 134 1 hour × 28,532 private funds = 28,532 hours. 1 hour × 1,100 private funds = 1,100 hours. 28,532 hours + 1,100 hours = 29,632 hours. 135 29,632 hours/3 = 9,877 hours. 136 Based on IARD data as of April 1, 2015. 137 750 filing advisers × 1 hour per completing Schedule R = 750 hours. 138 815 hours/3 = 271.66 hours. PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 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 proposed amendments to Form ADV would increase the currently approved annual burden estimate associated with annual amendments to Form ADV from 6 hours to 7 hours per adviser, but would not impact interim updating amendments to Form ADV. 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 data, that advisers, on average, make one interim updating amendment (at an estimated 0.5 hours per amendment) and one annual updating amendment (at an estimated 7 hours per amendment) each year.139 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,140 and an additional 1 hour per year to prepare new brochure supplements as required by Part 2.141 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.142 We are not changing these estimates as the proposed amendments do not affect these requirements. Therefore we estimate the total annual burden for advisers registered with us attributable to amendments, brochure supplements and obligations to deliver codes of ethics to be 125,280 hours.143 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 139 (11,600 advisers × 0.5 hours/other than annual amendment) + (11,600 advisers × 7 hours/annual amendment) = 87,000 hours. 140 11,600 hours attributable to interim amendments to the brochure supplements = 11,600 advisers × 1 hour = 11,600 hours. 141 11,600 hours attributable to new brochure supplements = 11,600 advisers × 1 hour = 11,600 hours. 142 15,080 hours for the delivery of codes of ethics = 11,600 advisers × 1.3 hours = 15,080 hours. 143 87,000 hours + 11,600 hours + 11,600 hours + 15,080 hours = 125,280 hours. E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 connection with the initial preparation of Part 2 of Form ADV. We do not anticipate that the amendments we are proposing 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 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 would be $4,400 for legal services and $5,000 for compliance consulting services, in each case, for those advisers who engaged legal counsel or consultants. We anticipate that a quarter of these advisers would seek the help of outside legal services and half would seek the help of compliance consulting services. Accordingly, we estimate that 250 of these advisers would use outside legal services, for a total cost burden of $1,100,000,144 and 500 advisers would use outside compliance consulting services, for a total cost burden of $2,500,000,145 resulting in a total cost burden among all respondents of $3,600,000 for outside legal and compliance consulting fees related to drafting narrative brochures.146 We estimate that 3% 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 current IARD data, 4,364 registered advisers currently advise private funds. We therefore estimate that approximately 131 registered advisers may incur costs of $37,625 each on an annual basis, for an aggregate annual total cost of $4,928,875.147 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 $8,528,875.148 144 25% × 1000 SEC registered advisers = approximately 250 advisers. $4,400 for legal services × 250 advisers = $1,100,000. 145 50% × 1000 SEC registered advisers = 500 advisers. $5,000 for consulting services × 500 advisers = $2,500,000. 146 $1,100,000 + $2,500,000 = $3,600,000. 147 131 advisers × $37,625 = $4,928,875. 148 $3,600,000 + $4,928,875 = $8,528,875. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 b. Estimated Annual Burden Applicable to Exempt Reporting Advisers i. Estimated Initial Hour Burden Based on IARD system data, there are approximately 2,914 exempt reporting advisers currently filing reports with the SEC.149 The paperwork burden applicable to these exempt reporting advisers consists of the burden attributable to 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 proposed amendments to Form ADV would 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 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 is 6,828 hours.150 Amortizing the burden imposed by Form ADV over a three-year period to reflect the anticipated period of time that advisers would use the revised Form ADV results in an average annual burden of an estimated 2,276 hours per year.151 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 proposed amendments to Form ADV would affect the per exempt reporting adviser burden of completing Item 7.B. and Section 7.B. of Schedule D. Based on IARD data, we estimate that, on average, the 2,914 current exempt reporting advisers will report 9,896 funds and the projected 500 new exempt reporting advisers making their 149 Based on IARD data as of April 1, 2015. 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. 150 2 hours × (2,914 reporting exempt reporting advisers + 500 new exempt reporting advisers) = 6,828 hours. 151 6,828 hours/3 = 2,276 hours. PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 33739 initial filing will report approximately 1,000 funds, resulting in a total annual burden of 10,896 hours.152 Amortizing this total burden over three years as we did above for registered advisers results in an average burden of an estimated 3,632 hours per year,153 or approximately 1 hour per year, on average, for each exempt reporting adviser.154 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 data, each exempt reporting adviser would amend its form 2 times per year. On average, these consist of one interim updating amendment (at an estimated 0.5 hours per amendment) 155 and one annual updating amendment (at an estimated 1 hour per amendment) 156 each year. In addition, we anticipate 200 final filings by exempt reporting advisers annually (at an estimated 0.1 hours per filing).157 We do not anticipate that our proposed amendments to Form ADV would affect the per exempt reporting adviser burden. The total annual burden associated with exempt reporting advisers filing amendments and final filings is 4,391 hours.158 3. Total Revised Burdens The revised total annual 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 amendments to the form, preparing brochure supplements and delivering codes of ethics to clients, is estimated to be approximately 319,137 hours per year, for a monetized total of $79,784,000.159 152 9,896 funds + 1,000 funds = 10,896 funds. 10,896 × 1 hour = 10,896 hours. 153 10,896 hours/3 years = 3,632 hours per year. 154 3,632 hours per year/3,414 exempt reporting advisers = 1 hour per year. 155 2,914 × .5 hours = 1,457 hours. 156 2,914 × 1 hour = 2,914 hours. 157 200 × 0.1 hours = 20 hours. 158 1,457 hours + 2,914 hours + 20 hours = 4,391 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 as required by Part 2 of Form ADV. 159 183,708 hours per year attributable to initial preparation of Form ADV + 9,877 hours per year attributable to initial private fund reporting E:\FR\FM\12JNP3.SGM Continued 12JNP3 33740 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 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 burdens associated with private fund reporting, amendments to the form and final filings, would be approximately 10,299 hours per year, for a monetized total of $2,574,500.160 We estimate that if the proposed amendments to Form ADV are adopted, the total annual hour burden for the form would be 329,436 hours and a monetized total of $82,358,500.161 This is an increase of 175,034 hours and $45,688,073 from the currently approved burden estimates,162 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. The resulting blended average per adviser burden for Form ADV is 22.69 hours (for a monetized total of $5,674.42),163 which consists of an average annual burden of 27.51 hours 164 for each of the estimated 11,600 SEC registered advisers, and 3.53 hours 165 for each of the estimated 2,914 exempt reporting advisers. requirements + 272 hours per year for initial umbrella registration + 125,280 hours per year for attributable to amendments, brochure supplements and obligations to deliver codes of ethics = 319,137 hours. We expect that the performance of this function would 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 to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for these positions are $217 and $283 per hour, respectively. (159,568 hours × $217) + (159,568 hours × 283) = $79,784,000. 160 2,276 hours per year attributable to initial preparation of Form ADV + 3,632 hours per year attributable to initial private fund reporting requirements + 4,391 hours per year for amendments and final filings = 10,299 hours. We expect that the performance of this function would 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 to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for these positions are $217 and $283 per hour, respectively. (5,149 × $217) + (5,149 × $283) = $2,574,500. 161 319,137 hours + 10,299 hours = 329,436 hours. $79,784,000 + $2,574,500 = $82,358,500. 162 329,436 hours ¥ 154,402 hours = 175,034 hours. $82,358,500 ¥ $36,670,427 = $45,688,073. 163 329,436 hours/(11,600 registered advisers + 2,914 exempt reporting advisers) = 22.69 hours. $82,358,500/(11,600 registered advisers + 2,914 exempt reporting advisers) = $5,674.42. 164 319,137 hours/11,600 registered advisers = 27.51 hours. 165 10,299 hours/2,914 exempt reporting advisers = 3.53 hours. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 Registered investment advisers are also expected to incur an annual cost burden of $8,528,875, an increase of $4,928,875 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, and the information is generally kept confidential.166 The collection of information is mandatory. The proposed amendments to rule 204–2 would 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 of 1,986,152 hours. Based upon updated IARD data, the current approximate number of investment advisers is 11,600. As a result in 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 118,668 hours.167 We estimate that most advisers provide, or seek to provide, performance information to their clients. Under the proposed amendments, each adviser would be required to retain the records in the same manner, and for the same period of time, as other books and records under rule. We believe 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, 166 See section 210(b) of the Advisers Act. advisers × 181.45 hours = 2,104,820 hours. 2,104,820 hours ¥ 1,986,152 hours = 118,668 hours. 167 11,600 PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 in order to show compliance with the Advisers Act advertising rule, rule 206(4)–1. Accordingly, the proposed amendments to rule 204–2 are estimated to increase the burden by approximately 0.5 hours per adviser annually for a total increase of 5,800 hours.168 The revised annual aggregate burden would be 2,110,620 hours.169 The revised average burden per adviser would be approximately 182 hours per year.170 Advisers would 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 cost burden is $108,708,557.10. We estimate the hourly wage for compliance clerks to be $64 per hour, including benefits, and the hourly wage for general clerks to be $53 per hour, including benefits.171 For each adviser, 182 burden hours would 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 of this work, and clerical staff will perform the remaining 150 hours. The total cost per respondent therefore will be an estimated $9,998,172 for a total burden cost of approximately $115,976,800,173 an increase of $7,268,243 from the currently approved total cost per respondent.174 The increase in cost is attributable to a larger registered investment adviser population since the most recent approval as well as the proposed rule 204–2 amendments discussed in this release. C. Request for Comment We request comment on whether our estimates for the change in burden hours and associated costs described above are reasonable. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i) Evaluate whether the proposed collections of information are necessary advisers × 0.5 hours = 5,800 hours. (current approved burden) + 118,668 (burden for additional registrants) + 5,800 (burden for proposed amendments) = 2,110,620 hours. 170 2,110,620 hours/11,600 advisers = 181.9 hours. 171 Our hourly wage rate estimate for a compliance manager and compliance clerk is based on data from the SIFMA Office Salaries in the Securities Industry Report 2013, modified by Commission staff to account for an 1800-hour workyear and multiplied by 5.35, for compliance clerks to account for bonuses, firm size, employee benefits and overhead. 172 (32 hours per compliance clerk × $64) + (150 hours per clerical staff × $53) = ($2,048 + $7,950) = $9,998. 173 $9,998 per adviser × 11,600 advisers = approximately $115,976,800. 174 $115,976,800 ¥ $108,708,557 = $7,268,243. 168 11,600 169 1,986,152 E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules for the proper performance of the functions of the Commission, including whether the information will have practical utility; (ii) evaluate the accuracy of the Commission’s estimate of the burden of the proposed collections of information; (iii) determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and (iv) determine whether there are ways to minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology. The agency has submitted the proposed collection of information to OMB for approval. Persons wishing to submit comments on the collection of information requirements of the proposed amendments should direct them to the Office of Management and Budget, Attention Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and should send a copy to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090, with reference to File No. S7–09–15. As OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7–09–15, and be submitted to the Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 V. Initial Regulatory Flexibility Analysis The Commission has prepared the following Initial Regulatory Flexibility Analysis (‘‘IRFA’’) in accordance with section 3(a) of the Regulatory Flexibility Act 175 regarding our proposed amendments to Form ADV and rule 204–2 and our proposed technical amendments to certain other rules under the Advisers Act. A. Reason for the Proposed Action The proposed amendments to Form ADV are designed to provide the Commission with additional information about registered investment advisers, including information about separately managed accounts, provide 175 5 U.S.C. 603(a). VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 for umbrella registration for multiple investment advisers operating as a single advisory business, and provide technical, clarifying and other amendments to certain Form ADV provisions. The proposed amendments to Form ADV would improve the information provided by investment advisers to the Commission and the public. We are also proposing amendments to the Advisers Act books and records rule that would 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 proposed amendments to the books and records rule would improve investor protections by providing useful information in examining and evaluating advisers’ performance claims. Finally, we are proposing technical amendments to certain rules under the Advisers Act to remove transition provisions where the transition process is complete. B. Objectives and Legal Basis The proposed amendments to Form ADV would address certain data gaps and enhance current reporting provided by investment advisers, particularly about separately managed accounts, in order to increase our ability to effectively oversee and monitor their activities, and to incorporate umbrella registration for private fund advisers that operate as a single advisory business. The proposed amendments to the Advisers Act books and records rule would 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 and indirectly, to any persons. The Commission is proposing 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 sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b–3(c)(1), 80b–4, and 80b–11(a)]. The Commission is proposing to amend 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 PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 33741 Commission is proposing to amend 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 proposing to amend rule 203–1 pursuant to authority in section 206A of the Advisers Act [15 U.S.C. 80b–6A]. The Commission is proposing to rescind rule 203A–5 and amend 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)]. C. Small Entities Subject to the Rule and Rule Amendments In developing these proposals, we have considered their potential impact on small entities that would be subject to the proposed amendments. The proposed amendments would 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.176 Our proposed rule and Form ADV amendments would 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 state regulators. Based on IARD data, we estimate that as of April 1, 2015, approximately 489 advisers that are small entities are registered with the Commission.177 Because these entities are registered, they, like all SECregistered investment advisers, would all be subject to the proposed amendments to Form ADV, rule 204–2 and other Advisers Act rules. The only small entity exempt reporting advisers that would be subject to the proposed amendments would be exempt reporting advisers that maintain their principal office and place of 176 Rule 0–7(a) under the Advisers Act. on SEC-registered investment adviser responses to Form ADV, Item 5.F and Item 12. 177 Based E:\FR\FM\12JNP3.SGM 12JNP3 33742 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 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.178 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 18% of registered investment advisers with their principal office and place of business outside the U.S. are small entities. There are approximately 1,148 exempt reporting advisers with their principal office and place of business outside the U.S. We estimate that 18% of those advisers, approximately 206, are small entities. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 D. Reporting, Recordkeeping and Other Compliance Requirements The proposed amendments to Form ADV and rule 204–2 would impose certain reporting, recordkeeping, and compliance requirements on all Commission-registered advisers, including small advisers. All Commission-registered small advisers would be required to file Form ADV, including the proposed amendments, and all Commission-registered small advisers would be subject to the proposed amended recordkeeping requirements. We do not believe that our proposed technical amendments to other Advisers Act rules would impose different reporting, recordkeeping, or other compliance requirements on small advisers. Proposed Form ADV Amendments The proposed amendments to Form ADV would require registered investment advisers to report different or additional information than what is currently required. Approximately 489 small advisers currently registered with us would be subject to these 178 See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A, Question 11. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 requirements. We expect these 489 small advisers to spend, on average, 3 hours to respond to the proposed new and amended questions, not including items relating to private fund reporting.179 We expect the aggregate cost to small advisers associated with this process would be $366,500.180 In addition, of these 489 small advisers, we estimate that 4 small advisers currently rely on the 2012 ABA Letter to act as filing advisers for their relying advisers.181 We expect that our proposed changes to codify umbrella registration would take 4 hours 182 in the aggregate, at a cost to small advisers of $1,000.183 We do not know how many additional small advisers would use umbrella registration if it was incorporated into Form ADV. We estimate for purposes of the Paperwork Reduction Act that they would also have a burden of 1 hour per filing adviser. We do not estimate any increase or decrease in burden related to our proposed amendments for private fund advisers, other than the hours related to proposed Schedule R or for exempt reporting advisers. The total estimated labor costs associated with our amendments that we expect will be borne by small advisers is $367,500.184 Proposed Amendments to Books and Records Rule Our proposed amendments to rule 204–2’s performance information recordkeeping provisions are meant to require investment advisers to make and 179 See supra section IV. of this release. 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 to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $217 and $283 per hour, respectively. 489 small advisers × 3 hours = 1,467 hours. [733 hours × $217 = $159,061] + [733 hours × $283 = $207,439] = $366,500. 181 Based on IARD data as of April 1, 2015. 182 For purposes of the Paperwork Reduction Act, we estimated in section IV. of this release that amendments to codify umbrella registration would take an additional 1 hour per filing adviser. 183 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 to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $217 and $283 per hour, respectively. 4 filing advisers × 1 hour = 4 hours. [2 hours × $217 = $434] + [2 hours × $283 = 566] = $1,000. 184 $366,500 + $1,000 = $367,500. These costs are discussed in Paperwork Reduction Act Analysis in section IV. of the release. 180 We PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 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 would create reporting, recordkeeping, and other compliance requirements for small advisers. As discussed in the Paperwork Reduction Act Analysis in section IV. above, the proposed amendments to rule 204–2 would increase the burden by approximately 0.5 hours per adviser. We expect the aggregate cost to small advisers associated with our proposed amendments would be $13,415.185 E. Duplicative, Overlapping, or Conflicting Federal Rules We believe there are no federal rules that duplicate, overlap, or conflict with the proposed rule and form amendments. F. Significant Alternatives 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 proposed Form ADV and rule amendments, the Commission considered the following alternatives: (i) The establishment of differing compliance or reporting requirements that take into account the resources available to small entities; (ii) the clarification, consolidation, or simplification of compliance and reporting requirements under the proposed 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 proposed Form ADV and rule amendments, or any part thereof, for such small entities. Regarding the first and second alternatives, for certain proposed reporting requirements regarding separately managed accounts on Form ADV, we propose to require semiannual information filed annually for 185 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 in the Securities Industry Report 2013, modified to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $64 and $53, respectively. 489 small advisers × 0.5 hours = 244.5 hours. [0.17 × 244.5 hours × $64 = $2,660] + [0.83 × 244.5 hours × $53 = $10,755] = $13,415. E:\FR\FM\12JNP3.SGM 12JNP3 33743 mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules advisers with regulatory assets under management attributable to separately managed accounts of $10 billion or more and annual information for other advisers.186 Requiring less detailed reporting on these items 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 proposed 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. Because the protections of the Advisers Act are intended to apply equally to clients of both large and small advisers, it would be inconsistent with the purposes of the Act to specify differences for small entities under the proposed amendments. Regarding the second alternative for the other proposed amendments to Form ADV and the Advisers Act rules, we will continue to consider whether further clarification, consolidation, or simplification of the compliance requirements is feasible or necessary, but we believe that the current proposal is clear. 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 would 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 consider using performance rather than design standards with respect to the proposed amendments to Form ADV and rule 204–2 to be inconsistent with our statutory mandate to protect investors, as 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. G. Solicitation of Comments We encourage written comments on matters discussed in this IRFA. We solicit comment on the number of small 186 Proposed Form ADV, Part 1A, Schedule D, Sections 5.K.(1). VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 entities subject to the proposed Form ADV and rule amendments; and whether the proposed Form ADV and rule amendments discussed in this release could have an effect on small entities that has not been considered. We request that commenters describe the nature of any impact on small entities and provide empirical data to support the extent of such impact. VI. Consideration of Impact on the Economy For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, or ‘‘SBREFA,’’ 187 we must advise OMB whether a proposed regulation constitutes a ‘‘major’’ rule. Under SBREFA, a rule is considered ‘‘major’’ where, if adopted, it results in or is likely to result in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers or individual industries; or (3) significant adverse effects on competition, investment or innovation. We request comment on the potential impact of the proposed amendments on the economy on an annual basis. Commenters are requested to provide empirical data and other factual support for their views to the extent possible. VII. Statutory Authority The Commission is proposing 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 sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b–3(c)(1), 80b–4, and 80b–11(a)]. The Commission is proposing to amend 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 proposing to amend 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 proposing to amend rule 203–1 pursuant to authority in section 206A of the Advisers Act [15 U.S.C. 80b–6A]. The Commission is proposing to rescind rule 203A–5 and amend 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)]. 187 Public Law 104–121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C., 15 U.S.C. and as a note to 5 U.S.C. 601). PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 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 proposed to be amended as follows. PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940 1. The authority citation for part 275 continues to read in part as follows: ■ 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] 2. Amend § 275.202(a)(11)(G)–1 by removing paragraph (e). ■ 3. Amend § 275.203–1 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. § 275.203A–5 is removed and reserved. ■ § 275.204–1 [Amended] 5. Amend § 275.204–1 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 ■ c. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d). ■ 6. Amend § 275.204–2 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’’. ■ ■ § 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: E:\FR\FM\12JNP3.SGM 12JNP3 33744 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (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: 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 (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 VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 list, the investment adviser shall retain with the copy of such notice, circular or advertisement a memorandum describing the list and the source thereof; or (iv) The performance or rate of return of any or all managed accounts or securities recommendations. * * * * * ■ 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. Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b–1, et seq. Note: The text of Form ADV does not and the amendments will not appear in the Code of Federal Regulations. PART 279—FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 1940 7. The authority citation for part 279 continues to read in part as follows: a. Form ADV [referenced in § 279.1] is amended by: In the instructions to the form, revising the section entitled ‘‘Form ADV: General Instructions.’’ The revised version of Form ADV: General Instructions is attached as Appendix A; ■ PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 ■ By the Commission. Dated: May 20, 2015. Robert W. Errett, Deputy Secretary. BILLING CODE 8011–01–O E:\FR\FM\12JNP3.SGM 12JNP3 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33745 APPENDIX A FORM ADV (Paper Version) • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT FORM BY EXEMPT REPORTING ADVISERS • IForm ADV: General Instructions Read these instructions carefully before filing Form ADV. Failure to follow these instructions, properly complete the form, or pay all required fees may result in your application or report being delayed or rejected. In these instructions and in Form ADV, "you" means the investment adviser (i.e., the advisory firm). If you are a "separately identifiable department or division" (SID) of a bank, "you" means the SID, rather than your bank, unless the instructions or the form provide otherwise. If you are a private fund adviser filing an umbrella registration, "you" means the filing adviser and each relying adviser, unless the instructions or the form provide otherwise. The information in Items 1, 2, 3 and 10 (including corresponding schedules) should be provided for the filing adviser only. Terms that appear in italics are defined in the Glossary of Terms to Form ADV. 1. Where can I get more information on Form ADV, electronic filing, and the lARD? The SEC provides information about its rules and the Advisers Act on its website: <https://www. sec.gov/iard>. NASAA provides information about state investment adviser laws and state rules, and how to contact a state securities authority, on its website: <https://www.nasaa.org>. FINRA provides information about the lARD and electronic filing on the lARD website: <https://www.iard.com>. 2. What is Form ADV used for? Investment advisers use Form ADV to: • VerDate Sep<11>2014 20:21 Jun 11, 2015 • Report to the SEC as an exempt reporting adviser Report to one or more state securities authorities as an exempt reporting adviser • Amend those reports; and • Submit a final report as an exempt reporting adviser Jkt 235001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.000</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • Register with the Securities and Exchange Commission • Register with one or more state securities authorities • Amend those registrations; 33746 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules IForm ADV: General Instructions Page2l 3. How is Form ADV organized? Form ADV contains four parts: • Part lA asks a number of questions about you, your business practices, the persons who own and control you, and the persons who provide investment advice on your behalf. o All advisers registering with the SEC or any of the state securities authorities must complete Part lA. o Exempt reporting advisers (that are not also registering with any state securities authority) must complete only the following Items ofPart lA: 1, 2, 3, 6, 7, 10, and 11, as well as corresponding schedules. Exempt reporting advisers that are registering with any state securities authority must complete all of Form ADV. Part lA also contains several supplemental schedules. The items of Part lA let you know which schedules you must complete. o o o Schedule A asks for information about your direct owners and executive officers. o Schedule B asks for information about your indirect owners. Schedule C is used by paper filers to update the information required by Schedules A and B (see Instruction 18). o ScheduleD asks for additional information for certain items in Part lA. o ScheduleR asks for additional information about relying advisers. Disclosure Reporting Pages (or DRPs) are schedules that ask for details about disciplinary events involving you or your advisory affiliates. • Part lB asks additional questions required by state securities authorities. Part lB contains three additional DRPs. If you are applying for SEC registration or are registered only with the SEC, you do not have to complete Part lB. (If you are filing electronically and you do not have to complete Part lB, you will not see Part lB.) • Part 2A requires advisers to create narrative brochures containing information about the advisory firm. The requirements in Part 2A apply to all investment advisers registered with or applying for registration with the SEC, but do not apply to exempt reporting advisers. • Part 2B requires advisers to create brochure supplements containing information about certain supervised persons. The requirements in Part 2B apply to all investment advisers registered with or applying for registration with the SEC, but do not apply to exempt reporting advisers. When am I required to update my Form ADV? • o VerDate Sep<11>2014 SEC- and State-Registered Advisers: Annual updating amendments: You must amend your Form ADV each year by filing an annual updating amendment within 90 days after the end of your fiscal 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.001</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 4. 33747 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules IForm ADV: General Instructions Page3l year. When you submit your annual updating amendment, you must update your responses to all items, including corresponding sections of Schedules A, B, C, and D and all sections of ScheduleR for each relying adviser. You must submit your summary of material changes required by Item 2 of Part 2A either in the brochure (cover page or the page immediately thereafter) or as an exhibit to your brochure. o Other-than-annual amendments: In addition to your annual updating amendment, if you are registered with the SEC or a state securities authority, you must amend your Form ADV, including corresponding sections of Schedules A, B, C, D and R, by filing additional amendments (other-than-annual amendments) promptly if: o you are adding or removing a relying adviser as part of your umbrella registration o information you provided in response to Items 1 (except 1.0), 3, 9 (except 9.A.(2), 9.B.(2), 9.E., and 9.F.), or 11 of Part 1A or Items 1, 2.A. through 2.F., or 2.I. of Part 1B or Sections 1 or 3 of ScheduleR becomes inaccurate in any way; o information you provided in response to Items 4, 8, or 10 ofPart 1A, or Item 2. G. of Part 1B, or Section 10 of ScheduleR becomes materially inaccurate; or o information you provided in your brochure becomes materially inaccurate (see note below for exceptions) Notes: Part 1: If you are submitting an other-than-annual amendment, you are not required to update your responses to Items 2, 5, 6, 7, 9.A.(2), 9.B.(2), 9.E., 9.F., or 12 ofPart 1A, Items 2.H. or 2.J. ofPart 1B, or Section 2 of Schedule R even if your responses to those items have become inaccurate. • VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 If you are an SEC-registered adviser, you are required to file your brochure amendments electronically through lARD. You are not required to file amendments to your brochure supplements with the SEC, but you must maintain a copy of them in your files. PO 00000 Frm 00031 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.002</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Part 2: You must amend your brochure supplements (see Form ADV, Part 2B) promptly if any information in them becomes materially inaccurate. If you are submitting an other-than-annual amendment to your brochure, you are not required to update your summary of material changes as required by Item 2. You are not required to update your brochure between annual amendments solely because the amount of client assets you manage has changed or because your fee schedule has changed. However, if you are updating your brochure for a separate reason in between annual amendments, and the amount of client assets you manage listed in response to Item 4.E or your fee schedule listed in response to Item 5.A has become materially inaccurate, you should update that item(s) as part of the interim amendment. 33748 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 41 !Form ADV: General Instructions • If you are a state-registered adviser, you are required to file your brochure amendments and brochure supplement amendments with the appropriate state securities authorities through lARD. • o Exempt reporting advisers: Annual Updating Amendments: You must amend your Form ADV each year by filing an annual updating amendment within 90 days after the end of your fiscal year. When you submit your annual updating amendment, you must update your responses to all required items, including corresponding sections of Schedules A, B, C and D. o Other-than-Annual Amendments: In addition to your annual updating amendment, you must amend your Form ADV by filing additional amendments (other-than-annual amendments) promptly if: o information you provided in response to Items 1, 3, or 11 becomes inaccurate in any way; or o information you provided in response to Item 10 becomes materially inaccurate. Failure to update your Form ADV, as required by this instruction, is a violation of SEC rules or similar state rules and could lead to your registration being revoked. What is SEC umbrella registration and how can I satisfy the requirements of filing an umbrella registration? 5. An umbrella registration is a single registration by a filing adviser and one or more relying advisers who advise only private funds and certain separately managed account clients that are qualified clients and collectively conduct a single advisory business. Absent other facts suggesting that the filing adviser and relying adviser(s) conduct different businesses, umbrella registration is available under the following circumstances: i. The filing adviser and each relying adviser advise only private funds and clients in separately managed accounts that are qualified clients 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. VerDate Sep<11>2014 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 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. 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.003</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 11. 33749 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 5I IForm ADV: General Instructions 111. 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). IV. 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 SEC. v. The filing adviser and each relying adviser operate under a single code of ethics adopted in accordance with SEC rule 204A-1 and a single set of written policies and procedures adopted and implemented in accordance with SEC rule 206(4)-(7) and administered by a single chief compliance officer in accordance with that rule. To satisfy the requirements of Form ADV while using umbrella registration the filing adviser must sign, 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 (e.g., disciplinary information and ownership information), 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 filing adviser and each relying adviser must not be prohibited from registering with the SEC by section 203A of the Advisers Act (i.e. the filing adviser and each relying adviser must individually qualify for SEC registration). Unless otherwise specified, references to "you" in Form ADV refer to both the filing adviser and each relying adviser. The information in Items 1, 2, 3 and 10 (including corresponding schedules) should be provided for the filing adviser only. A separate ScheduleR should be completed for each relying adviser. References to "you" in ScheduleR refer to the relying adviser only. A filing adviser applying for registration with the SEC should complete a ScheduleR for each relying adviser. If you are a filing adviser registered with the SEC and would like to add or delete relying advisers from an umbrella registration, you should file an other-than-annual amendment and add or delete ScheduleRs as needed. Note: Umbrella registration is not available to exempt reporting advisers. 6. Where do I sign my Form ADV application or amendment? You must sign the appropriate Execution Page. There are three Execution Pages at the end of the form. Your initial application, your initial report (in the case of an exempt reporting adviser), and all amendments to Form ADV must include at least one Execution Page. If you are applying for or are amending your SEC registration, or if you are reporting as an exempt reporting adviser or amending your report, you must sign and submit either a: o VerDate Sep<11>2014 Domestic Investment Adviser Execution Page, if you (the advisory firm) are a resident of the United States; or 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.004</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • 33750 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 61 IForm ADV: General Instructions o Non-Resident Investment Adviser Execution Page, if you (the advisory firm) are not a resident of the United States. • If you are applying for or are amending your registration with a state securities authority, you must sign and submit the State-Registered Investment Adviser Execution Page. 7. Who must sign my Form ADV or amendment? The individual who signs the form depends upon your form of organization: • • • For a sole proprietorship, the sole proprietor. • For a partnership, a general partner. • For a corporation, an authorized principal officer. For a "separately identifiable department or division" (SID) of a bank, a principal officer of your bank who is directly engaged in the management, direction, or supervision of your investment advisory activities. For all others, an authorized individual who participates in managing or directing your affairs. The signature does not have to be notarized, and in the case of an electronic filing, should be a typed name. 8. How do I file my Form ADV? Complete Form ADV electronically using the Investment Adviser Registration Depository (lARD) if: • You are filing with the SEC (and submitting notice filings to any of the state securities authorities), or • You are filing with a state securities authority that requires or permits advisers to submit Form ADV through the lARD. Note: SEC rules require advisers that are registered or applying for registration with the SEC, or that are reporting to the SEC as an exempt reporting adviser, to file electronically through the lARD system. See SEC rules 203-1 and 204-4. To file electronically, go to the lARD website (<www.iard.com>), which contains detailed instructions for advisers to follow when filing through the lARD. • VerDate Sep<11>2014 You are filing with the SEC or a state securities authority that requires electronic filing, but you have been granted a continuing hardship exemption. Hardship exemptions are described in Instruction 17. 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.005</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Complete Form ADV (Paper Version) on paper if: 33751 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules IForm ADV: General Instructions • Page7l You are filing with a state securities authority that permits (but does not require) electronic filing and you do not file electronically. 9. How do I get started filing electronically? First, obtain a copy of the lARD Entitlement Package from the following website: <https://www.iard.com/GetStarted.asp>. Second, request access to the lARD system for your firm by completing and submitting the lARD Entitlement Package. The lARD Entitlement Package must be submitted on paper. Mail the forms to: FINRA Entitlement Group, P.O. Box 9495, Gaithersburg, MD 20898-9495. When FINRA receives your Entitlement Package, they will assign a CRD number (identification number for your firm) and a user I.D. code and password (identification number and system password for the individual(s) who will submit Form ADV filings for your firm). Your firm may request an I.D. code and password for more than one individual. FINRA also will create a financial account for you from which the lARD will deduct filing fees and any state fees you are required to pay. If you already have a CRD account with FINRA, it will also serve as your lARD account; a separate account will not be established. Once you receive your CRD number, user I.D. code and password, and you have funded your account, you are ready to file electronically. Questions regarding the Entitlement Process should be addressed to FINRA at 240.386.4848. 10. If I am applying for registration with the SEC, or amending my SEC registration, how do I make notice filings with the state securities authorities? If you are applying for registration with the SEC or are amending your SEC registration, one or more state securities authorities may require you to provide them with copies of your SEC filings. We call these filings "notice filings." Your notice filings will be sent electronically to the states that you check on Item 2.C. of Part 1A. The state securities authorities to which you send notice filings may charge fees, which will be deducted from the account you establish with FINRA. To determine which state securities authorities require SECregistered advisers to submit notice filings and to pay fees, consult the relevant state investment adviser law or state securities authority. See General Instruction 1. If you are granted a continuing hardship exemption to file Form ADV on paper, FINRA will enter your filing into the lARD and your notice filings will be sent electronically to the state securities authorities that you check on Item 2.C. of Part 1A. I am registered with a state. When must I switch to SEC registration? If at the time of your annual updating amendment you meet at least one of the requirements for SEC registration in Item 2.A.(1) to (12) ofPart 1A, you must apply for registration with the SEC within 90 days after you file the annual updating amendment. Once you register with the VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00035 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.006</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 11. 33752 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page sl IForm ADV: General Instructions SEC, you are subject to SEC regulation, regardless of whether you remain registered with one or more states. See SEC rule 203A-1(b )(2). Each of your investment adviser representatives, however, may be subject to registration in those states in which the representative has a place ofbusiness. See Advisers Act section 203A(b)(l); SEC rule 203A-3(a). For additional information, consult the investment adviser laws or the state securities authority for the particular state in which you are "doing business." See General Instruction 1. 12. I am registered with the SEC. When must I switch to registration with a state securities authority? If you check box 13 in Item 2.A. of Part 1A to report on your annual updating amendment that you are no longer eligible to register with the SEC, you must withdraw from SEC registration within 180 days after the end of your fiscal year by filing Form ADV-W. See SEC rule 203A-1(b )(2). You should consult state law or the state securities authority for the states in which you are "doing business" to determine if you are required to register in these states. See General Instruction 1. Until you file your Form ADV-W with the SEC, you will remain subject to SEC regulation, and you also will be subject to regulation in any states where you register. See SEC rule 203A-1(b )(2). 13. I am an exempt reporting adviser. When must I submit my first report on Form ADV? • All exempt reporting advisers: You must submit your initial Form ADV filing within 60 days of relying on the exemption from registration under either section 203(1) of the Advisers Act as an adviser solely to one or more venture capital funds or section 203(m) of the Advisers Act because you act solely as an adviser to private funds and have assets under management in the United States ofless than $150 million. • I am an exempt reporting adviser. Is it possible that I might be required to also register with or submit a report to a state securities authority? Yes, you may be required to register with or submit a report to one or more state securities authorities. If you are required to register with one or more state securities authorities, you must complete all of Form ADV. See General Instruction 3. If you are required to submit a report to one or more state securities authorities, check the box(es) in Item 2.C. of Part IA next to the state(s) you would like to receive the report. Each ofyour investment adviser representatives may also be subject to registration requirements. For additional information VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00036 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.007</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 14. Additional instruction for advisers switching from being registered to being exempt reporting advisers: If you are currently registered as an investment adviser (or have an application for registration pending) with the SEC or with a state securities authority, you must file a Form ADV-W to withdraw from registration in the jurisdictions where you are switching. You must submit the Form ADV-W before submitting your first report as an exempt reporting adviser. 33753 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 91 !Form ADV: General Instructions about the requirements that may apply to you, consult the investment adviser laws or the state securities authority for the particular state in which you are "doing business." See General Instruction 1. What do I do if I no longer meet the definition of an "exempt reporting adviser"? • Advisers Switching to SEC Registration: o You may no longer be an exempt reporting adviser and may be required to register with the SEC if you wish to continue doing business as an investment adviser. For example, you may be relying on section 203(1) and wish to accept a client that is not a venture capital fund as defined in SEC rule 203(1)-1, or you may have been relying on SEC rule 203(m)-1 and reported in Section 2.B. of ScheduleD to your annual updating amendment that you have private fund assets of $150 million or more. VerDate Sep<11>2014 20:21 Jun 11, 2015 If you are relying on section 203(1), unless you qualify for another exemption, you would violate the Advisers Act's registration requirement if you accept a client that is not a venture capital fund as defined in SEC rule 203(1)-1 before the SEC approves your application for registration. You must submit your final report as an exempt reporting adviser and apply for SEC registration in the same filing. • mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • If you were relying on SEC rule 203(m)-1 and you reported in Section 2.B. of ScheduleD to your annual updating amendment that you have private fund assets of $150 million or more, you must register with the SEC unless you qualify for another exemption. If you have complied with all SEC reporting requirements applicable to an exempt reporting adviser as such, you have up to 90 days after filing your annual updating amendment to apply for SEC registration, and you may continue doing business as a private fund adviser during this time. You must submit your final report as an exempt reporting adviser and apply for SEC registration in the same filing. Unless you qualify for another exemption, you would violate the Advisers Act's registration requirement if you accept a client that is not a private fund during this transition period before the SEC approves your application for registration, and you must comply with all SEC reporting requirements applicable to an exempt reporting adviser as such during this 90-day transition period. If you have not complied with all SEC reporting requirements applicable to an exempt reporting adviser as such, this 90-day transition period is not available to you. Therefore, if the transition period is not available to you, and you do not qualify for another exemption, your application for registration must be approved by the SEC before you meet or exceed SEC rule 203(m)-1's $150 million asset threshold. Jkt 235001 PO 00000 Frm 00037 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.008</GPH> 15. 33754 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 101 IForm ADV: General Instructions o You will be deemed in compliance with the Form ADV filing and reporting requirements until the SEC approves or denies your application. If your application is approved, you will be able to continue business as a registered adviser. o If you register with the SEC, you may be subject to state notice filing requirements. To determine these requirements, consult the investment adviser laws or the state securities authority for the particular state in which you are "doing business." See General Instruction 1. Note: If you are relying on SEC rule 203(m)-1 and you accept a client that is not a private fund, you will lose the exemption provided by SEC rule 203(m)-1 immediately. To avoid this result, you should apply for SEC registration in advance so that the SEC has approved your registration before you accept a client that is not a private fund. The 90-day transition period described above also applies to investment advisers with their principal offices and places of business outside of the United States with respect to their clients who are United States persons (e.g., the adviser would not be eligible for the 90-day transition period if it accepted a client that is a United States person and is not a private fund). • Advisers Not Switching to SEC Registration: o o 16. You may no longer be an exempt reporting adviser but may not be required to register with the SEC or may be prohibited from doing so. For example, you may cease to do business as an investment adviser, become eligible for an exemption that does not require reporting, or be ineligible for SEC registration. In this case, you must submit a final report as an exempt reporting adviser to update only Item 1 ofPart 1A ofForm ADV. You may be subject to state registration requirements. To determine these requirements, consult the investment adviser laws or the state securities authority for the particular state in which you are "doing business." See General Instruction 1. Are there filing fees? If you are submitting a paper filing under a continuing hardship exemption (see Instruction 17), you are required to pay an additional fee. The amount of the additional fee depends on whether you are filing Form ADV or Form ADV-W. (There is no additional fee for filings VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00038 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.009</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Yes. These fees go to support and maintain the lARD. The lARD filing fees are in addition to any registration or other fee that may be required by state law. You must pay an lARD filing fee for your initial application, your initial report, and each annual updating amendment. There is no filing fee for an other-than-annual amendment, a final report as an exempt reporting adviser, or Form ADV-W. The lARD filing fee schedule is published at <https://www.sec.gov/iard>; <https://www.nasaa.org>; and <https://www.iard.com>. 33755 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: General Instructions Page 111 made on Form ADV-W.) The hardship filing fee schedule is available by contacting FINRA at 240.386.4848. What if I am not able to file electronically? 17. If you are required to file electronically but cannot do so, you may be eligible for one of two types of hardship exemptions from the electronic filing requirements. • A temporary hardship exemption is available if you file electronically, but you encounter unexpected difficulties that prevent you from making a timely filing with the lARD, such as a computer malfunction or electrical outage. This exemption does not permit you to file on paper; instead, it extends the deadline for an electronic filing for seven business days. See SEC rules 203-3(a) and 204-4(e). • A continuing hardship exemption may be granted if you are a small business and you can demonstrate that filing electronically would impose an undue hardship. You are a small business, and may be eligible for a continuing hardship exemption, if you are required to answer Item 12 of Part 1A (because you have assets under management of less than $25 million) and you are able to respond "no" to each question in Item 12. See SEC rule 0-7. If you have been granted a continuing hardship exemption, you must complete and submit the paper version of Form ADV to FINRA. FINRA will enter your responses into the lARD. As discussed in General Instruction 16, FINRA will charge you a fee to reimburse it for the expense of data entry. 18. I am eligible to file on paper. How do I make a paper filing? When filing on paper, you must: • • Where you submit your paper filing depends on why you are eligible to file on paper: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00039 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.010</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • Type all of your responses. Include your name (the same name you provide in response to Item l.A. of Part 1A) and the date on every page. If you are amending your Form ADV: o complete page 1 and circle the number of any item for which you are changing your response. o include your SEC 801-number (if you have one), or your 802-number (if you have one), and your CRD number (if you have one) on every page. o complete the amended item in full and circle the number of the item for which you are changing your response. o to amend Schedule A or Schedule B, complete and submit Schedule C. 33756 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 121 !Form ADV: General Instructions • If you are filing on paper because you have been granted a continuing hardship exemption, submit one manually signed Form ADV and one copy to: lARD Document Processing, FINRA, P.O. Box 9495, Gaithersburg, MD 20898-9495. If you complete Form ADV on paper and submit it to FINRA but you do not have a continuing hardship exemption, the submission will be returned to you. • 19. If you are filing on paper because a state in which you are registered or in which you are applying for registration allows you to submit paper instead of electronic filings, submit one manually signed Form ADV and one copy to the appropriate state securities authorities. Who is required to file Form ADV-NR? Every non-resident general partner and managing agent of illl_SEC-registered advisers and exempt reporting advisers, whether or not the adviser is resident in the United States, must file Form ADV-NR in connection with the adviser's initial application or report. A general partner or managing agent of an SEC-registered adviser or exempt reporting adviser who becomes a non-resident after the adviser's initial application or report has been submitted must file Form ADV-NR within 30 days. Form ADV-NR must be filed on paper (it cannot be filed electronically). Submit Form ADV-NR to the SEC at the following address: Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549; Attn: Registrations Branch. Failure to file Form ADV-NR promptly may delay SEC consideration of your initial application. Federal Information Law and Requirements VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00040 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.011</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Sections 203 and 204 of the Advisers Act [15 U.S.C. §§ 80b-3 and 80b-4] authorize the SEC to collect the information required by Form ADV. The SEC collects the information for regulatory purposes, such as deciding whether to grant registration. Filing Form ADV is mandatory for advisers who are required to register with the SEC and for exempt reporting advisers. The SEC maintains the information submitted on this form and makes it publicly available. The SEC may return forms that do not include required information. Intentional misstatements or omissions constitute federal criminal violations under 18 U.S.C. § 1001 and 15 U.S.C. § 80b-17. 33757 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 131 !Form ADV: General Instructions SEC's Collection of Information 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 control number. The Advisers Act authorizes the SEC to collect the information on Form ADV from investment advisers. See 15 U.S.C. §§ 80b-3 and 80b-4. Filing the form is mandatory. The form enables the SEC to register investment advisers and to obtain information from and about exempt reporting advisers. Every applicant for registration with the SEC as an adviser, and every exempt reporting adviser, must file the form. See 17 C.F.R. § 275.203-1 and 204-4. By accepting a form, however, the SEC does not make a finding that it has been completed or submitted correctly. The form is filed annually by every adviser, no later than 90 days after the end of its fiscal year, to amend its registration or its report. It is also filed promptly during the year to reflect material changes. See 17 C.F.R. § 275.204-1. The SEC maintains the information on the form and makes it publicly available through the lARD. Anyone may send the SEC comments on the accuracy of the burden estimate on page 1 of the form, as well as suggestions for reducing the burden. The Office of Management and Budget has reviewed this collection of information under 44 U.S.C. § 3507. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.012</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 The information contained in the form is part of a system of records subject to the Privacy Act of 1974, as amended. The SEC has published in the Federal Register the Privacy Act System of Records Notice for these records. 33758 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules APPENDIXB FORMADV (Paper Version) • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT BY EXEMPT REPORTING ADVISERS • IForm ADV: Instructions for Part lA These instructions explain how to complete certain items in Part 1A of Form ADV. 1. Item 1: Identifying Information Separately Identifiable Department or Division of a Bank. If you are a "separately identifiable department or division" (SID) of a bank, answer Item I. A. with the full legal name of your bank, and answer Item 1.B. with your own name (the name of the department or division) and all names under which you conduct your advisory business. In addition, your principal office and place of business in Item 1.F. should be the principal office at which you conduct your advisory business. In response to Item 1.1., the website addresses and social media information you list on ScheduleD should be those that provide information about your own activities, rather than general information about your bank. 2. Item 2: SEC Registration and SEC Report by Exempt Reporting Advisers If you are registered or applying for registration with the SEC, you must indicate in Item 2.A. why you are eligible to register with the SEC by checking at least one of the boxes. Item 2.A.(1): Adviser with Regulatory Assets Under Management of $100 Million or More. You may check box 1 only if your response to Item 5.F.(2)(c) is $100 million or more, or you are filing an annual updating amendment with the SEC and your response to Item 5.F.(2)(c) is $90 million or more. While you may register with the SEC if your regulatory assets under management are at least $100 million but less than $110 million, you must apply for registration with the SEC if your regulatory assets under management are $110 million or more. If you are a SEC-registered adviser, you may remain registered with the SEC if your regulatory assets under management are $90 million or more. See SEC rule 203A-1(a). Part 1A Instruction 5.b. explains how to calculate your regulatory assets under management. If you are a state-registered adviser and you report on your annual updating amendment that your regulatory assets under management increased to $100 million or more, you may register with the SEC. If your regulatory assets under management increased to $110 million or more, you must apply for registration with the SEC within 90 days after you file that annual updating amendment. See SEC rule 203A-1(b)(1) and Form ADV General Instruction 11. b. Item 2.A.(2): Mid-Sized Adviser. You may check box 2 only if your response to Item 5.F(2)(c) is $25 million or more but less than $100 million, and you satisfy one of the VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00042 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.013</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 a. 33759 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Instructions for Part lA Page2l requirements below. Part 1A Instruction 5.b. explains how to calculate your regulatory assets under management. You must register with the SEC if you meet at least one of the following requirements: • You are not required to be registered as an investment adviser with the state securities authority of the state where you maintain your principal office and place of business pursuant to that state's investment adviser laws. If you are exempt from registration with that state or are excluded from the definition of investment adviser in that state, you must register with the SEC. You should consult the investment adviser laws or the state securities authority for the particular state in which you maintain your principal office and place of business to determine if you are required to register in that state. See General Instruction 1. • You are not subject to examination by the state securities authority of the state where you maintain your principal office and place of business. To determine whether such state securities authority does not conduct such examinations, See section 203A(a)(2) of the Advisers Act. c. Item 2.A.(5): Adviser to an Investment Company. You may check box 5 only if you currently provide advisory services under an investment advisory contract to an investment company registered under the Investment Company Act of 1940 and the investment company is operational (i.e., has assets and shareholders, other than just the organizing shareholders). See sections 203A(a)(1)(B) and 203A(a)(2)(A) of the Advisers Act. Advising investors about the merits of investing in mutual funds or recommending particular mutual funds does not make you eligible to check this box. d. Item 2.A.(6): Adviser to a Business Development Company. You may check box 6 .wJ.li_ifyour response to Item 5.F.(2)(c) is $25 million or more of regulatory assets under management, and you currently provide advisory services under an investment advisory contract to a company that has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940, that has not withdrawn the election, and that is operational (i.e., has assets and shareholders, other than just the organizing shareholders). See section 203A(a)(2)(A) of the Advisers Act. Part 1A Instruction 5.b. explains how to calculate your regulatory assets under management. • VerDate Sep<11>2014 You are eligible for this exemption if you provided investment advice to employee benefit plans, governmental plans, or church plans with respect to assets having an aggregate value of $200 million or more during the 12-month period that ended within 90 days of filing this Form ADV. You are not eligible for this exemption if 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.014</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 e. Item 2.A.(7): Pension Consultant. You may check box 7 only if you are eligible for the pension consultant exemption from the prohibition on SEC registration. 33760 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Instructions for Part lA Page3l you only advise plan participants on allocating their investments within their pension plans. See SEC rule 203A-2(a). - To calculate the value of assets for purposes of this exemption, aggregate the assets of the plans for which you provided advisory services at the end of the 12-month period. If you provided advisory services to other plans during the 12-month period, but your employment or contract terminated before the end of the 12-month period, you also may include the value of those assets. f. Item 2.A.(8): Related Adviser. You may check box 8 only if you are eligible for the related adviser exemption from the prohibition on SEC registration. See SEC rule 203A2(b ). You are eligible for this exemption if you control, are controlled by, or are under common control with an investment adviser that is registered with the SEC, and you have the same principal office and place of business as that other investment adviser. Note that you may not rely on the SEC registration of an Internet adviser under rule 203A-2(e) in establishing eligibility for this exemption. See SEC rule 203A-2( e)(1 )(iii). If you check box 8, you also must complete Section 2.A.(8) of Schedule D. Item 2.A.(9): Adviser Expecting to be Eligible for Registration within 120 Days. You may check box 9 only if you are eligible for the exemption from the prohibition on SEC registration available to advisers expecting to be eligible for SEC registration within 120 days, such as a newly formed adviser. See SEC rule 203A-2(c). You are eligible for this exemption if immediately before you file your application for registration with the SEC, g. • you were not registered or required to be registered with the SEC or a state securities authority; and • you have a reasonable expectation that you would be eligible to register with the SEC within 120 days after the date that your registration with the SEC becomes effective. You must file an amendment to Part 1A of your Form ADV that updates your response to Item 2.A. within 120 days after the SEC declares your registration effective. You may not check box 9 on your amendment; since this exemption is available only if you are not registered, you may not "re-rely" on this exemption. If you indicate on that amendment (by checking box 13) that you are not eligible to register with the SEC, you also must file a Form ADV-W to withdraw your SEC registration no later than 120 days after your registration was declared effective. You should contact the appropriate state securities authority to determine how long it may take to become state-registered sufficiently in advance of when you are required to file Form ADV-W to withdraw from SEC registration. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00044 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.015</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 If you check box 9, you also must complete Section 2.A.(9) of Schedule D. 33761 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Instructions for Part lA Page4l Note: If you expect to be eligible for SEC registration because of the amount of your regulatory assets under management, that amount must be $100 million or more no later than 120 days after your registration is declared effective. h. Item 2.A.(10): Multi-State Adviser. You may check box 10 only if you are eligible for the multi-state adviser exemption from the prohibition on SEC registration. See SEC rule 203A-2(d). You are eligible for this exemption if you are required to register as an investment adviser with the state securities authorities of 15 or more states. If you check box 10, you must complete Section 2.A.(10) of Schedule D. You must complete Section 2.A.(1 0) of ScheduleD in each annual updating amendment you submit. If you check box 10, you also must: • create and maintain a list of the states in which, but for this exemption, you would be required to register; • update this list each time you submit an annual updating amendment in which you continue to represent that you are eligible for this exemption; and • maintain the list in an easily accessible place for a period of not less than five years from each date on which you indicate that you are eligible for the exemption. If, at the time you file your annual updating amendment, you are required to register in less than 15 states and you are not otherwise eligible to register with the SEC, you must check box 13 in Item 2.A. You also must file a Form ADV-W to withdraw your SEC registration. See Part 1A Instruction 2.j. 1. Item 2.A.(ll): Internet Adviser. You may check box 11 only if you are eligible for the Internet adviser exemption from the prohibition on SEC registration. See SEC rule 203A-2( e). You are eligible for this exemption if: • you provide investment advice to your clients through an interactive website. An interactive website means a website in which computer software-based models or applications provide investment advice based on personal information each client submits through the website. Other forms of online or Internet investment advice do not qualify for this exemption; • you provide investment advice to all of your clients exclusively through the interactive website, except that you may provide investment advice to fewer than 15 clients through other means during the previous 12 months; and j. Item 2.A.(13): Adviser No Longer Eligible to Remain Registered with the SEC. You must check box 13 if: • VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4725 you are registered with the SEC; E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.016</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • you maintain a record demonstrating that you provide investment advice to your clients exclusively through an interactive website in accordance with these limits. 33762 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page sl !Form ADV: Instructions for Part lA • • you are filing an annual updating amendment to Form ADV in which you indicate in response to Item 5.F.(2)(c) that you have regulatory assets under management ofless than $90 million; and you are not eligible to check any other box (other than box 13) in Item 2.A. (and are therefore no longer eligible to remain registered with the SEC). You must withdraw from SEC registration within 180 days after the end of your fiscal year by filing Form ADV-W. Until you file your Form ADV-W, you will remain subject to SEC regulation, and you also will be subject to regulation in the states in which you register. See SEC rule 203A-1(b)(2). k. Item 2.B.: Reporting by Exempt Reporting Advisers. You may check box 2.B.(1) only if you qualify for the exemption from SEC registration as an adviser solely to one or more venture capital funds. See SEC rule 203(1)-1. You may check box 2.B.(2) only if you qualify for the exemption from SEC registration because you act solely as an adviser to private funds and have assets under management in the United States of less than $150 million. See SEC rule 203(m)-1. You may check both boxes to indicate that you qualify for both exemptions. You should check box 2.B.(3) if you act solely as an adviser to private funds but you are no longer eligible to check box 2.B.(2) because you have assets under management in the United States of $150 million or more. If you check box 2.B.(2) or (3), you also must complete Section 2.B. of Schedule D. 3. Item 3: Form of Organization If you are a "separately identifiable department or division" (SID) of a bank, answer Item 3 .A by checking "other." In the space provided, specify that you are a "SID of' and indicate the form of organization of your bank. Answer Items 3.B. and 3.C. with information about your bank. 4. Item 4: Successions Succession of an SEC-Registered Adviser. If you (1) have taken over the business of an investment adviser or (2) have changed your structure or legal status (e.g., form of organization or state of incorporation), a new organization has been created, which has registration obligations under the Advisers Act. There are different ways to fulfill these obligations. You may rely on the registration provisions discussed in the General Instructions, or you may be able to rely on special registration provisions for "successors" to SEC-registered advisers, which may ease the transition to the successor adviser's registration. To determine if you may rely on these provisions, review "Registration of Successors to Broker-Dealers and Investment Advisers," Investment Advisers Act Release No. 1357 (Dec. 28, 1992). If you have taken over an adviser, follow Part 1A Instruction 4.a(1 ), Succession by Application. If you have changed your structure or legal status, follow Part 1A Instruction 4.a(2), Succession by Amendment. If either (1) you are a "separately identifiable department or division" (SID) of a bank that is currently registered as an VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00046 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.017</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 a. 33763 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 61 !Form ADV: Instructions for Part lA investment adviser, and you are taking over your bank's advisory business; or (2) you are a SID currently registered as an investment adviser, and your bank is taking over your advisory business, then follow Part 1A Instruction 4.a(1 ), Succession by Application. (1) Succession by Application. If you are not registered with the SEC as an adviser, and you are acquiring or assuming substantially all of the assets and liabilities of the advisory business of an SEC-registered adviser, file a new application for registration on Form ADV. You will receive new registration numbers. You must file the new application within 30 days after the succession. On the application, make sure you check "yes" to Item 4.A., enter the date ofthe succession in Item 4.B., and complete Section 4 of Schedule D. Until the SEC declares your new registration effective, you may rely on the registration of the adviser you are acquiring, but only if the adviser you are acquiring is no longer conducting advisory activities. Once your new registration is effective, a Form ADV-W must be filed with the SEC to withdraw the registration of the acquired adviser. (2) Succession by Amendment. If you are a new investment adviser formed solely as a result of a change in form of organization, a reorganization, or a change in the composition of a partnership, and there has been no practical change in control or management, you may amend the registration of the registered investment adviser to reflect these changes rather than file a new application. You will keep the same registration numbers, and you should not file a Form ADV-W. On the amendment, make sure you check "yes" to Item 4.A., enter the date of the succession in Item 4.B., and complete Section 4 of Schedule D. You must submit the amendment within 30 days after the change or reorganization. b. Succession of a State-Registered Adviser. If you (1) have taken over the business of an investment adviser or (2) have changed your structure or legal status (e.g., form of organization or state of incorporation), a new organization has been created, which has registration obligations under state investment adviser laws. There may be different ways to fulfill these obligations. You should contact each state in which you are registered to determine that state's requirements for successor registration. See Form ADV General Instruction 1. 5. Item 5: Information About Your Advisory Business • VerDate Sep<11>2014 • base your response to Item 5.E. on the types of compensation you expect to accept; base your response to Item 5.G. and Item 5.J. on the types of advisory services you expect to provide during the next year; and 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.018</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 a. Newly-Formed Advisers: Several questions in Item 5 that ask about your advisory business assume that you have been operating your advisory business for some time. Your response to these questions should reflect your current advisory business (i.e., at the time you file your Form ADV), with the following exceptions: 33764 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 71 !Form ADV: Instructions for Part lA • skip Item 5.H. b. Item 5.F: Calculating Your Regulatory Assets Under Management. In determining the amount of your regulatory assets under management, include the securities portfolios for which you provide continuous and regular supervisory or management services as of the date of filing this Form ADV. (1) Securities Portfolios. An account is a securities portfolio if at least 50% of the total value of the account consists of securities. For purposes of this 50% test, you may treat cash and cash equivalents (i.e., bank deposits, certificates of deposit, bankers acceptances, and similar bank instruments) as securities. You must include securities portfolios that are: (a) your family or proprietary accounts; (b) accounts for which you receive no compensation for your services; and (c) accounts of clients who are not United States persons. For purposes of this definition, treat all of the assets of a private fund as a securities portfolio, regardless of the nature of such assets. For accounts of private funds, moreover, include in the securities portfolio any uncalled commitment pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the private fund. (2) Value of Portfolio. Include the entire value of each securities portfolio for which you provide continuous and regular supervisory or management services. If you provide continuous and regular supervisory or management services for only a portion of a securities portfolio, include as regulatory assets under management only that portion of the securities portfolio for which you provide such services. Exclude, for example, the portion of an account: (a) under management by another person; or (b) that consists of real estate or businesses whose operations you "manage" on behalf of a client but not as an investment. Do not deduct any outstanding indebtedness or other accrued but unpaid liabilities. General Criteria. You provide continuous and regular supervisory or management services with respect to an account if: (a) you have discretionary authority over and provide ongoing supervisory or management services with respect to the account; or VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00048 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.019</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (3) Continuous and Regular Supervisory or Management Services. 33765 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page sl !Form ADV: Instructions for Part lA (b) you do not have discretionary authority over the account, but you have ongoing responsibility to select or make recommendations, based 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, you are responsible for arranging or effecting the purchase or sale. Factors. You should consider the following factors in evaluating whether you provide continuous and regular supervisory or management services to an account. (a) Terms of the advisory contract. If you agree in an advisory contract to provide ongoing management services, this suggests that you provide these services for the account. Other provisions in the contract, or your actual management practices, however, may suggest otherwise. (b) Form of compensation. If you are compensated based on the average value of the client's assets you manage over a specified period of time, that suggests that you provide continuous and regular supervisory or management services for the account. If you receive compensation in a manner similar to either of the following, that suggests you do not provide continuous and regular supervisory or management services for the account -(i) you are compensated based upon the time spent with a client during a client visit; or (ii) you are paid a retainer based on a percentage of assets covered by a financial plan. (c) Management practices. The extent to which you actively manage assets or provide advice bears on whether the services you provide are continuous and regular supervisory or management services. The fact that you make infrequent trades (e.g., based on a "buy and hold" strategy) does not mean your services are not "continuous and regular." Examples. You may provide continuous and regular supervisory or management services for an account if you: (a) have discretionary authority to allocate client assets among various mutual funds; (b) do not have discretionary authority, but provide the same allocation services, and satisfy the criteria set forth in Instruction 5.b.(3); (d) you are a broker-dealer and treat the account as a brokerage account, but only if you have discretionary authority over the account. You do not provide continuous and regular supervisory or management services for an account if you: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.020</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (c) allocate assets among other managers (a "manager of managers"), but only if you have discretionary authority to hire and fire managers and reallocate assets among them; or 33766 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 91 !Form ADV: Instructions for Part lA (a) provide market timing recommendations (i.e., to buy or sell), but have no ongoing management responsibilities; (b) provide only impersonal investment advice (e.g., market newsletters); (c) make an initial asset allocation, without continuous and regular monitoring and reallocation; or (d) provide advice on an intermittent or periodic basis (such as upon client request, in response to a market event, or on a specific date (e.g., the account is reviewed and adjusted quarterly)). (4) Value of Regulatory Assets Under Management Determine your regulatory assets under management based on the current market value of the assets as determined within 90 days prior to the date of filing this Form ADV. Determine market value using the same method you used to report account values to clients or to calculate fees for investment advisory services. In the case of a private fund, determine the current market value (or fair value) of the private fund's assets and the contractual amount of any uncalled commitment pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the private fund. (5) Example. This is an example of the method of determining whether an account of a client other than a private fund may be included as regulatory assets under management. The client's portfolio consists of the following: $ 6,000,000 stocks and bonds $ 1,000,000 cash and cash equivalents $ 3,000,000 non-securities (collectibles, commodities, real estate, etc.) $10,000,000 Total Assets First, is the account a securities portfolio? The account is a securities portfolio because securities as well as cash and cash equivalents (which you have chosen to include as securities) ($6,000,000 + $1,000,000 = $7,000,000) comprise at least 50% of the value of the account (here, 70%). (See Instruction 5.b(1)). Third, what is the entire value of the account? The entire value of the account ($10,000,000) is included in the calculation of the adviser's total regulatory assets under management. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00050 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.021</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Second, does the account receive continuous and regular supervisory or management services? The entire account is managed on a discretionary basis and is provided ongoing supervisory and management services, and therefore receives continuous and regular supervisory or management services. (See Instruction 5.b.(3)). 33767 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Instructions for Part 1A Page 101 6. Item 7: Financial Industry Affiliations and Private Fund Reporting Item 7.A. and Section 7.A. of ScheduleD ask questions about you and your related persons' financial industry affiliation. If you are filing an umbrella registration, you should not check Item 7.A.(2) with respect to your relying advisers, and you do not have to complete Section 7.A. in ScheduleD for your relying advisers. You should complete ScheduleR with respect to your relying advisers. Item 7.B. and Section 7.B. of ScheduleD ask questions about the private funds that you advise. You are required to complete a Section 7 .B.(1) of ScheduleD for each private fund that you advise, except in certain circumstances described under Item 7.B. and below. a. If your principal office and place of business is outside the United States, for purposes of Item 7 and Section 7.B. of ScheduleD you may disregard any private fund that, during your last fiscal year, was not a United States person, was not offered in the United States, and was not beneficially owned by any United States person. b. When filing Section 7.B.(1) of ScheduleD for a private fund, you must acquire an identification number for the fund by logging onto the lARD website and using the private fund identification number generator. You must continue to use the same identification number whenever you amend Section 7.B.(1) for that fund. If you file a Section 7.B.(1) for a private fund for which an identification number has already been acquired by another adviser, you must not acquire a new identification number, but must instead utilize the existing number. If you choose to complete a single Section 7.B.(1) for a master-feeder arrangement under instruction 6.d. below, you must acquire an identification number also for each feeder fund. c. If any private fund has issued two or more series (or classes) of equity interests whose values are determined with respect to separate portfolios of securities and other assets, then each such series (or class) should be regarded as a separate private fund. In Section 7.B.(1) and 7.B.(2) of ScheduleD, next to the name of the private fund, list the name and identification number of the specific series (or class) for which you are filing the sections. This only applies with respect to series (or classes) that you manage as if they were separate funds and not a fund's side pockets or similar arrangements. (1) Question 11: State the gross assets for the master-feeder arrangement as a whole. (2) Question 12: List the lowest minimum investment commitment applicable to any of the master fund and the feeder funds. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00051 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.022</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 d. In the case of a master-feeder arrangement (see questions 6-7 of Section 7.B.(1) of Schedule D), instead of completing a Section 7.B.(1) for each of the master fund and each feeder fund, you may complete a single Section 7.B.(1) for the master-feeder arrangement under the name of the master fund if the answers to questions 8, 10, 21 and 23 through 28 are the same for all of the feeder funds (or, in the case of questions 24 and 25, if the feeder funds do not use a prime broker or custodian). If you choose to complete a single Section 7.B.(1), you should disregard the feeder funds, except for the following: 33768 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 111 !Form ADV: Instructions for Part 1A (3) Questions 13-16: Answer by aggregating all investors in the master-feeder arrangement (but do not count the feeder funds themselves as investors). (4) Questions 19-20: For purposes of these questions, the private fund means any of the master fund or the feeder funds. In answering the questions, moreover, disregard the feeder funds' investment in the master fund. (5) Question 22: List all of the Form D SEC file numbers of any of the master fund and feeder funds. e. Additional Instructions: (1) Question 9: Investment in Registered Investment Companies: For purposes of this question, disregard any open-end management investment company regulated as a money market fund under rule 2a-7 under the Investment Company Act if the private fund invests in such a company in reliance on rule 12dl-l under the same Act. (2) Question 10: Type of Private Fund: For purposes of this question, the following definitions apply: "Hedge fund" means any private fund (other than a securitized asset fund): (a) with respect to which one or more investment advisers (or related persons of investment advisers) may be paid a performance fee or allocation calculated by taking into account unrealized gains (other than a fee or allocation the calculation of which may take into account unrealized gains solely for the purpose of reducing such fee or allocation to reflect net unrealized losses); (b) that may borrow an amount in excess of one-half of its net asset value (including any committed capital) or may have gross notional exposure in excess of twice its net asset value (including any committed capital); or (c) that may sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration). A commodity pool is categorized as a hedge fund solely for purposes of this question. For purposes of this definition, do not net long and short positions. Include any borrowings or notional exposure of another person that are guaranteed by the private fund or that the private fund may otherwise be obligated to satisfy. "Private equity fund" means any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund, or venture capital fund and does not provide investors with redemption rights in the ordinary course. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.023</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 "Liquidity fund" means any private fund that seeks to generate income by investing in a portfolio of short-term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors. 33769 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 121 !Form ADV: Instructions for Part 1A "Real estate fund" means any private fund that is not a hedge fund, that does not provide investors with redemption rights in the ordinary course, and that invests primarily in real estate and real estate related assets. "Securitized asset fund" means any private fund whose primary purpose is to issue asset backed securities and whose investors are primarily debt-holders. "Venture capital fund" means any private fund meeting the definition of venture capital fund in rule 203(1)-1 under the Advisers Act. "Other private fund' means any private fund that is not a hedge fund, liquidity fund, private equity fund, real estate fund, securitized asset fund, or venture capital fund. (3) Question 11: Gross Assets. Report the assets oftheprivatefundthat you would include in calculating your regulatory assets under management according to instruction 5.b above. (4) Questions 19-20: Other clients' investments: For purposes of these questions, disregard any feeder fund's investment in its master fund. (See questions 6-7 for the definition of "master fund" and "feeder fund.") 7. Item 10: Control Persons If you are a "separately identifiable department or division" (SID) of a bank, identify on Schedule A your bank's executive officers who are directly engaged in managing, directing, or supervising your investment advisory activities, and list any other persons designated by your bank's board of directors as responsible for the day-to-day conduct of your investment advisory activities, including supervising employees performing investment advisory activities. 8. Additional Information. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00053 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.024</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 If you believe your response to an item in Form ADV Part IA requires further explanation, or if you wish to provide additional information, you may do so on Schedule D, in the Miscellaneous section. Completion of this section is optional. 33770 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules APPENDIXC GLOSSARY OF TERMS 1. Advisory Affiliate: Your advisory affiliates are ( 1) all of your officers, partners, or directors (or any person performing similar functions); (2) all persons directly or indirectly controlling or controlled by you; and (3) all of your current employees (other than employees performing only clerical, administrative, support or similar functions). If you are a "separately identifiable department or division" (SID) of a bank, your advisory affiliates are: (1) all of your bank's employees who perform your investment advisory activities (other than clerical or administrative employees); (2) all persons designated by your bank's board of directors as responsible for the day-to-day conduct of your investment advisory activities (including supervising the employees who perform investment advisory activities); (3) all persons who directly or indirectly control your bank, and all persons whom you control in connection with your investment advisory activities; and (4) all other persons who directly manage any of your investment advisory activities (including directing, supervising or performing your advisory activities), all persons who directly or indirectly control those management functions, and all persons whom you control in connection with those management functions. [Used in: Part IA, Items 7, II, DRPs; Part IE, Item 2} 2. Annual Updating Amendment: Within 90 days after your firm's fiscal year end, your firm must file an "annual updating amendment," which is an amendment to your firm's Form ADV that reaffirms the eligibility information contained in Item 2 of Part 1A and updates the responses to any other item for which the information is no longer accurate. [Used in: General Instructions; Part IA Instructions, Introductory Text, Item 2; Part 2A, Instructions, Appendix I Instructions; Part 2B, Instructions} 3. Borrowings: Borrowings include secured borrowings and unsecured borrowings, collectively. Secured borrowings are obligations for borrowed money in respect of which the borrower has posted collateral or other credit support and should include any reverse repos (i.e. any sale of securities coupled with an agreement to repurchase the same (or similar) securities at a later date at an agreed price). Unsecured borrowings are obligations for borrowed money in respect of which the borrower has not posted collateral or other credit support. [Used in: Part IA, Instructions, Item 5, ScheduleD} 5. Brochure Supplement: A written disclosure statement containing information about certain of your supervised persons that your firm is required by Part 2B ofF orm ADV to provide to clients and prospective clients. See SEC rule 204-3; Form ADV, Part 2B. [Used in: General Instructions; Used throughout Part 2} 6. Charged: Being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge). [Used in: Part IA, Item 11; DRPs} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00054 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.025</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 4. Brochure: A written disclosure statement that you must provide to clients and prospective clients. See SEC rule 204-3; Form ADV, Part 2A. [Used in: General Instructions; Used throughout Part 2} 33771 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Glossary Page2l 7. Client: Any of your firm's investment advisory clients. This term includes clients from which your firm receives no compensation, such as family members of your supervised persons. If your firm also provides other services (e.g., accounting services), this term does not include clients that are not investment advisory clients. [Used throughout Form ADV and Form ADVW] 8. Commodity Derivative: Exposures to commodities that you do not hold physically, whether held synthetically or through derivatives (whether cash or physically settled). [Used in: Part IA, Schedule D) 9. Control: The power, directly or indirectly, to direct the management or policies of a person, whether through ownership of securities, by contract, or otherwise. • Each of your firm's officers, partners, or directors exercising executive responsibility (or persons having similar status or functions) is presumed to control your firm. • • A person is presumed to control a partnership if the person has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital of the partnership. • • A person is presumed to control a corporation if the person: (i) directly or indirectly has the right to vote 25 percent or more of a class of the corporation's voting securities; or (ii) has the power to sell or direct the sale of 25 percent or more of a class of the corporation's voting securities. A person is presumed to control a limited liability company ("LLC") if the person: (i) directly or indirectly has the right to vote 25 percent or more of a class of the interests of the LLC; (ii) has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital of the LLC; or (iii) is an elected manager of the LLC. A person is presumed to control a trust if the person is a trustee or managing agent of the trust. [Used in: General Instructions; Part IA, Instructions, Items 2, 7, I 0, II, I2, Schedules A, B, C, D, R; DRPs} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00055 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.026</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 10. Credit Derivative: Single name credit default swap, including loan credit default swap, credit default swap referencing a standardized basket of credit entities, including credit default swap indices and indices referencing leverage loans, and credit default swap referencing bespoke basket or tranche of collateralized debt obligations and collateralized loan obligations (including cash flow and synthetic) other than mortgage backed securities. [Used in: Part IA, Schedule D) 33772 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Glossary Page3l 11. Custody: Holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them. You have custody if a related person holds, directly or indirectly, client funds or securities, or has any authority to obtain possession of them, in connection with advisory services you provide to clients. Custody includes: • Possession of client funds or securities (but not of checks drawn by clients and made payable to third parties) unless you receive them inadvertently and you return them to the sender promptly, but in any case within three business days of receiving them; • Any arrangement (including a general power of attorney) under which you are authorized or permitted to withdraw client funds or securities maintained with a custodian upon your instruction to the custodian; and • Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives you or your supervised person legal ownership of or access to client funds or securities. [Used in: Part IA, Item 9; Part IE, Instructions, Item 2; Part 2A, Items I5, I8} 12. Discretionary Authority or Discretionary Basis: Your firm has discretionary authority or manages assets on a discretionary basis if it has the authority to decide which securities to purchase and sell for the client. Your firm also has discretionary authority if it has the authority to decide which investment advisers to retain on behalf of the client. [Used in: Part IA, Instructions, Item 8; Part IE, Instructions; Part 2A, Items 4, I6, I8; Part 2E, Instructions} 13. Employee: This term includes an independent contractor who performs advisory functions on your behalf [Used in: Part IA, Instructions, Items I, 5, 11; Part 2E, Instructions} 15. Equity Derivative: Includes both listed equity derivative and derivative exposure to unlisted securities. Listed equity derivative includes all synthetic or derivative exposure to equities, including preferred equities, listed on a regular exchange. Listed equity derivative also includes a single stock future, equity index future, dividend swap, total return swap (contract for difference), warrant and right. Derivative exposure to unlisted equities includes all synthetic or derivative exposure to equities, including preferred equities, that are not listed on a regulated exchange. Derivative exposure to unlisted securities also VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00056 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.027</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 14. Enjoined: This term includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or a temporary restraining order. [Used in: Part IA, Item 11; DRPs} 33773 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 41 !Form ADV: Glossary includes a single stock future, equity index future, dividend swap, total return swap (contract for difference), warrant and right. [Used in: Part IA, Schedule D) 16. Exempt Reporting Adviser: An investment adviser that qualifies for the exemption from registration under section 203(1) of the Advisers Act because it is an adviser solely to one or more venture capital funds, or under rule 203(m)-1 of 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. [Used in: Throughout Part IA; General Instructions; Form ADV-H; Form ADV-NR} 17. Felony: For jurisdictions that do not differentiate between a felony and a misdemeanor, a felony is an offense punishable by a sentence of at least one year imprisonment and/or a fine of at 1east $1,000. The term also includes a general court martial. [Used in: Part I A, Item 11; DRPs; Part 2A, Item 9; Part 2B, Item 3} 18. Filing Adviser: 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. [Used in: General Instructions; Part IA, Items I, 2, 3, IO and II; ScheduleR} 19. FINRA CRD or CRD: The Web Central Registration Depository ("CRD") system operated by FINRA for the registration of broker-dealers and broker-dealer representatives. [Used in: General Instructions, Part IA, Item I, Schedules A, B, C, D, R, DRPs; Form ADV-W, Item I] 20. Foreign Exchange Derivative: Any derivative whose underlying asset is a currency other than U.S. dollars or is an exchange rate. Cross-currency interest rate swaps should be included in foreign exchange derivatives and excluded from interest rate derivatives. [Used in: Part IA, Schedule D) 22. Found: This term includes adverse final actions, including consent decrees in which the respondent has neither admitted nor denied the findings, but does not include agreements, deficiency letters, examination reports, memoranda of understanding, letters of caution, admonishments, and similar informal resolutions of matters. [Used in: Part IA, Item 11; Part IE, Item 2; Part 2A, Item 9; Part 2B, Item 3} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00057 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.028</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 21. Foreign Financial Regulatory Authority: This term includes (1) a foreign securities authority; (2) another governmental body or foreign equivalent of a self-regulatory organization empowered by a foreign government to administer or enforce its laws relating to the regulation of investment-related activities; and (3) a foreign membership organization, a function of which is to regulate the participation of its members in the activities listed above. [Used in: Part IA, Items I, II; DRPs; Part 2A, Item 9; Part 2B, Item 3} 33774 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Glossary Page sl 23. Government Entity: Any state or political subdivision of a state, including (i) any agency, authority, or instrumentality of the state or political subdivision; (ii) a plan or pool of assets controlled by the state or political subdivision or any agency, authority, or instrumentality thereof; and (iii) any officer, agent, or employee of the state or political subdivision or any agency, authority, or instrumentality thereof, acting in their official capacity. [Used in: Part IA, Item 5} 24. Gross Notional Value: 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. [Used in: Part IA, Schedule D) 25. High Net Worth Individual: An individual who is a qualified client or who is a "qualified purchaser" as defined in section 2(a)(51)(A) ofthe Investment Company Act of 1940. [Used in: Part IA, Item 5; Schedule D) 26. Home State: If your firm is registered with a state securities authority, your firm's "home state" is the state where it maintains its principal office and place of business. [Used in: Part IE, Instructions} 27. Impersonal Investment Advice: Investment advisory services that do not purport to meet the objectives or needs of specific individuals or accounts. [Used in: Part IA, Instructions; Part 2A, Instructions; Part 2B, Instructions} 28. Independent Public Accountant: A public accountant that meets the standards of independence described in rule 2-01(b) and (c) ofRegulation S-X (17 CFR 210.2-01(b) and (c)). [Used in: Item 9; Schedule D) 29. Interest Rate Derivative: Any derivative whose underlying asset is the obligation to pay or the right to receive a given amount of money accruing interest at a given rate. Crosscurrency interest rate swaps should be included in foreign exchange derivatives and excluded from interest rate derivatives. [Used in: Part IA, Schedule D) 30. Investment Adviser Representative: Any ofyour firm's supervised persons (except those that provide only impersonal investment advice) is an investment adviser representative, if the supervised person has more than five clients who are natural persons and not high net worth individuals, and 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00058 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.029</GPH> VerDate Sep<11>2014 the supervised person regularly solicits, meets with, or otherwise communicates with your firm's clients, • mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • 33775 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 61 !Form ADV: Glossary • more than ten percent of the supervised person's clients are natural persons and not high net worth individuals. NOTE: If your firm is registered with the state securities authorities and not the SEC, your firm may be subject to a different state definition of"investment adviser representative." Investment adviser representatives of SEC-registered advisers may be required to register in each state in which they have a place of business. [Used in: General Instructions; Part IA, Item 5; Part 2B, Item I} 31. Investment Grade: A security is investment grade if it is sufficiently liquid that it can be sold at or near its carrying value within a reasonably short period of time and is subject to no greater than moderate credit risk. [Used in: Part IA, Schedule D) 32. Investment-Related: Activities that pertain to securities, commodities, banking, insurance, or real estate (including, but not limited to, acting as or being associated with an investment adviser, broker-dealer, municipal securities dealer, government securities broker or dealer, issuer, investment company, futures sponsor, bank, or savings association). [Used in: Part IA, Items 7, II, ScheduleD, DRPs; Part IE, Item 2; Part 2A, Items 9 and I9; Part 2B, Items 3, 4 and 7} 33. Involved: Engaging in any act or omission, aiding, abetting, counseling, commanding, inducing, conspiring with or failing reasonably to supervise another in doing an act. [Used in: Part IA, Item II; Part 2A, Items 9 and I9; Part 2B, Items 3 and 7} 34. Legal Entity Identifier: A "legal entity identifier" assigned or recognized by the Global LEI Regulatory Oversight Committee (ROC) or the Global LEI Foundation (GLEIF). [Used in: Part IA, Item I, Schedules D, R} 35. Management Persons: Anyone with the power to exercise, directly or indirectly, a controlling influence over your firm's management or policies, or to determine the general investment advice given to the clients of your firm. Generally, all of the following are management persons: • Your firm's principal executive officers, such as your chief executive officer, chief financial officer, chief operations officer, chief legal officer, and chief compliance officer; your directors, general partners, or trustees; and other individuals with similar status or performing similar functions; VerDate Sep<11>2014 The members of your firm's investment committee or group that determines general investment advice to be given to clients; and 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00059 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.030</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 • 33776 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 71 !Form ADV: Glossary • If your firm does not have an investment committee or group, the individuals who determine general investment advice provided to clients (if there are more than five people, you may limit your firm's response to their supervisors). [Used in: Part IE, Item 2; Part 2A, Items 9, IO and I9} 36. Managing Agent: A managing agent of an investment adviser is any person, including a trustee, who directs or manages (or who participates in directing or managing) the affairs of any unincorporated organization or association that is not a partnership. [Used in: General Instructions; Form ADV-NR; Form ADV-W, Item 8} 37. Minor Rule Violation: A violation of a self-regulatory organization rule that has been designated as "minor" pursuant to a plan approved by the SEC. A rule violation may be designated as "minor" under a plan if the sanction imposed consists of a fine of $2,500 or less, and if the sanctioned person does not contest the fine. (Check with the appropriate self-regulatory organization to determine if a particular rule violation has been designated as "minor" for these purposes.) [Used in: Part IA, Item II} 38. Misdemeanor: For jurisdictions that do not differentiate between a felony and a misdemeanor, a misdemeanor is an offense punishable by a sentence ofless than one year imprisonment and/or a fine ofless than $1,000. The term also includes a special court martial. [Used in: Part IA, Item 11; DRPs; Part 2A, Item 9; Part 2B, Item 3} 39. Net Asset Value: With respect to any client, the gross assets of the client's accounts minus any outstanding indebtedness or other accrued but unpaid liabilities. [Used in: Part IA, Item 5} 40. Non-Investment Grade: A security is non-investment grade if it is not an investment grade security. [Used in: Part IA, Schedule D) 41. Non-Resident: (a) an individual who resides in any place not subject to the jurisdiction of the United States; (b) a corporation incorporated in or that has its principal office and place of business in any place not subject to the jurisdiction of the United States; and (c) a partnership or other unincorporated organization or association that is formed in or has its principal office and place of business in any place not subject to the jurisdiction of the United States. [Used in: General Instructions; Form ADV-NR} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00060 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.031</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 42. Notice Filing: SEC-registered advisers may have to provide state securities authorities with copies of documents that are filed with the SEC. These filings are referred to as "notice filings." [Used in: General Instructions; Part IA, Item 2; Execution Page(s); Form ADV-W] 33777 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Glossary Page sl 43. Order: A written directive issued pursuant to statutory authority and procedures, including an order of denial, exemption, suspension, or revocation. Unless included in an order, this term does not include special stipulations, undertakings, or agreements relating to payments, limitations on activity or other restrictions. [Used in: Part IA, Items 2 and II; Schedules D, R; DRPs; Part 2A, Item 9; Part 2B, Item 3} 44. Other derivative: Any derivative that is not a commodity derivative, credit derivative, equity derivative, foreign exchange derivative or interest rate derivative. [Used in: Part IA, Schedule D) 45. Parallel Managed Account: With respect to any registered investment company 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 business development company that you advise. [Used in: Part IA, Schedule D) 46. Performance-Based Fee: An investment advisory fee based on a share of capital gains on, or capital appreciation of, client assets. A fee that is based upon a percentage of assets that you manage is not a performance-based fee. [Used in: Part IA, Item 5; Part 2A, Items 6and I9} 47. Person: A natural person (an individual) or a company. A company includes any partnership, corporation, trust, limited liability company ("LLC"), limited liability partnership ("LLP"), sole proprietorship, or other organization. [Used throughout Form ADV and Form ADV-W] 48. Principal Office and Place of Business: Your firm's executive office from which your firm's officers, partners, or managers direct, control, and coordinate the activities of your firm. [Used in: Part IA, Instructions, Items I and 2; Schedules D, R; Form ADV-W, Item I] 50. Proceeding: This term includes a formal administrative or civil action initiated by a governmental agency, self-regulatory organization or foreign financial regulatory authority; a felony criminal indictment or information (or equivalent formal charge); or a misdemeanor criminal information (or equivalent formal charge). This term does not include other civil litigation, investigations, or arrests or similar charges effected in the absence of a formal criminal indictment or information (or equivalent formal charge). [Used in: Part IA, Item II; DRPs; Part IE, Item 2; Part 2A, Item 9; Part 2B, Item 3} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00061 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.032</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 49. Private Fund: An issuer that would be an investment company as defined in section 3 of the Investment Company Act of 1940 but for section 3(c)(l) or 3(c)(7) of that Act. [Used in: Part IA, Items 2, 5, 7, and 9; ScheduleD; General Instructions; Part IA, Instructions]. 33778 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Page 91 !Form ADV: Glossary 51. Qualified Client: A client that satisfies the definition of qualified client in SEC rule 205-3. [Used in: ScheduleD; General Instructions} 52. Related Person: Any advisory affiliate and any person that is under common control with your firm. [Used in: Part IA, Items 7, 8, 9; ScheduleD; Form ADV-W, Item 3; Part 2A, Items IO, 11, 12, I4; Part 2A, Appendix I, Item 6} 53. Relying Adviser: 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 [Used in: General Instructions; Part IA, Items I, 7, II; ScheduleD; ScheduleR} 54. Self-Regulatory Organization or SRO: Any national securities or commodities exchange, registered securities association, or registered clearing agency. For example, the Chicago Board of Trade ("CBOT"), FINRA and New York Stock Exchange ("NYSE") are self-regulatory organizations. [Used in: Part IA, Item II; DRPs; Part IE, Item 2; Part 2A, Items 9 and I9; Part 2B, Items 3 and 7} 55. Sovereign Bonds: Any notes, bonds and debentures issued by a national government (including central government, other governments and central banks but excluding U.S. state and local governments), whether denominated in a local or foreign currency. [Used in: Part IA, Schedule D) 56. Sponsor: A sponsor of a wrap fee program sponsors, organizes, or administers the program or selects, or provides advice to clients regarding the selection of, other investment advisers in the program. [Used in: Part IA, Item 5; ScheduleD; Part 2A, Instructions, Appendix I Instructions} 57. State Securities Authority: The securities commissioner or commission (or any agency, office or officer performing like functions) of any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States. [Used throughout Farm AD V] 58. Supervised Person: Any of your officers, partners, directors (or other persons occupying a similar status or performing similar functions), or employees, or any other person who provides investment advice on your behalf and is subject to your supervision or control. [Used throughout Part 2} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00062 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.033</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 59. Umbrella Registration: A single registration by afiling 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. [Used in: General Instructions; Part IA, Items I, 2, 3, 7, IO and II; ScheduleD; ScheduleR} 33779 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules !Form ADV: Glossary Page 101 60. United States person: This term 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. [Used in: Part IA, Instructions; Item 5; Schedule D) 61. Wrap Brochure or Wrap Fee Program Brochure: The written disclosure statement that sponsors of wrap fee programs must provide to each of their wrap fee program clients. [Used in: Part 2, General Instructions; Used throughout Part 2A, Appendix I} VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00063 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.034</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 62. Wrap Fee Program: Any 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. [Used in: Part I, Item 5; ScheduleD; Part 2A, Instructions, Item 4, used throughout Appendix I; Part 2B, Instructions} 33780 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules APPENDIXD FORM ADV (Paper Version) • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT BY EXEMPT REPORTING ADVISERS • IPART lA WARNING: Complete this form truthfully. False statements or omissions may result in denial of your application, revocation of your registration, or criminal prosecution. You must keep this form updated by filing periodic amendments. See Form ADV General Instruction 4. Check the box that indicates what you would like to do (check all that apply): SEC or State Registration: Submit an initial application to register as an investment adviser with the SEC. Submit an initial application to register as an investment adviser with one or more states. Submit an annual updating amendment to your registration for your fiscal year ended._ _ _ __ Submit an other-than-annual amendment to your registration. D D D D SEC or State Report by Exempt Reporting Advisers: D Submit an initial report to the SEC. D Submit a report to one or more state securities authorities. D Submit an annual updating amendment to your report for your fiscal year ended_ _ _ __ D D Submit an other-than-annual amendment to your report. Submit a final report. Item 1 Identifying Information Responses to this Item tell us who you are, where you are doing business, and how we can contact you. If you are filing an umbrella registration, the information in Item 1 should be provided for the filing adviser only. General Instruction 5 provides information to assist you with filing an umbrella registration. A B. Your full legal name (if you are a sole proprietor, your last, first, and middle names): (l) Name under which you primarily conduct your advisory business, if different from Item l.A. List on Section l.B. ofScheduleD any additional names under which you conduct your advisory business. (2) If you are using this Form ADV to register more than one investment adviser under an umbrella registration, check this box D. Ifyou check this box, complete a Schedule Rfor each relying adviser. If this filing is reporting a change in your legal name (Item l.A.) or primary business name (Item l.B.), enter the new name and specify whether the name change is of D your legal name orO your primary business name: D. VerDate Sep<11>2014 20:21 Jun 11, 2015 (l) If you are registered with the SEC as an investment adviser, your SEC file number: 801- Jkt 235001 PO 00000 Frm 00064 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.035</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 C. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33781 (2) If you report to the SEC as an exempt reporting adviser, your SEC file number: 802-_ _ _ _ __ (3) If you have Central Index Key numbers assigned by the SEC ("CIK Number"), all of your CIK numbers: E. If you have one or more numbers ("CRD Numbers") assigned by the FINRA 's CRD system or by the lARD system, all of your CRD numbers: Ifyour firm does not have a CRD number, skip this Item I.E. Do not provide the CRD number ofone of your officers, employees, or affiliates. F. Principal Office and Place ofBusiness (1) Address (do not use a P.O. Box): (number and street) (city) (state/country) If this address is a private residence, check this box: (zip+4/postal code) D List on Section l.F. ofScheduleD any office, other than your principal office and place ofbusiness, at which you conduct investment advisory business. Ifyou are applying for registration, or are registered, with one or more state securities authorities, you must list all ofyour offices in the state or states to which you are applying for registration or with whom you are registered. Ifyou are applying for SEC registration, ifyou are registered only with the SEC, or ifyou are reporting to the SEC as an exempt reporting adviser, list the largest twenty-five offices in terms ofnumbers ofemployees as ofthe end ofyour most recently completed fiscal year. (2) Days of week that you normally conduct business at your principal office and place ofbusiness: D Monday- Friday D Other: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Normal business hours at this location: (3) Telephone number at this location: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ (area code) (telephone number) (4) Facsimile number at this location, if any: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ (area code) (facsimile number) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00065 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.036</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (5) What is the total number of offices, other than your principal office and place ofbusiness, at which you conduct investment advisory business as of the end of your most recently completed fiscal year? 33782 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ __ Dare.___________ Part lA Page 3 of21 CRD Number__________ SEC 801- or 802 Number_ _ _ _ _ _ _ __ G. Mailing address, if different from your principal office and place ofbusiness address: (number and street) (city) (state/countly) (zip+4/postal code) D If this address is a private residence, check this box: H. If you are a sole proprietor, state your full residence address, if different from your principal office and place ofbusiness address in Item l.F.: (number and street) (city) I. (state/countly) (zip+4/postal code) Do you have one or more web sites or web sites for social media platfonus used by your firm (including, but not limited to, Twitter, Facebook and Linkedln)? Yes D NoD If "yes, "list all firm website addresses on Section I .I. ofSchedule D. If a website address serves as a portal through which to access other information you have published on the web, you may list the portal without listing addresses for all ofthe other information. Some advisers may need to list more than one portal address. Do not provide individual electronic mail (e-mail) addresses or social media websites of employees in response to this Item. J. Chief Compliance Officer ( 1) Provide the name and contact information of your Chief Compliance Officer: If you are an exempt reporting adviser, you must provide the contact information for your Chief Compliance Officer, if you have one. If not, you must complete Item l.K. below. (name) (other titles, if any) (area code) (telephone number) (area code) (facsimile number, if any) (number and street) (state/countly) (zip+4/postal code) (electronic mail (e-mail) address, if Chief Compliance Officer has one) (2) If your Chief Compliance Officer is compensated or employed by any person other than you or a related person for providing chief compliance officer services, provide the person's name and IRS Employer Identification Number (if any): _ _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00066 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.037</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (city) 33783 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules K. Additional Regulatory Contact Person: If a person other than the Chief Compliance Officer is authorized to receive information and respond to questions about this Form ADV, you may provide that information here. (name) (titles) (area code) (area code) (facsimile number, if any) (telephone number) (number and street) (city) (state/country) (zip+4/postal code) (electronic mail (e-mail) address, if contact person has one) L. Do you maintain some or all of the books and records you are required to keep under Section 204 of the Advisers Act, or similar state law, somewhere other than your principal office and place ofbusiness? Yes D NoD lf"yes, "complete Section l.L. ofSchedule D. M. Are you registered with a foreign financial regulatqa auth@;? Yes No Answer "no" ifyou are not registered with a foreign financial regulatory authority, even ifyou have an affiliate that is registered with aforeign financial regulatory authority. If"yes, "complete Section l.M of ScheduleD. N. Are you a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934? D D Yes No 0. Did you have $1 billion or more in assets on the last day of your most recent fiscal year? D D Yes No If yes, what is the approximate amount of your assets: D $10 billion to less than $50 billion D $50 billion or more D For purposes ofitem 1.0. only, "assets" refers to your total assets, rather than the assets you manage on behalfofclients. Determine your total assets using the total assets shown on the balance sheet for your most recent fiscal year end. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00067 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.038</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 $1 billion to less than $10 billion 33784 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name._ _ _ _ _ _ _ __ Dare._ _ _ _ _ _ _ __ Part lA Page 5 of2l P. CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Provide your Legal Entity Identifier if you have one: A legal entity identifier is a unique number that companies use to identify each other in the financial marketplace. You may not have a legal entity identifier. Item 2 SEC Registration Responses to this Item help us (and you) determine whether you are eligible to register with the SEC. Complete this Item 2.A. only if you are applying for SEC registration or submitting an annual updating amendment to your SEC registration. If you are filing an umbrella registration, the information in Item 2 should be provided for the filing adviser only. A To register (or remain registered) with the SEC, you must check at least one of the Items 2.A.(l) through 2.A.(l2), below. If you are submitting an annual updating amendment to your SEC registration and you are no longer eligible to register with the SEC, check Item 2.A.(l3). Part lA Instmction 2 provides information to help you detennine whether you may affinnatively respond to each of these items. You(the adviser): D (1) are a large advisory finn that either: (a) has regulatory assets under management of$100 million (in U.S. dollars) or more, or (b) has regulatory assets under management of$90 million (in U.S. dollars) or more at the time of filing its most recent annual updating amendment and is registered with the SEC; D (2) are a mid-sized advisory firm that has regulatory assets under management of $25 million (in U.S. dollars) or more but less than $100 million (in U.S. dollars) and you are either: (a) not required to be registered as an adviser with the state securities authority of the state where you maintain your principal office and place ofbusiness, or (b) not subject to examination by the state securities authority of the state where you maintain your principal office and place ofbusiness; Click HERE for a list ofstates in which an investment adviser, subject to examination by the state securities authority. if registered, would not be D (3) have your principal office and place ofbusiness in Wyoming (which does not regulate advisers); D (4) have your principal office and place ofbusiness outside the United States; Investment Company Act of 1940; D (6) are an investment adviser to a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940 and has not withdrawn the election, and you have at least $25 million of regulatory assets under management; VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00068 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.039</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 D (5) are an investment adviser (or sub-adviser) to an investment company registered under the Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name._ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ __ Part lA Page 6 of2l 33785 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ D (7) are a pension consultant with respect to assets of plans having an aggregate value of at least $200,000,000 that qualifies for the exemption in rule 203A-2(a); D (8) are a related adviser tmder nile 203A-2(b) that controls, is controlled by, or is m1der common control with, an investment adviser that is registered with the SEC, and your principal office and place ofbusiness is the same as the registered adviser; Ifyou check this box, complete Section 2.A. (8) ofSchedule D. D (9) are an adviser relying on nJie 203A-2(c) because you expect to be eligible for SEC registration within 120 days; Ifyou check this box, complete Section 2.A. (9) ofSchedule D. D (10) are a multi-state adviser that is required to register in 15 or more states and is relying on rule 203A-2(d); Ifyou check this box, complete Section 2.A. (1 0) ofSchedule D. D (11) are an Internet adviserrelyingonrule 203A-2(e); D ( 12) have received an SEC order exempting you from the prohibition against registration with the SEC; Ifyou check this box, complete Section 2.A. (12) ofSchedule D. D (13) are no longer eligible to remain registered with the SEC. SEC Reporting by Exempt Reporting Advisers B. Complete this Item 2.B. only if you are reporting to the SEC as an exempt reporting adviser. Check all that apply. You: D (1) qualify for the exemption from registration as an adviser solely to one or more venture capital funds; D (2) qualify for the exemption from registration because you act solely as an adviser to private funds and have assets under management in the United States ofless than $150 million; D (3) act solely as an adviser to private funds but you are no longer eligible to check box 2.B.(2) because you have assets under management in the United States of$150 million or more. Ifyou check box (2) or (3), complete Section 2.B. ofSchedule D. C. VerDate Sep<11>2014 Under state laws, SEC-registered advisers may be required to provide to state securities authorities a copy of the Form ADV and any amendments they file with the SEC. These are called notice filings. In addition, exempt reporting advisers may be required to provide state securities authorities with a copy of reports and any amendments they file with the SEC. If this is an initial application or report, check the box( es) next to the state(s) that you would like to receive notice of this and all subsequent filings or reports you submit to 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00069 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.040</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 State Securities Authority Notice Filings and State Reporting by Exempt Reporting Advisers 33786 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules the SEC. If this is an amendment to direct your notice filings or reports to additional state(s), check the box(es) next to the state(s) that you would like to receive notice of this and all subsequent filings or reports you submit to the SEC. If this is an amendment to your registration to stop your notice filings or reports from going to state(s) that currently receive them, uncheck the box(es) next to those state(s). DAL D CT DHI D KY D MN D NH D OH D AK D DE DID 0 LA 0 MS 0 NJ 0 OK D AZ D DC D IL DMEDMODNMDOR DAR DFL DIN D MD D MT D NY D PA 0 CA D GA D IA D MA D NE D NC D PR D co D GU D KS DMI DNV DND DRI D sc DVI 0 SD OVA D TN DWA D TX owv OUT 0 WI DVT Ifyou are amending your registration to stop your notice filings or reports from going to a state that currently receives them and you do not want to pay that state's notice filing or report filing fee for the coming year, your amendment must be filed before the end ofthe year (December 31). Item 3 Form of Organization If you are filing an umbrella registration, the information in Item 3 should be provided for the filing adviser only. A. How are you organized? D D D D Sole Proprietorship D Limited Liability Partnership (LLP) Corporation D Limited Liability Company (LLC) D Limited Partnership (LP) Partnership Other(specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Ifyou are changing your response to this Item, see Part JA Instruction 4. B. In what month does your fiscal year end each year? C. Under the laws of what state or country are you organized? _ _ _ _ _ _ _ _ __ Ifyou are a partnership, provide the name ofthe state or country under whose laws your partnership was formed. Ifyou are a sole proprietor, provide the name ofthe state or country where you reside. Ifyou are changing your response to this Item, Item 4 Are you, at the time of this filing, succeeding to the business of a registered investment adviser, including, for example, a change of your structure or legal status (e.g., form of organization or state of incorporation)? D mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Successions Yes D No If 'yes," complete Item 4.B. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 and Section 4 ofSchedule D. PO 00000 Frm 00070 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.041</GPH> A. see Part JA Instruction 4. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules B. 33787 Date of Succession: (nun/dd/yyyy) Ifyou have already reported this succession on a previous FormADVfiling, do not report the succession again. Instead, check "No." See Part JA Instruction 4. Item 5 Information About Your Advisory Business Responses to this Item help us understand your business, assist us in preparing for on-site examinations, and provide us with data we use when making regulatory policy. Part lA Instruction 5.a. provides additional guidance to newly formed advisers for completing this Item 5. Employees Ifyou are organized as a sole proprietorship, include yourself as an employee in your responses to Item 5.A and Items 5.B. (1), (2), (3), (4), and (5). If an employee performs more than one function, you should count that employee in each ofyour responses to Items 5.B. (1), (2), (3), (4) and (5). A. Approximately how many employees do you have? Include full- and part-time employees but do not include any clerical workers. B. (1) Approximately how many of the employees reported in 5.A. perform investment advisory functions (including research)? (2) Approximately how many of the employees reported in 5 .A. are registered representatives of a brokerdealer? (3) Approximately how many of the employees reported in 5 .A. are registered with one or more state securities authorities as investment adviser representatives? (4) Approximately how many of the employees reported in 5.A. are registered with one or more state securities authorities as investment adviser representatives for an investment adviser other than you? (5) Approximately how many of the employees reported in 5.A. are licensed agents of an insurance company or agency? In your response to Item 5.B. (6), do not count any ofyour employees and count a firm only once- do not count each ofthe firm's employees that solicit on your behalf VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00071 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.042</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (6) Approximately how many firms or other persons solicit advisory clients on your behalf? 33788 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Clients In your responses to Items 5. C. and 5.D. do not include as "clients" the investors in a private fund you advise, unless you have a separate advisory relationship with those investors. C. (1) To approximately how many clients for whom you do not have regulatory assets under management did you provide investment advisory services during your most recently completed fiscal year? (2) Approximately what percentage of your clients are non-United States persons? D. % For purposes ofthis Item 5.D., the category "individuals" includes trusts, estates, and 401 (k) plans and IRAs ofindividuals and their family members, but does not include businesses organized as sole proprietorships. The category "business development companies" consists ofcompanies that have made an election pursuant to section 54 ofthe Investment Company Act of 1940. Unless you provide advisory services pursuant to an investment advisory contract to an investment company registered under the Investment Company Act of 1940, do not answer (d)(1) or (d)(2) below. Indicate the approximate number of your clients and amount of your total regulatory assets under management (reported in Item 5.F. below) attributable to each of the following type of client. The aggregate amount of regulatory assets under management reported in Item 5.D.(2) should equal the total amount of regulatory assets under management reported in Item 5.F.(2) below. (1) Number of Client(s) (2) Amount of Regulatory Assets under Management (a) Individuals (other than high net worth individuals) (b) High net worth individuals (c) Banking or thrift institutions (d) Investment companies (e) Business development companies (f) Pooled investment vehicles (other than investment companies) (g) Pension and profit sharing plans (but not the plan participants or govermnent pension plans) (h) Charitable organizations (i) Corporations or other businesses not listed above (j) State or municipal government entities (including govermnent pension plans) (k) Other investment advisers (1) Insurance companies (m) Sovereign wealth funds and foreign official institutions (n) Other: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00072 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.043</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Type of Client Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ __ Part lA Page 10 of21 33789 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Compensation Arrangements E. You are compensated for your investment advisory services by (check all that apply): D (1) D (2) D (3) D (4) D D D A percentage of assets m1der your management Hourly charges Subscription fees (for a newsletter or periodical) Fixed fees (other than subscription fees) (5) Commissions (6) Performance-basedfees (7) Other(specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Regulatory Assets Under Management F. (1) Do you provide continuous and regular supervisory or management services to securities D Yes D No portfolios? (2) If yes, what is the amount of your regulatory assets under management and total number of accounts? U.S. Dollar Ammmt Total Number of Accounts Discretionary: (a) $_ _ _ _ _ .00 (d) Non-Discretionary: (b) $_ _ _ _ _ .00 (e) (c) $_ _ _ _ _ .00 (f) Total: Part JA Instruction 5.b. explains how to calculate your regulatory assets under management. You must follow these instructions carefully when completing this Item. (3) What is the approximate amount of your total regulatory assets under management (reported in Item 5.F.(2)(c) above) attributable to non-U.S. clients? Advisory Activities What type(s) of advisory services do you provide? Check all that apply. D D D mstockstill on DSK4VPTVN1PROD with PROPOSALS3 D D D D D D D D D VerDate Sep<11>2014 (1) Financial plamring services (2) Portfolio management for individuals and/or small businesses (3) Portfolio management for investment companies (as well as "business development companies" that have made an election pursuant to section 54 of the Investment Company Act of 1940) (4) Portfolio management for pooled investment vehicles (other than investment companies) (5) Portfolio management for businesses (other than small businesses) or institutional clients (other than registered investment companies and other pooled investment vehicles) (6) Pension consulting services (7) Selection of other advisers (including private fund managers) (8) Publication of periodicals or newsletters (9) Security ratings or pricing services (10) Markettiming services (ll) Educational seminars/workshops (12)0ther(specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00073 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.044</GPH> G. 33790 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part lA Page 11 of21 Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Do not check Item 5. G. (3) unless you provide advisory services pursuant to an investment advisory contract to an investment company registered under the Investment Company Act of 1940, including as a subadviser. If you check Item 5.G. (3), report the 811 or 814 number ofthe investment company or investment companies to which you provide advice in Section 5.G. (3) ofSchedule D. H. lf you provide financial planning services, to how many clients did you provide these services during your last fiscal year? D D o D 1-lo More than 500 11-25 D 26-50 D 51-loo D 101-250 D 251- 5oo If more than 500, how many? _ __ (round to the nearest 500) D In your responses to this Item 5.H., do not include as "clients" the investors in a private fund you advise, unless you have a separate advisory relationship with those investors. I. (1) Do you participate in a wrap fee program? D Yes D No. (2) If you participate in a wrap fee program, what is the amount of your regulatory assets under management attributable to acting as: (a) sponsor to a wrap fee program $_ _ (b) a portfolio manager for a wrap fee program? $_ _ Ifyou are a portfolio manager for a wrap fee program, list the names of the programs, their sponsors and related information in Section 5.1.(2) ofSchedule D. Ifyour involvement in a wrap fee program is limited to recommending wrap fee programs to your clients, or you advise a mutual fund that is offered through a wrap fee program, do not check Item 5.1. (1) or enter any amounts in response to Item 5.1(2). J. (1) In response to Item 4.B. of Part 2A of Form ADV, do you indicate that you provide investment advice only with respect to limited types of investments? D Yes D No (2) Do you report client assets in Item 4.E of Part 2A that are computed using a different method than the method used to compute your regulatory assets under management? D Yes D No K. Separately Managed Account Clients ( 1) Do you have regulatory assets under management attributable to clients other than those listed in Item 5.D.(2)(d)-(f) (separately managed account clients)? D Yes D No (2) Do you engage in borrowing transactions on behalf of any of the separately managed account clients thatyouadvise? D Yes D No Ifyes, complete Section 5.K.(2) ofSchedule D. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00074 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.045</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Ifyes, complete Section 5.K.(l) ofSchedule D. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Dare___________ Part lA Page 12 of21 33791 CRD Number___________ SEC 801- or 802 Number_ _ _ _ _ _ _ __ (3) Do you engage in derivative transactions on behalf of any of the separately managed account clients thatyouadvise? D Yes D No Ifyes, complete Section 5.K. (2) ofSchedule D. (4) After subtracting the amounts in Item 5.D.(2)(d)-(f) above from your total regulatory assets under management, does any custodian hold ten percent or more of this remaining amom1t of regulatory assets under management? D Yes D No Ifyes, complete Section 5.K. (3) ofScheduleD for each custodian. Item 6 Other Business Activities In this Item, we request information about your firm's other business activities. A. You are actively engaged in business as a (check all that apply): D D D D D D D D D D D D D D (1) broker-dealer (registered or unregistered) (2) registered representative of a broker-dealer (3) commodity pool operator or commodity trading advisor (whether registered or exempt from registration) (4) futures commission merchant (5) real estate broker, dealer, or agent (6) insurance broker or agent (7) bank (including a separately identifiable department or division of a bank) (8) trust company (9) registered municipal advisor (10) registered security-based swap dealer (11) major security-based swap participant (12) accountant or accounting firm (13) lawyer or law firm (14) other financial product salesperson (specifY): ___________________ Ifyou engage in other business using a name that is differentfrom the names reported in Items l.A. or l.B. (1), complete Section 6.A. ofSchedule D. B. (1) Are you actively engaged in any other business not listed in Item 6.A. (other than giving investment D Yes D No advice)? (2) If yes, is this other business your primary business? D Yes D No (3) Do you sell products or provide services other than investment advice to your advisory clients? D Yes D No If 'yes," describe this other business on Section 6.B. (3) ofScheduleD, and ifyou engage in this business under a different name, provide that name. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00075 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.046</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 If 'yes," describe this other business on Section 6.B. (2) ofScheduleD, and ifyou engage in this business under a different name, provide that name. 33792 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part 1A Page 13 of 21 Item 7 CRD Number_________________ SEC 801- or 802 Number_________________ Your Name_ _ _ _ _ _ _ _ __ Dare._________________ Financial Industry Affiliations and Private Fund Reporting In this Item, we request information about your financial industry affiliations and activities. This information identifies areas in which conflicts of interest may occur between you and your clients. A. This part of Item 7 requires you to provide information about you and your related persons, including foreign affiliates. Your related persons are all of your advisory affiliates and any person that is m1der common control with you. You have a related person that is a (check all that apply): D (1) broker-dealer, municipal securities dealer, or government securities broker or dealer (registered D (2) (3) (4) (5) (6) D D D D D D D D D D D D D D or mrregistered) other investment adviser (including financial plam1ers) registered municipal advisor registered security -based swap dealer major security-based swap participant commodity pool operator or commodity trading advisor (whether registered or exempt from registration) (7) futures commission merchant (8) banking or thrift institution (9) trust company (10) accountant or accounting firm (11) lawyer orlaw firm (12) insurance company or agency (13) pension consultant (14) real estate broker or dealer (15) sponsor or syndicator of limited partnerships (or equivalent), excluding pooled investment vehicles (16) sponsor, general partner, managing member (or equivalent) of pooled investment vehicles Note that Item 7.A should not be used to disclose that some ofyour employees perform investment advisory functions or are registered representatives ofa broker-dealer. The number ofyour firm's employees who perform investment advisory functions should be disclosed under Item 5.B(J). The number ofyour firm's employees who are registered representatives ofa broker-dealer should be disclosed under Item 5.B(2). Note that ifyou are filing an umbrella registration, you should not check Item 7.A. (2) with respect to your relying advisers, and you do not have to complete Section 7.A. in ScheduleD for your relying advisers. You should complete a Schedule Rfor each relying adviser. You do not need to complete Section 7.A. ofScheduleD for any related person if (1) you have no business dealings with the related person in connection with advisory services you provide to your clients; (2) you do not conduct shared operations with the related person; (3) you do not refer clients or business to the related person, and the related person does not refer prospective clients or business to you; (4) you do not share supervised persons or premises with the related person; and (5) you have no reason to believe that your relationship with the related person otherwise creates a conflict ofinterest with your clients. You must complete Section 7.A. ofSchedule D for each related person acting as qualified custodian in connection with advisory services you provide to your clients (other than any mutual fund transfer agent VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00076 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.047</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 For each related person, including foreign affiliates that may not be registered or required to be registered in the United States, complete Section 7.A. ofSchedule D. 33793 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ Part lA Page 14 of21 pursuant to rule 206(4)-2(b)(1)), regardless ofwhether you have determined the related person to be operationally independent under rule 206(4)-2 ofthe Advisers Act. B. Are you an adviser to any private fund? D Yes D No If 'yes," then for each private fund that you advise, you must complete a Section 7.B. (1) ofScheduleD, except in certain circumstances described in the next sentence and in Instruction 6 ofthe Instructions to Part 1A. Ifyou are registered or applying for registration with the SEC or reporting as an SEC exempt reporting adviser, and another SEC-registered adviser or SEC exempt reporting adviser reports this information with respect to any such private fund in Section 7.B. (1) ofScheduleD ofits Form ADV (e.g., if you are a subadviser), do not complete Section 7.B. (1) ofScheduleD with respect to that private fund. You must, instead, complete Section 7.B.(2) ofSchedule D. In either case, ifyou seek to preserve the anonymity of a private fund client by maintaining its identity in your books and records in numerical or alphabetical code, or similar designation, pursuant to rule 2042(d), you may identifY the private fund in Section 7.B.(1) or 7.B.(2) ofSchedule Dusing the same code or designation in place ofthe fund's name. Item 8 Participation or Interest in Client Transactions In this Item, we request information about your participation and interest in your clients' transactions. This information identifies additional areas in which conflicts of interest may occur between you and your clients. Your responses to these questions should be based on the types of participation and interest that you expect to engage in during the next year. Like Item 7, Item 8 requires you to provide information about you and your related persons, including foreign affiliates. Proprietary Interest in Client Transactions A. Do you or any related person: (1) buy securities for yourself from advisory clients, or sell securities you own to advisory clients (principal transactions)? D D (2) buy or sell for yourself securities (other than shares of mutual funds) that you also recommend to advisory clients? D D (3) recommend securities (or other investment products) to advisory clients in which you or any related person has some other proprietary (ownership) interest (other than those mentioned in Items 8.A.(l) or (2))? D D D D Sales Interest in Client Transactions Do you or any related person: (1) as a broker-dealer or registered representative of a broker-dealer, execute securities trades for brokerage customers in which advisory client securities are sold to or bought from the brokerage customer (agency cross transactions)? VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.048</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 B. 33794 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part lA Page 15 of 21 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ (2) recommend to advisory clients, or act as a purchaser representative for advisory clients with respect to, the purchase of securities for which you or any related person serves as underwriter or general or managing partner? D D (3) recommend purchase or sale of securities to advisory clients for which you or any related person has any other sales interest (other than the receipt of sales commissions as a broker or registered representative of a broker-dealer)? D D Do you or any related person have discretionary authority to determine the: Yes No (1) securities to be bought or sold for a client's account? D D (2) amount of securities to be bought or sold for a client's account? D D (3) broker or dealer to be used for a purchase or sale of securities for a client's account? D D (4) commission rates to be paid to a broker or dealer for a client's securities transactions? D D Yes No D D Investment or Brokerage Discretion C. D. If you answer "yes" to C.(3) above, are any of the brokers or dealers related persons? E. Do you or any related person recommend brokers or dealers to clients? D D F. If you answer "yes" toE above, are any of the brokers or dealers related persons? D D G. (1) Do you or any related person receive research or other products or services other than execution from a broker-dealer or a third party ("soft dollar benefits") in connection with client securities transactions? D D (2) If"yes" to G.(l) above, are all the "soft dollar benefits" you or any related persons receive eligible "research or brokerage services" under section 28(e) of the Securities Exchange Act of 1934? D D (1) Do you or any related person, directly or indirectly, compensate any person that is not an employee for client referrals? D D (2) Do you or any related person, directly or indirectly, provide any employee compensation that is specifically related to obtaining clients for the firm (cash or non-cash compensation in addition to the employee's regular salary)? D D Do you or any related person, including any employee, directly or indirectly, receive compensation from any person (other than you or any related person) for client referrals? D D H. In your response to Item 8.1., do not include the regular salary you pay to an employee. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00078 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.049</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 I. 33795 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ Part 1A Page 16 of21 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ In responding to Items 8.H and 8.1., consider all cash and non-cash compensation that you or a related person gave to (in answering Item 8.H) or received from (in answering Item 8.1) any person in exchange for client referrals, including any bonus that is based, at least in part, on the number or amount ofclient referrals. Item 9 Custody In this Item, we ask you whether you or a related person has custody of client (other than clients that are investment companies registered under the Investment Company Act of 1940) assets and about your custodial practices. A. (1) Do you have custody of any advisory clients': D D (a) cash or bank accounts? (b) securities? D D Ifyou are registering or registered with the SEC, answer "No" to Item 9.A. (l)(a) and (b) ifyou have custody solely because (i) you deduct your advisory fees directly from your clients' accounts, or (ii) a related person has custody ofclient assets in connection with advisory services you provide to clients, but you have overcome the presumption that you are not operationally independent (pursuant to Advisers Act rule 206(4)-(2)(d)(5)) from the related person. (2) If you checked "yes" to Item 9.A.(1)(a) or (b), what is the approximate amount of client funds and securities and total number of clients for which you have custody: U.S. Dollar Amount Total Number of Clients (a)$ _ _ _ __ (b) _ _ _ __ Ifyou are registering or registered with the SEC and you have custody solely because you deduct your advisory fees directly from your clients' accounts, do not include the amount ofthose assets and the number ofthose clients in your response to Item 9.A. (2). Ifyour related person has custody ofclient assets in connection with advisory services you provide to clients, do not include the amount ofthose assets and the number ofthose clients in your response to Item 9.A. (2). Instead, include that information in your response to Item 9.B. (2). B. (1) In connection with advisory services you provide to clients, do any of your related persons have custody of any of your advisory clients': Yes D D (a) cash or bank accounts? (b) securities? No D D You are required to answer this item regardless ofhow you answered Item 9.A. (l)(a) or (b). U.S. Dollar Amount (a)$ _ _ _ __ VerDate Sep<11>2014 Total Number of Clients (b) _ _ _ __ 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00079 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.050</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (2) If you checked "yes" to Item 9.B.(1)(a) or (b), what is the approximate amount of client funds and securities and total number of clients for which your related persons have custody: 33796 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ Part lA Page 17 of21 C. CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ lf you or your related persons have custody of client funds or securities in connection with advisory services you provide to clients, check all the following that apply: D (1) A qualified custodian(s) sends account statements at least quarterly to the investors in the pooled investment vehicle(s) you manage. D (2) An independent public accountant audits annually the pooled investment vehicle(s) that you manage and the audited financial statements are distributed to the investors in the pools. D (3) An independent public accountant conducts an annual surprise examination of client funds and securities. D (4) An independent public accountant prepares an internal control report with respect to custodial services when you or your related persons are qualified custodians for client funds and securities. Ifyou checked Item 9.C.(2), C.(3) or C.(4), list in Section 9.C. ofScheduleD the accountants that are engaged to perform the audit or examination or prepare an internal control report. (Ifyou checked Item 9.C.(2), you do not have to list auditor information in Section 9.C. ofScheduleD ifyou already provided this information with respect to the private funds you advise in Section 7.B. (1) ofSchedule D). D. Do you or your related person(s) act as qualified custodians for your clients in connection with advisory services you provide to clients? Yes No (1) you act as a qualified custodian D D (2) your related person(s) act as qualified custodian(s) D D Ifyou checked 'yes" to Item 9.D. (2), all related persons that act as qualified custodians (other than any mutual fund transfer agent pursuant to rule 206(4)-2(b)(l)) must be identified in Section 7.A. ofSchedule D, regardless ofwhether you have determined the related person to be operationally independent under rule 206(4)-2 ofthe Advisers Act. E. lf you are filing your annual updating amendment and you were subject to a surprise examination by an independent public accountant during your last fiscal year, provide the date (MMIYYYY) the examination commenced: _ _ _ _ _ __ F. lf you or your related persons have custody of client funds or securities, how many persons, including, but not limited to, you and your related persons, act as qualified custodians for your clients in connection with advisory services you provide to clients? _ _ _ _ __ Item 10 Control Persons lf you are submitting an initial application or report, you must complete Schedule A and Schedule B. Schedule A asks for information about your direct owners and executive officers. Schedule B asks for information about your indirect owners. If this is an amendment and you are updating information you reported on either Schedule A or Schedule B (or both) that you filed with your initial application or report, you must complete Schedule C. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00080 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.051</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 In this Item, we ask you to identify every person that, directly or indirectly, controls you. If you are filing an umbrella registration, the information in Item 10 should be provided for the filing adviser only. 33797 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part lA Page 18 of21 A CRD Number_ _ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name_ _ _ _ _ _ _ _ __ Dare.___________ Does any person not named in Item l.A or Schedules A, B, or C, directly or indirectly, control your D Yes D No managementorpolicies? Ifyes, complete Section JO.A. ofSchedule D. B. If any person named in Schedules A, B, or Cor in Section lO.A of ScheduleD is a public reporting company under Sections 12 or IS( d) of the Securities Exchange Act of 1934, please complete Section lO.B. of Schedule D. Itern 11 Disclosure Information In this Item, we ask for information about your disciplinary history and the disciplinary history of all your advisory affiliates. We use this information to determine whether to grant your application for registration, to decide whether to revoke your registration or to place limitations on your activities as an investment adviser, and to identify potential problem areas to focus on during our on-site examinations. One event may result in "yes" answers to more than one of the questions below. In accordance with General Instruction 5 to Form ADV, "you" and "your" includes the filing adviser and all relying advisers under an umbrella registration. Your advisory affiliates are: ( 1) all of your current employees (other than employees performing only clerical, administrative, support or similar functions); (2) all of your officers, partners, or directors (or any person performing similar functions); and (3) all persons directly or indirectly controlling you or controlled by you. If you are a "separately identifiable department or division" (SID) of a bank, see the Glossary of Terms to determine who your advisory affiliates are. Ifyou are registered or registering with the SEC or ifyou are an exempt reporting adviser, you may limit your disclosure ofany event listed in Item 11 to ten years following the date of the event. Ifyou are registered or registering with a state, you must respond to the questions as posed; you may, therefore, limit your disclosure to ten years following the date ofan event only in responding to Items ll.A.(l), ll.A. (2), ll.B.(l), ll.B.(2), I J.D. (4), and ll.H(l)(a). For purposes ofcalculating this ten-year period, the date ofan event is the date the final order, judgment, or decree was entered, or the date any rights ofappeal from preliminary orders, judgments, or decrees lapsed. You must complete the appropriate Disclosure Reporting Page ("DRP") for "yes" answers to the questions in this Item 11. Do any of the events below involve you or any of your supervised persons? For "yes" answers to the following questions, complete a Criminal Action DRP: A In the past ten years, have you or any advisory affiliate: D D (2) been charged with any felony? D D Ifyou are registered or registering with the SEC, or ifyou are reporting as an exempt reporting adviser, you may limit your response to Item ll.A. (2) to charges that are currently pending. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00081 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.052</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 ( 1) been convicted of or pled guilty or nolo contendere ("no contest") in a domestic, foreign, or military court to any felony? 33798 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part lA Page 19 of21 B. Your Name_ _ _ _ _ _ _ _ __ Dare._________________ CRD Number_________________ SEC 801- or 802 Number__________________ In the past ten years, have you or any advisory affiliate: ( 1) been convicted of or pled guilty or nolo contendere ("no contest") in a domestic, foreign, or military court to a misdemeanor involving: investments or an investment-related business, or any fraud, false statements, or omissions, wrongful taking of property, bribery, peljury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses? D D (2) been charged with a misdemeanor listed in Item 11 .B. ( 1)? D D Ifyou are registered or registering with the SEC, or ifyou are reporting as an exempt reporting adviser, you may limit your response to Item 11 .B. (2) to charges that are currently pending. For "yes" answers to the following questions, complete a Regulatory Action DRP: C. Has the SEC or the Commodity Futures Trading Commission (CFTC) ever: (1) found you or any advisory affiliate to have made a false statement or omission? D D (2) found you or any advisory affiliate to have been involved in a violation of SEC or CFTC regulations or statutes? D D (3) found you or any advisory affiliate to have been a cause of an investment-related business having its authorization to do business denied, suspended, revoked, or restricted? D D (4) entered an order against you or any advisory affiliate in com1ection with investment-related activity? D D (5) imposed a civil money penalty on you or any advisory affiliate, or ordered you or any advisory affiliate to cease and desist from any activity? D D (1) ever found you or any advisory affiliate to have made a false statement or omission, or been dishonest, unfair, or unethical? D D (2) ever found you or any advisory affiliate to have been involved in a violation of investment-related regulations or statutes? D D Yes No D D D D D. Has any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority: (3) ever found you or any advisory affiliate to have been a cause of an investment- related business having its authorization to do business denied, suspended, revoked, or restricted? connection with an investment-related activity? (5) ever denied, suspended, or revoked your or any advisory affiliate's registration or license, or otherwise prevented you or any advisory affiliate, by order, from associating with an investment-related business or restricted your or any VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00082 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.053</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (4) in the past ten years, entered an order against you or any advisory affiliate in 33799 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part 1A Page 20 of2l Your Name_ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ __ CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ D D (1) found you or any advisory affiliate to have made a false statement or omission? D D (2) found you or any advisory affiliate to have been involved in a violation of its rules (other than a violation designated as a "minor rule violation" under a plan approved by the SEC)? D D (3) found you or any advisory affiliate to have been the cause of an investmentrelated business having its authorization to do business denied, suspended, revoked, or restricted? D D (4) disciplined you or any advisory affiliate by expelling or suspending you or the advisory affiliate from membership, barring or suspending you or the advisory affiliate from association with other members, or otherwise restricting your or the advisory affiliate's activities? D D Has an authorization to act as an attorney, accmmtant, or federal contractor granted to you or any advisory affiliate ever been revoked or suspended? D D Are you or any advisory affiliate now the subject of any regulatory proceeding that could result in a "yes" answer to any part ofltem ll. C., 1l.D ., or ll.E.? D D Yes No (a) in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity? D D (b) ever found that you or any advisory affiliate were involved in a violation of investment-related statutes or regulations? D D (c) ever dismissed, pursuant to a settlement agreement, an investment-related civil action brought against you or any advisory affiliate by a state or foreign financial regulatory authority? D D D D advisory affiliate's activity? E. F. G. Has any self-regulatmy organization or commodities exchange ever: For "yes" answers to the following questions, complete a Civil Judicial Action DRP: H. (1) Has any domestic or foreign court: (2) Are you or any advisory affiliate now the subject of any civil proceeding that could result in a "yes" answer to any part ofltem 1l.H(1)? The SEC is required by the Regulatory Flexibility Act to consider the effect of its regulations on small entities. In order to do this, we need to determine whether you meet the definition of "small business" or "small organization" under rule 0-7. Answer this Item 12 only if you are registered or registering with the SEC and you indicated in response to Item 5.F.(2)(c) that you have regulatory assets under management of less than $25 million. You are not required to VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00083 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.054</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Item 12 Small Businesses 33800 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Part lA Page 21 of21 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name._ _ _ _ _ _ _ _ __ Dare_ _ _ _ _ _ _ _ __ answer this Item 12 if you are filing for initial registration as a state adviser, amending a current state registration, or switching from SEC to state registration. For purposes ofthis Item 12 only: • Total Assets refers to the total assets of a firm, rather than the assets managed on behalf of clients. In determining your or another person's total assets, you may use the total assets shown on a current balance sheet (but use total assets reported on a consolidated balance sheet with subsidiaries included, if that amount is larger). • Control means the power to direct or cause the direction of the management or policies of a person, whether through ownership of securities, by contract, or otherwise. Any person that directly or indirectly has the right to vote 25 percent or more of the voting securities, or is entitled to 25 percent or more of the profits, of another person is presumed to control the other person. Yes D D (1) control another investment adviser that had regulatory assets under management (calculated in response to Item 5.F.(2)(c) of Form ADV) of$25 million or more on the last day of its most recent fiscal year? D D (2) control another 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? D D (1) controlled by or under common control with another investment adviser that had regulatory assets under management (calculated in response to Item 5.F.(2)(c) of Form ADV) of$25 million or more on the last day of its most recent fiscal year? D D (2) controlled by or under common control with another 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? A. No D D Did you have total assets of $5 million or more on the last day of your most recent fiscal year? If 'yes, "you do not need to answer Items 12.B. and 12. C. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 C. VerDate Sep<11>2014 Do you: Are you: 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.055</GPH> B. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33801 Direct Owners and Executive Officers l. Complete Schedule A only if you are submitting an initial application or report. Schedule A asks for information about your direct owners and executive officers. Use Schedule C to amend this information. 2. Direct Owners and Executive Officers. List below the names of: (a) each Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Legal Officer, Chief Compliance Officer (Chief Compliance Officer is required if you are registered or applying for registration and cannot be more than one individual), director and any other individuals with similar status or functions; (b) if you are organized as a corporation, each shareholder that is a direct owner of 5% or more of a class of your voting securities, unless you are a public reporting company (a company subject to Section 12 or l5(d) of the Exchange Act); Direct owners include any person that owns, beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 5% or more of a class of your voting securities. For purposes of this Schedule, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security. (c) if you are organized as a partnership, illl.general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 5% or more of your capital; (d) in the case of a trust that directly owns 5% or more of a class of your voting securities, or that has the right to receive upon dissolution, or has contributed, 5% or more of your capital, the trust and each trustee; and (e) if you are organized as a limited liability company ("LLC"), (i) those members that have the right to receive upon dissolution, or have contributed, 5% or more of your capital, and (ii) if managed by elected managers, all elected managers. D 3. Do you have any indirect owners to be reported on Schedule B? 4. In the DE/FE/I colunm below, enter "DE" if the owner is a domestic entity, "FE" if the owner is an entity incorporated or domiciled in a foreign country, or "I" if the owner or executive officer is an individual. 5. Complete the Title or Status colunm by entering board/management titles; status as partner, trustee, sole proprietor, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued). 6. Ownership codes are: 7. (a) In the Control Person colunm, enter "Yes" if the person has control as defmed in the Glossary of Terms to FormADV, and enter "No" if the person does not have control. Note that under this definition, most executive officers and all25% owners, general partners, elected managers, and trustees are control persons. (b) In the PR colunm, enter "PR" if the owner is a public reporting company under Sections 12 or l5(d) of the Exchange Act. (c) Complete each colunm DE/FE/I No B - I 0% but less than 25% C - 25% but less than 50% Title or Status Date Title or Status Acquired Ownership Code D- 50% but less than 75% E - 75% or more Control Person mstockstill on DSK4VPTVN1PROD with PROPOSALS3 MM yyyy VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00085 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM CRDNo. IfNone: S.S. No. and Date of Birth, IRS Tax No. or Employer ID No. PR 12JNP3 EP12JN15.056</GPH> FULL LEGAL NAME (Individuals: Last Name, First Name, Middle Name) NA - less than 5% A- 5% but less than I 0% DYes 33802 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules Indirect Owners 1. Complete Schedule B only if you are submitting an initial application or report. Schedule B asks for information about your indirect owners; you must first complete Schedule A, which asks for information about your direct owners. Use Schedule C to amend this information. 2. Indirect Owners. With respect to each owner listed on Schedule A (except individual owners), list below: (a) in the case of an owner that is a corporation, each of its shareholders that beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 25% or more of a class of a voting security of that corporation; For purposes of this Schedule, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security. (b) in the case of an owner that is a partnership, all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 25% or more of the partnership's capital; (c) in the case of an owner that is a trust, the trust and each trustee; and (d) in the case of an owner that is a limited liability company ("LLC"), (i) those members that have the right to receive upon dissolution, or have contributed, 25% or more of the LLC' s capital, and (ii) if managed by elected managers, all elected managers. 3. Continue up the chain of ownership listing all25% owners at each level. Once a public reporting company (a company subject to Sections 12 or 15(d) of the Exchange Act) is reached, no further ownership information need be given. 4. In the DE/FE/I colunm below, enter "DE" if the owner is a domestic entity, "FE" if the owner is an entity incorporated or domiciled in a foreign country, or "I" if the owner is an individual. 5. Complete the Status colunm by entering the owner's status as partner, trustee, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued). 6. Ownership codes are: 7. (a) In the Control Person column, enter "Yes" if the person has control as defmed in the Glossary of Terms to FormADV, and enter "No" if the person does not have control. Note that under this definition, most executive officers and all25% owners, general partners, elected managers, and trustees are control persons. (b) In the PR colunm, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) of the Exchange Act. (c) Complete each colunm. FULL LEGAL NAME (Individuals: Last Name, First Name, Middle Name) DE/FE/I D - 50% but less than 75% Entity in Which Interest is Owned Status mstockstill on DSK4VPTVN1PROD with PROPOSALS3 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00086 Fmt 4701 Ownership Code Date Status Acquired MM VerDate Sep<11>2014 E- 75% or more yyyy Sfmt 4725 E:\FR\FM\12JNP3.SGM F - Other (general partner, trustee, or elected manager) Control Person CRDNo. IfNone: S.S. No. and Date of Birth, IRS Tax No. or Employer ID No. PR 12JNP3 EP12JN15.057</GPH> C - 25% but less than 50% Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33803 Amendments to Schedules A and B 1. Use Schedule Conly to amend information requested on either Schedule A or Schedule B. Refer to Schedule A and Schedule B for specific instructions for completing this Schedule C. Complete each colunm. 2. In the Type of Amendment colunm, indicate "A" (addition), "D" (deletion), or "C" (change in information about the same person). 3. Ownership codes are: C - 25% but less than 50% D - 50% but less than 75% E - 75% or more List below all changes to Schedule A (Direct Owners and Executive Officers): 4. FULL LEGAL NAME DE/FE/I Type of Title or Date Title or (Individuals: Last Name, Amendment Status Status Acquired First Name, Middle Name) G- Other (general partner, trustee, or elected member) Ownership Code MMIYYYY 5. List below all changes to Schedule B (Indirect Owners): Title or FULL LEGAL NAME DE/FE/I Type of (Individuals: Last Name, Amendment Status First Name, Middle Name) Date Title or Status Acquired PR Ownership Code mstockstill on DSK4VPTVN1PROD with PROPOSALS3 MMIYYYY VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4725 Control Person E:\FR\FM\12JNP3.SGM Control Person PR 12JNP3 CRDNo. If None: S.S. No. and Date of Birth, IRS Tax No. or Employer ID No. CRDNo. If None: S.S. No. and Date of Birth, IRS Tax No. or Employer ID No. EP12JN15.058</GPH> NA - less than 5% A - 5% but less than 10% B - 10% but less than 25% 33804 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ _ __ ScheduleD Pagel ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or SECTION l.B. 0 AMENDED ScheduleD Other Business Names List your other business names aud the jurisdictions in which you use them You must complete a separate Schedule D Section l.B. for each business name. Check only one box: D Add D Delete D Amend Name Jurisdictions SECTION l.F. Other Offices Complete the following information for each office, other than your principal office and place of business, at which you conduct investment advisory business. You must complete a separate ScheduleD Section l.F. for each location. If you are applying for SEC registration, if you are registered only with the SEC, or if you are au exempt reporting adviser, list only the largest twenty-five offices (in terms of numbers of employees). Check only one box: D Add D Delete (number and street) (city) (state/country) Ifthis address is a private residence, check this box: (area code) (telephone number) (zip+4/postal code) D (area code) (facsimile number, if any) Ifthis office location is also required to be registered with FINRA or a state secun·ties authority as a branch office location for a broker-dealer or investment adviser on the Uniform Branch Office Registration Form (Form BR), please provide the CRD Brauch Number here: How many employees perform investment advisory functions from this office location? _ _ _ _ __ Are other business activities conducted at this office location? (check all that apply) D (1)) Broker-dealer (registered or unregistered) D (2) Bank (including a separately identifiable department or division of a bank) D (3)) Insurance broker or agent D (4) Commodity pool operator or commodity trading advisor (whether registered or exempt from registration) D (5) Registered municipal advisor D (6) Accountant or accounting fmn D (7) Lawyer or law firm SECTION l.I. Website Addresses List your website addresses, including website addresses for social media platforms (including, but not limited to, Tv.itter, Facebook aud/or Linkedln). You must complete a separate ScheduleD Section l.I. for each website or social media website address. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00088 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.059</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Describe auy other investment-related business activities conducted from this office location: Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 2 ofl7 33805 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA ofFormADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infonnation or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or Check only one box: D 0 Add AMENDED ScheduleD D Delete Website Address/Social Media Website Address: Location of Books and Records SECTION l.L. Complete the follov.ing information for each location at which you keep your books and records, other than your pn:ncipal office and place of business. You must complete a separate ScheduleD Section l.L. for each location. Check only one box: D Add D Delete D Amend Name of entity where books and records are k e p t : - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (number and street) (city) If this address is a private residence, check this box: (area code) (telephone number) (state/country) D (zip+4/postal code) (facsimile number, if any) (area code) D one of your branch offices or affiliates. D a third-party unaffiliated recordkeeper. D other. This is (check one): Briefly describe the books and records kept at this location. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - SECTION l.M. Registration with Forezgn Financial Regulatory Authorities List the name and country, in English, of each foreign financial regulatory authority v.ith which you are registered. You must complete a separate Schedule D Section l.M. for each forezgn financial regulatory authority with whom you are registered. Check only one box: D Add D Delete Name of Foreign Financial Regulatory A u t h o r i t y - - - - - - - - - - - - - - - - Name of Country _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ____ SECTION 2A(8) Related Adviser If you are relying on the exemption in rule 203A-2(b) from the prohibition on registration because you control, are controlled by, or are under common control with an investment adviser that is registered with the SEC and your principal office and place of business is the same as that of the registered adviser, provide the following information: Name ofRegistered I n v e s t r n e n t A d v i s e r _ _ , . - - , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CRD Number of Registered Investment Adviser - , - - - - - - - - - - - - SECNumberofRegisteredinvestrnentAdviser801-_ _ _ _ _ _ _ _ _ _ __ If you are relying on rule 203A-2( c), the exemption from the prohibition on registration available to an adviser that expects to be eligible for SEC registration within 120 days, you are required to make certain representations about your eligibility for SEC registration. By checking the appropriate boxes, you will be deemed to have made the required representations. You must make both of these representations: D VerDate Sep<11>2014 I am not registered or required to be registered with the SEC or a state securities authority and I have a reasonable expectation that I will be eligible to register with the SEC within 120 days after the date my registration with the SEC becomes effective. 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00089 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.060</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 SECTION 2A(9) Investment Adviser Expecting to be Eligible for Commission Registration within 120 Days 33806 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name,_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ __ ScheduleD Page 3 of 17 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA ofFormADV require additional infonnation on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infonnation or changes/updates to previously submitted information. Do not repeat previously submitted information. Tllis is an 0 INITIAL or D 0 AMENDED ScheduleD I undertake to withdraw from SEC registration if, on the !20th day after my registration with the SEC becomes effective, I would be prohibited by Section 203A(a) of the Advisers Act from registering with the SEC. SECTION 2.A.(l O)Multi-State Adviser If you are relying on mle 203A-2(d), the multi-state adviser exemption from the prohibition on registration, you are required to make certain representations about your eligibility for SEC registration. By checking the appropriate boxes, you will be deemed to have made the required representations. If you are applying for registration as an investment adviser with the SEC, you must make both of these representations: D I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of 15 or more states to register as an investment adviser with the state securities authorities in those states. D I undertake to withdraw from SEC registration ifi file an an1endment to this registration indicating that I would be required by the laws of fewer than 15 states to register as an investment adviser with the state securities authorities of those states. If you are submitting your annual updating amendment, you must make this representation: D Within 90 days prior to the date of filing this amendment, I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of at least 15 states to register as an investment adviser with the state securities authorities in those states. SECTION 2.A.(l2)SEC Exemptive Order If you are relying upon an SEC order exempting you from the prohibition on registration, provide the following information: Application Number: 803-_ _ _ _ _ __ Date of order: (Imn/ddlyyyy) SECTION 2.B. Private Fund Assets If you check Item 2.B.(2) or (3), what is the amount of the private fund assets that you manage?_ _ _ _ __ NOTE: "Private fund assets" has the same meaning here as it has under mle 203(m)-l. If you are an investment adviser with its principal office and place of business outside of the United States only include private fund assets that you manage at a place of business in the United States. SECTION 4 Successions Complete the following information if you are succeeding to the business of a currently registered investment adviser, including a change of your stmcture or legal status (e.g., form of organization or state of incorporation). If you acquired more than one fim1 in the succession you are reporting on tins Form ADV, you must complete a separate ScheduleD Section 4 for each acquired fmn. See Part lA Instruction 4. Name of Acquired Firm _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Acquired Firm's CRD Number Acquired Firm's SEC File No. (if any) 801- If you check Item 5.G (3), what is the SEC file number (811 or 814 number) of each of the registered investment companies and business development companies to which you act as an adviser pursuant to an advisory contract? You must complete a separate ScheduleD Section 5 .G.(3) for each registered investment company and business development company to which you act as an adviser. Check only one box: D Add D Delete SEC File Number 811- or 814-_ _ _ _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00090 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.061</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 SECTION 5.G.(3) Advisers to Registered Investment Companies and Business Development Companies Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 4 ofl7 33807 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA ofFormADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD Provide the regulatory assets under management of all parallel managed accounts related to a registered investment company or business development company that you advise. $. _ _ _ _ __ SECTION 5.1.(2) Wrap Fee Programs If you are a portfolio manager for one or more wrap fee programs, list the name of each program and its sponsor. You must complete a separate ScheduleD Section 5.1.(2) for each wrap fee program for which you are a portfolio manager. Check only one box: D Add D Delete D Amend NameofWrapFeeProgram - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Name of Sponsor _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ____ Sponsor's SEC FileNumber(ifany) (e.g., 801-,8-,866-, 802-) _ _ _ _ _ __ Sponsor's CRD Number (if any): SECTION 5 .K.(l) Separately Managed Accounts After subtracting the amounts reported in Item 5 .D .(2 )(d)-( f) from your total regulatory assets under management, indicate the approximate percentage ofthis remaining amount attributable to each of the following categories of assets. If the remaining amount is at least $10 billion in regulatory assets under management, complete Question (a). If the remaining amount is less than $10 billion in regulatory assets under management, complete Question (b). End of year refers to the date used to calculate your regulatory assets under management for purposes of your annual updating amendment. Mid-year is the date six months before the end of year date. Each column should add up to 100%. (a) Exchange-Traded Equity Securities U.S. Govermnent /Agency (ii) Bonds (iii) U.S. State and Local Bonds (iv) Sovereign Bonds Corporate Bonds (v) Investment Grade (vi) Corporate Bonds -NonInvestment Grade Derivatives (vii) (viii) Securities Issued by Registered Investment Companies or Business Development Companies (ix) Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies) Other (x) Mid-year ---% End of year Generally describe any assets included in "Other": _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.062</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Asset Type (i) 33808 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ __ ScheduleD Page 5 ofl7 Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED Schedule D (b) Asset Type (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) End of year Exchange-Traded Equity Securities U.S. Government IAgency Bonds U.S. State and Local Bonds Sovereign Bonds Corporate Bonds Investment Grade Corporate Bonds -NonInvestment Grade Derivatives Securities Issued by Registered Investment Companies or Business Development Companies Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies) Other _% Generally describe any assets included in "Other": _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Section 5 .K.(2). Separately Managed Accounts -Use of Borrowings and Derivatives. If your regulatory assets under management attributable to separately managed accounts are at least $10 billion, you should complete Question (a). If your regulatory assets under management attributable to separately managed accounts are at least $150 million but less than $10 billion, you should complete Question (b). (a) In the table below, provide the following information regarding the separately managed accounts you advise. If you are a subadviser to a separately managed account, you should only provide information with respect to the portion of the account that you subadvise. End of year refers to the date used to calculate your regulatory assets under management for purposes of your annual updating amendment. Mid-year is the date six months before the end of year date. In colunm 1, indicate the number of separately managed accounts you advise according to net asset value and gross notional exposure. For this purpose, the 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 net asset value of the account. In colunm 2, provide the weighted average amount of borrowings (as a percentage of net assets) for the accounts included in colunm 1. In colunm 3, provide the weighted average gross notional value of derivatives (aggregate gross notional value of derivatives divided by the aggregate net asset value of the accounts included in colunm 1) with respect to each category of derivatives specified in 3(a) through (f). VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00092 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.063</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 You do not need to complete the table ·with respect to any separately managed accounts with a net asset value of less than $10,000,000. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ __ ScheduleD Page 6 of 17 33809 Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infommtion or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or (i) Net asset value of account 0 AMENDED Schedule D Mid-Year Gross notional exposnre 3 1 2 Number of accounts Average Average Exposnres (c) Crecht Derivative (d) Equity Derivative (e) Commodi(y Derivative bortowinf!s (a) Interest Rate Derivative $10,000,000249,999,999 DeJivative (b)Foreign Exchange Derivative (f) Other Derivative Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200%ormore $250,000,000999,999,999 $1,000,000,00 0-or greater Optional: Use the space below to provide a narrative description of the strategies and/or manner in which borrowings and derivatives are used in the management of the separately managed accounts that you advise. (ii) Net asset value of account End of Year Gross notional exposnre 1 Average Average $250,000,000999,999,999 $1,000,000,00 0-or greater (c) Credit Derivative (d) Equzty Derivative Exposnres borrowinf!s (a) Interest Rate Derivative $10,000,000249,999,999 3 DeJivative 2 Number of accounts (b)Foreign Exchange Derivative (e) Commodity Derivative (f) Other Derivalive Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200°/o or more VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00093 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.064</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Optional: Use the space below to provide a narrative description of the strategies and/or manner in which borrowings and derivatives are used in the management of the separately managed accounts that you advise. 33810 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 7 ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted infonnation. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD (b) In the table below, provide the following information regarding the separately managed accounts you advise as of the date used to calculate your regulatory assets under management for purposes of your annual updating amendment. If you are a subadviser to a separately managed account, you should only provide information with respect to the portion of the account that you subadvise. In colunm 1, indicate the number of separately managed accounts you advise according to net asset value and gross notional exposure. For purposes of this item, the 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 net asset value of the account. In colunm 2, provide the weighted average amount of borrowings (as a percentage of net asset value) for the accounts included in colurun 1. You do not need to complete the table with respect to any separately managed accounts with a net asset value of less than $10,000,000. 1 Net asset valu.e of account $10,000,000249,999,999 $250,000,000999,999,999 $1,000,000,000or greater Gross notional exposure 2 Average Number of accounts borrowings Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200%ormore Less than 10% 10-99% 100-199% 200%ormore Optional: Use the space below to provide a narrative description of the strategies and/or marmer in which borrowings and derivatives are used in the management of the separately managed accounts that you advise. SECTION 5.K.(3) Custodians for Separately Managed Accounts Complete a separate ScheduleD Section 5.K.(3) for each custodian that holds ten percent or more of your separately managed account client regulatory assets under management. (a) Legal name of custodian: _ _ _ _ _ _ _ _ _ _ _ _ _ __ (b) Primary business name of custodian: - - - - - - - - - - - - - - - (d) Is the custodian a related person of your firm? D Yes 0No (e) If the custodian is a broker-dealer, provide its SEC registration number (if any) 8-_ _ _ _ _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00094 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.065</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (c) The location(s) of the custodian's office( s) responsible for custody of the assets (city, state and country): Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ _ __ ScheduleD Page 8 ofl7 33811 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or (f) 0 AMENDED ScheduleD If the custodian is not a broker-dealer, or is a broker-dealer but does not have au SEC registration number, provide its legal entity identifier (if any)._ _ _ _ _ _ _ _ __ (g) What amount of your regulatory assets under management attributable to separately managed accounts is held at the custodian?_ _ _ __ SECTION6A Names of Your Other Businesses If you are actively engaged in other business using a different name, provide that name and the other line(s) of business. D D Add Delete D Amend Other Business Nau1e: Other line(s) of business in which you engage using this name: (check all that apply) D (1) broker-dealer(registeredorunregistered) D (2) registered representative of a broker-dealer D (3) commodity pool operator or commodity trading advisor (whether registered or exempt from registration) D D D D D D D D D D D (4) futures conmrission merchant (5) real estate broker, dealer, or agent (6) insurance broker or agent (7) bank (including a separately identifiable department or division of a bank) (8) trust company (9) registered municipal advisor (10) registered security-based swap dealer (11) major security -based swap participant (12) accmmtant or accounting firm (13) lawyer or law firm (14) otherfinancialproductsalesperson(specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ SECTION 6.B.(2) Description of Primary Business Describe your primary business (not your investment advisory business): If you engage in that business under a different name, provide that name: SECTION 6.B.(3) Description of Other Products aud Services If you engage in that business under a different name, provide that name: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00095 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.066</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Describe other products or services you sell to your client. You may omit products aud services that you listed in Section 6.B.2. above. 33812 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV CRDNumber_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Your Name_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ _ __ ScheduleD Page 9 of 17 Certain items in Part lA ofFonn ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infom1ation or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or SECTION7A 0 AMENDED ScheduleD Financial Industry Affiliations Complete a separate ScheduleD Section 7A for each related person listed in Item 7A Check only one box: D Add D Delete D Amend I. Legal Name of Related Person: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 2. Primary Business Name of Related Person: - - - - - - - - - - - - - - - - - - - - - - - - - 3. 4. Related Person's SEC File Number (if any) (e.g., 801-, 8-, 866-, 802-) _ _ _ _ _ __ ) CIK Number(s) (if any): _ _ __ Related Person's (a) CRD Number (if any): 5. Related Person is: (check all that apply) (b) D D D D D D (a) (b) (c) (d) (e) (f) D (g) D (h) D (i) D G) D (k) D (1) D (m) D (n) D (o) D (p) broker-dealer, municipal securities dealer, or government securities broker or dealer other investment adviser (including financial planners) registered municipal advisor registered security-based swap dealer major security -based swap participant commodity pool operator or commodity trading advisor (whether registered or exempt from registration) futures commission merchant banking or thrift institution trust company accountant or accotmting firm lawyer or law firm insurance company or agency pensionconsultant real estate broker or dealer sponsor or syndicator oflimited partnerships (or equivalent), excluding pooled investment vehicles sponsor, general partner, managing member (or equivalent) of pooled investment vehicles 6. Do you control or are you controlled by the related person? DYes DNo 7. Are you and the related person under cmmnon control? DYes DNo 8. (a) Does the related person act as a qualified custodian for your clients in connection with advisory services you provide to clients? DYes DNo (b)) If you are registering or registered with the SEC and you have answered "yes" to question S.(a) above, have you overcome the presumption that you are not operationally independent (pursuant to rule 206(4 )-(2)(d)(5)) from the related person and thus are not required to obtain a surprise examination for your clients' funds or securities that are maintained at the related person? DYes DNo (number and street) (city) (state/country) (zip+4/postal code) 9. (a) Ifthe related person is an investment adviser, is it exempt from registration? DYes DNo (b) If the answer is yes, under what exemption? _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00096 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.067</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (c) If you have answered "yes" to question 8.( a) above, provide the location of the related person's office responsible for custody of your clients' assets: Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 10 ofl7 33813 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA ofFormADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD 10. (a) Is the related person registered with a foreign financial regulatory authority? DYes D No (b) If the answer is yes, list the name and country, in English, of each foreign financial regulatory authority with which the related person is r e g i s t e r e d . - - - - - - - - - - - - 11. Do you and the related person share any supervised persons? DYes DNo 12. Do you and the related person share the same physical location? DYes DNo SECTION 7.B.(l) Private Fund Reporting Check only one box: A D Add D D Amend Delete PRIVATE FUND Information About the Private Fund 1. (a) Nameofthepn·vatefund: _ _ _ _ _ _ __ (b) Private fund identification number: - - - - - - - - - 2. Under the laws of what state or country is the private fund organized: - - - - - - - - - - - 3. Name(s) of General Partner, Manager, Trustee, or Directors (or persons serving in a similar capacity): (a) Check only one box: D Add D Delete D Amend (b) If filing an umbrella registration, identify the filing adviser or relying adviser that sponsors or manages this private fund. 4. The private fund (check all that apply; you must check at least one): D D 5. (1) qualifies for the exclusion from the defmition of investment company under section 3(c )(1) of the Investment Company Act of 1940 (2) qualifies for the exclusion from the defmition of investment company under section 3(c )(7) of the Investment Company Act of 1940 List the name and country, in English, of each foreign financial regulatory authority with which the private fund is registered. Check only one box: D Add D Delete D Amend English Name of Foreign Financial Regulatory Authority 6. (a) Is this a "master fund" in a master-feeder arrangement? Name of Country DYes DNo Check only one box: D Add D Delete D Amend (c) Is this a "feeder fund" in a master-feeder arrangement? VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00097 DYes Fmt 4701 DNo Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.068</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (b) If yes, what is the name and private fund identification number (if any) of the feeder funds investing in this private fund? 33814 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ __ ScheduleD Page 11 ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA ofFonn ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD (d) If yes, what is the name and privatefimd identification number (if any) of the master fund in which this private fund invests? Check only one box: 0 0 Add 0 Delete Amend NOTE: You must complete question 6 for each master-feeder arrangement regardless of whether you are filing a single ScheduleD, Section 7.B.(l) for the master-feeder arrangement or reporting on the funds separately. 7. If you are filing a single ScheduleD, Section 7.B.(l) for a master-feeder arrangement according to the instructions to this Section 7.B.(l ), for each of the feeder funds answer the following questions: Check only one box: 0 0 Add Delete 0 Amend (a) Name of the private fund: _ _ _ __ (b) Private fund identification number: _ _ _ _ _ _ __ (c) Under the laws of what state or country is the private fund organized: _ _ _ _ _ _ _ __ (d) Name(s) of General Partner, Manager, Trustee, or Directors (or persons serving in a similar capacity): ( 1) Check only one box: D D Add Delete D Amend (2) If filing an umbrella registration, identify the filing adviser or relying adviser that sponsors or manages this private fund. (e) The private fund (check all that apply; you must check at least one): 0 0 (f) (1) qualifies for the exclusion from the defmition of investment company under section 3( c)( 1) of the Investment Company Actofl940 (2) qualifies for the exclusion from the defmition of investment company under section 3(c )(7) of the Investment Company Act of 1940 List the name and country, in English, of each foreign financial regulatory authority with which the private fund is registered. Check only one box: 0 Add 0 Delete 0 Amend English Name of Foreign Financial Regulatmy Authority Name of Country NOTE: For purposes of questions 6 and 7, in a master-feeder arrangement, one or more funds ("feeder funds") invest all or substantially all of their assets in a single fund ("master fund"). A fund would also be a "feeder fund" investing in a "master ftmd" for purposes of this question if it issued multiple classes (or series) of shares or interests, and each class (or series) invests substantially all of its assets in a single master fund. (a) Is this private fund a "fund of funds"? 0 Yes 0 No NOTE: For purposes of this question only, answer "yes" if the fund invests 10 percent or more of its total assets in other pooled investment vehicles, regardless of whether they are also private funds or registered investment companies. (b) If yes, does the private fund invest in funds managed by you or by a related person? VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00098 Fmt 4701 Sfmt 4725 DYes E:\FR\FM\12JNP3.SGM 0No 12JNP3 EP12JN15.069</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 8. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name._ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ __ ScheduleD Page 12 of 17 33815 CRDNumber_ _ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infonnation or changes/updates to previously submitted infonnation. Do not repeat previously submitted information. Tllis is an 0 INITIAL or 9. 0 AMENDED ScheduleD During your last fiscal year, did the private fund invest in securities issued by investment companies registered under the Investment D Yes D No Company Act of 1940 (other than "money market funds," to the ellcient provided in Instruction 6.e. )? 10. What type of fund is the private fund? D hedge fund D liquidity fund D private equity fund D real estate ftmd D securitized asset fund D venture capital fnnd 00ther private fund: _ _ _ _ __ NOTE: For defmitions of these fund types, please see Instruction 6 ofthe Instructions to Part lA II. Current gross asset value of the private fimd: $_ _ Ownership 12. .Minimum investment commitment required of an investor in the private fimd: $_ _ _ _ _ _ _ NOTE: Report the amount routinely required of investors who are not your related persons (even if different from the amount set forth in the organizational documents of the fund). 13. Approximate number of the private fimd's beneficial owners: _ _ 14. What is the approximate percentage of the pn·vate fund beneficially owned by you and your related persons: _ _% 15. What is the approximate percentage of the private fund beneficially owned (in the aggregate) by a. Funds of funds: _ _% b. Qualified clients _ _% 16. What is the approximate percentage of the private fund beneficially owned by non-United States persons: _ _% Your Advisory Services 17. (a) Are you a subadviser to this private fund? DYes 0No 18. (a) Do any other investment advisers advise the private fund? DYes 0No (b) If the answer to question 18(a) is "yes," provide the nan1e and SEC file number, if any, of the other advisers to the private fimd. If the answer to question 18(a) is "no," leave this question blank. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00099 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.070</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (b) If the answer to question 17(a) is "yes," provide the name and SEC file number, if any, of the adviser of the private fund. If the answer to question 17(a) is "no," leave this question blank. 33816 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 13 ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional infonnation on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD Check only one box: D Add D Delete D Amend 19. Are your clients solicited to invest in the privatefimd? DYes D No NOTE: For purposes of this question, do not consider feeder funds of the private fund. 20. Approximately what percentage of your clients has invested in the private fund? _ _ _% Private Offering 21. Has the privatefimd ever relied on an exemption from registration of its securities lmder Regulation D of the Securities Act of 19337 DYes DNo 22. If yes, provide the private fund's Fonn D file number (if any): Check only one box: D Add D Delete D Amend 021-_ _ _ _ __ B. SERVICE PROVIDERS D Check this box if you are filing this FomlADV through the lARD system and want the lARD system to create a new ScheduleD, Section 7.B.(l) with the same service provider information you have given here in Questions 23 - 28 for a new private fimd for which you are required to complete Section 7.B.(l) If you check the box, the system will pre-fill those fields for you, but you will be able to manually edit the information after it is pre-filled and before you submit your filing. Auditors 23. (a) (1) Are the private fund's financial statements subject to an annual audit? (2) If the answer to 23(a)(l) is yes, are the fmancial statements prepared in accordance with U.S. GAAP? DYes DNo DYes DNo If the answer to 23(a)(l) is "yes," respond to questions (b) through (h) below. If the private fund uses more than one auditing fmn, you must complete questions (b) through (h) separately for each auditing fmn. Check only one box: D Add D Delete D Amend (b) Name of the auditing fmn - - - - - - - - - - - - - - - - - - - - - (c) The location of the auditing fmn's office responsible for the private fimd 's audit (city, state and cmmtry): (d) Is the auditing finn an independent public accountant? DYes DNo (e) Is the auditing firm registered with the Public Company Accounting Oversight Board? DYes DNo DYes DNo (g) Are the pn·vate fund's audited fmancial statements for the most recently completed fiscal year distributed to the private fund's investors? DYes DNo (h) Do all of the reports prepared by the auditing fmn for the private fund since your last annual updating amendment contain unqualified opinions? DYes DNo If yes, Public Company Accounting Oversight Board Registration Number: VerDate Sep<11>2014 If"yes" to (e) above, is the auditing fmn subject to regular inspection by the Public Company Accounting Oversight Board in accordance with its rules? 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00100 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 DReportNot EP12JN15.071</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (f) 33817 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name,_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ __ ScheduleD Page 14 ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED Schedule D Yet Received Ifyou check "Report Not Yet Received," you must promptly file an amendment to your Form ADV to update your response when the report is available. Prime Broker 24. (a) Doestheprivatefunduseoneormoreprinlebrokers? DYes 0No If the answer to 24(a) is "yes," respond to questions (b) through (e) below for each prime broker the private fund uses. If the private fund uses more than one prime broker, you must complete questions (b) through (e) separately for each prime broker. Check only one box: D Add D D Amend Delete (b) Name of the prime broker: _ _ _ __ (c) If the prime broker is registered with the SEC, its registration number: 8-_ _ _ _ __ (d) Location of prime broker's office used principally by the private fund (city, state and country): (e) Does this prime broker act as custodian for some or all of the private fund's assets? D Yes 0No Custodian 25. (a) Does the private fund use any custodians (including the prime brokers listed above) to hold some or all of its assets? DYes D No If the answer to 25(a) is "yes," respond to questions (b) through (f) below for each custodian the private fund uses. If the private fund uses more than one custodian, you must complete questions (b) through (g) separately for each custodian. Check only one box: D Add D Delete D Amend (b) Legal name of custodian: - - - - - - - - - - - - - - (c) Primary business name of custodian: - - - - - - - - - - - - - - (d) The location of the custodian's office responsible for custody of the private fund's assets (city, state and country): (e) Is the custodian a related person of your finn? (f) D Yes D No If the custodian is a broker-dealer, provide its SEC registration number (if any) 8-_ _ _ _ _ __ (g) If the custodian is not a broker-dealer, or is a broker-dealer but does not have an SEC registration number, provide its legal entity identifier (if any) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Administrator 26. (a) Does the private fund use an administrator other than your firm? DYes 0No If the answer to 26(a) is "yes," respond to questions (b) through (f) below. If the private fund uses more than one administrator, you must complete questions (b) through (f) separately for each administrator. D Add D Delete D Amend (b) Name of administrator: - - - - - - - - - - - - - - (c) Location of administrator (city, state and country): - - - - - - - - - - - - - - - - (d) Is the administrator a related person of your frrrn? VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00101 D Yes Fmt 4701 0No Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.072</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Check only one box: 33818 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name,_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ __ ScheduleD Page 15 of 17 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD (e) Does the administrator prepare and send investor account statements to the private fund's investors? D (f) Yes (provided to all investors) D Some (provided to some but not all investors) D No (provided to no investors) If the answer to 26( e) is "no" or "some," who sends the investor account statements to the (rest of the) private fund's investors? If investor account statements are not sent to the (rest of the) private fund's investors, respond "not applicable." 27. During your last fiscal year, what percentage of the private fund's assets (by value) was valued by a person, such as an administrator, that is not your related person? ______% Include only those assets where (i) such person carried out the valuation procedure established for that asset, if any, including obtaining any relevant quotes, and (ii) the valuation used for purposes of investor subscriptions, redemptions or distributions, and fee calculations (including allocations) was the valuation determined by such person. Marketers 28. (a) Does the pn·vate fund use the services of someone other than you or your employees for marketing purposes? D Yes D No You must answer "yes" whether the person acts as a placement agent, consultant, fmder, introducer, municipal advisor or other solicitor, or similar person. If the answer to 28(a) is "yes", respond to questions (b) through (g) below for each such marketer the private fund uses. If the private fund uses more than one marketer, you must complete questions (b) through (g) separately for each marketer. Check only one box: D Add D Delete D Amend (b) Is the marketer a related person of your firm? D Yes 0No (c) Name of the marketer: (d) If the marketer is registered with the SEC, its filenumber(e.g, 801-, 8-, or 866-): _ _ _ _ _and CRD Number (if any) _ _ _ __ (e) Location of the marketer's office used principally by the private fund (city, state and country): (f) Does the marketer market the private fund through one or more websites? Yes No (g) If the answer to 28(f) is "yes," list the website address( es): _ _ _ __ SECTION 7.B.(2) Private Fund Reporting (2) Private fund identification number _ _ _ _ __ (3) Name and SEC File number of adviser that provides information about this private fund in Section 7.B.(l) of ScheduleD of its Form ADV or 802-_ _ _ _ __ filing , 801(4) Are your clientY solicited to invest in this private fund? VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00102 DYes Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 0No EP12JN15.073</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (I) Nameoftheprivatefund _ _ _ _ _ _ _ _ __ 33819 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ __ ScheduleD Page 16 of 17 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part lA of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new infonnation or changes/updates to previously submitted information. Do not repeat previously submitted information. This is an 0 INITIAL or 0 AMENDED ScheduleD In answering this question, disregard feeder funds' investment in a master fund. For purposes of this question, in a master-feeder arrangement, one or more funds ("feeder funds") invest all or substantially all of their assets in a single fund ("master fund"). A fund would also be a "feeder fund" investing in a "master fund" for purposes of this question if it issued multiple classes (or series) of shares or interests, and each class (or series) invests substantially all of its assets in a single master fund. SECTION 9.C. Independent Public Accountant Yau must complete the following information for each independent public accountant engaged to perform a surprise examination, perform an audit of a pooled investment vehicle that you manage, or prepare an internal control report. You must complete a separate ScheduleD Section 9.C. for each independent public accountant. Check only one box: D Add D Delete D Amend (1) Name of the independent public accountant: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ (2) The location of the independent public accountant's office responsible for the services provided: (nun1ber and street) (state/country) (city) (zip+4/postal code) (3) Is the independent public accountant registered with the Public Company Accounting Oversight Board? DYes DNa D Yes D No DYes D No D Report Not If yes, Public Company Accounting Oversight Board Registration Number: _ _ _ _ _ _ __ (4) If yes to (3) above, is the independent public accountant subject to regular inspection by the Public Company Accounting Oversight Board in accordance with its mles? (5) The independent public accountant is engaged to: A B. C. D D D audit a pooled investment vehicle perform a surprise examination of clients' assets prepare an internal control report (6) Since your last annual updating amendments, did all of the reports prepared by the independent public accountant that audited the pooled investment vehicle or that examined internal controls contain unqualified opinions? Yet Received Ifyou check "Report Not Yet Received," you must promptly file an amendment to your Form ADV to update your response when the accountant's report is available. SECTION lO.A. Control Persons You must complete a separate ScheduleD Section 1O.A for each control person not named in Item l.A or Schedules A, B, or C that directly or indirectly controls your management or policies. D Add D Delete D Amend (1) Firm or Organization Name (2) CRDNumber(ifany) _ _ _ _ _ _ _ __ Effective Date mm/ddlyyyy VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00103 Fmt 4701 Sfmt 4725 Tennination Date ---:-:-:-,-------mm/ddlyyyy E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.074</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Check only one box: 33820 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name_ _ _ _ _ _ _ _ __ Date_ _ _ _ _ _ _ _ __ ScheduleD Page 17 ofl7 CRD Number_ _ _ _ _ _ _ __ SEC 801- or 802 Number_ _ _ _ _ _ _ __ Certain items in Part 1A of Form ADV require additional information on Schedule D. Use this ScheduleD to report details for items listed below. Report only new information or changes/updates to previously submitted information. Do not repeat previously submitted information. Tins is an 0 INITIAL or 0 AMENDED Schedule D (3) Business Address: (number and street) (city) If this address is a private residence, check this box: (state/country) D (zip+4/postal code) (4) Individual Name (if applicable) (Last, First, Middle) Effective Date -~~---- mm/dd/yyyy (5) CRDNumber(ifany) _ _ _ _ _ _ _ __ Termination Date --~-c---- mm/dd/yyyy (6) Business Address: (number and street) (city) If this address is a private residence, check this box: (state/country) D (zip+4/postal code) (7) Briefly describe the nature of the control: SECTION 10.B. Control Person Public Reporting Companies If any person named in Schedules A, B, or C, or in Section 10 A of ScheduleD is a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934, please provide the following information (you must complete a separate ScheduleD Section 1O.B. for each public reporting company): (1) Full legal name of the public reporting company: (2) The public reporting company's CIK number (Central Index Key number that the SEC assigns to each reporting company): Miscellaneous VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00104 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.075</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 You may use the space below to explain a response to an Item or to provide any other information. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name,_ _ _ _ _ _ _ _ __ Date,_ _ _ _ _ _ _ _ __ ScheduleR Page 1 of7 33821 CRDNumber_ _ _ _ _ _ _ __ SEC 801- Number_ _ _ _ _ _ _ __ Check the box that indicates what you would like to do: Submit a new ScheduleR D Submit an initial ScheduleR Amend a Schedule R D Amend an existing Schedule R Delete a Schedule R D Delete an existing ScheduleR for a relying adviser that is no longer eligible for SEC registration D Delete an existing ScheduleR for a relying adviser that is no longer relying on this umbrella registration SECTION I Identifying Information Responses to this Section 1 tell us who you (the relying adviser) are, where you are doing business, and how we can contact you, A Your full legal name: B. Name under which you primarily conduct your advisory business, if different from Section 1,A or Item I ,A ofthefilingadviser's FormADV Part !A C List any other business names and the jurisdictions in which you use them Complete this question for each other business name, D Add D Delete D Amend Name,_ _ _ _ _ _ _ _ _ _ _ _ _ _ _~Jurisdiction - - - - - - - - - - - - - - You do not have to include the names or jurisdictions of the filing adviser or other re(ying adviser(s) in response to this Section ], C. 0, If you have a number ("CRD Number") assigned by the FINRA 's CRD system or by the lARD system (other than the filing adviser's CRD number), your CRD number: Ifyou do not have a CRD number, skip this Section J.D. Do not provide the CRD number ofone ofyour officers, employees, or affiliates (mcluding the filing adviser). E. Principal Office and Place ofBusiness D Same as the filing adviser. (1) Address (do not use a P.O. Box): (number and street) (state/conn try) (city) (zip+4/postal code) D If this address is a private residence, check this box: (2) Days of week that you normally conduct business at your principal office and place of business: D Other Normal business hours at this location: (3) Telephone number at this location: (area code) (telephone number) (area code) (facsimile number) (4) Facsiniile number at this location, if any: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00105 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.076</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 D Monday - Friday 33822 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV F. CRD Number_ _ _ _ _ _ _ __ SEC 801- Number_ _ _ _ _ _ _ __ Your Name_ _ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ _ __ ScheduleR Page 2 of7 Mailing address, if different from your principal office and place of business address: D Same as the filing adviser. (number and street) (city) (state/country) If this address is a private residence, check this box: G. (zip+4/postal code) D Provide your Legal Entity Identifier if you have one: A legal entity identifier is a unique number that companies use to identify each other in the fmancial marketplace. You may not have a legal entity identifier. H: If you have Central Index Key numbers assigned by the SEC ("CIK Number"), all of your CIK numbers: SECTION2 SEC Registration Responses to this Section help us (and you) determine whether you are eligible to register with the SEC. A To be a relying adviser, you must be independently eligible to register (or remain registered) with the SEC. You must check at least one of the Sections 2A(l) tlrrough 2A(8), below. Part !A Instruction 2 provides infonnation to help you detemrine whether you may affmnatively respond to each of these items. You (the relying adviser): D (l) are a large advisory finn that either: (a) has regulatory assets under management of$100 nrillion (in US. dollars) or more, or (b) has regulatory assets under management of$90 nrillion (in US. dollars) or more at the time of filing its most recent annual updating amendment and is registered with the SEC; D (2) are a mid-sized advisory finn that has regulatory assets under management of$25 nrillion (in US. dollars) or more butless than $100 nrillion (in US. dollars) and you are either: (a) not required to be registered as an adviser with the state securities authority of the state where you maintain your pn·ncipal office and place of business, or (b) not subject to examination by the state securities authority of the state where you maintain your principal office and place of business; D (3) have your principal office and place of business in Wyoming (wlrich does not regulate advisers); D (4) have your principal office and place of business outside the United States; (5) are a related adviser under rule 203A-2(b) that controls, is controlled by, or is under common control with, an investment adviser that is registered with the SEC, and your principal office and place of business is the same as the registered adviser; D (6) are an adviser relying on rule 203A-2( c) because you expect to be eligible for SEC registration within 120 days; If you check tlris box, you must make both of the representations below: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00106 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.077</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 D Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name.__________ Date._ _ _ _ _ _ _ __ ScheduleR Page 3 of7 CRDNumber_ _ _ _ _ _ _ __ SEC 801- Number_ _ _ _ _ _ _ __ D I am not registered or required to be registered with the SEC or a state securities authority and I have a reasonable expectation that I will be eligible to register with the SEC within 120 days after the date my registration with the SEC becomes effective. D D 33823 By submitting this FormADV to the SEC, the filing adviser undertakes to file an amendment to this umbrella registration to remove this ScheduleR if, on the 120th day after this application for umbrella registration with the SEC becomes effective, I would be prohibited by Section 203A(a) of the Advisers Act from registering with the SEC. (7) are a multi-state adviser that is required to register in 15 or more states and is relying on rule 203A-2(d); If this is your initial filing as a relying adviser, you must make both of these representations: D I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of 15 or more states to register as an investment adviser with the state securities authorities in those states. D The filing adviser undertakes to file an amendment to this umbrella registration to remove this Schedule R if, at the time of the annual updating amendment, I would be required by the laws of fewer than 15 states to register as an investment adviser with the state securities authorities of those states. If you are submitting your annual updating amendment, you must make this representation: D D Within 90 days prior to the date of filing this amendment, I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of at least 15 states to register as an investment adviser with the state securities authorities in those states. (8) have received an SEC order exempting you from the prohibition against registration with the SEC; If you check this box, provide the following information: Application Number: 803-_ _ _ _ __ D SECTION 3 A Date of order: _ _ _ _ __ (mmldd/yyyy) (9) are no longer eligible to remain registered with the SEC. Form of Organization How are you organized? D D D Corporation D Sole Proprietorship D Limited Liability Partnership (LLP) Partnership D Limited Liability Company (LLC) D Limited Partnership (LP) Other(specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ B. In what month does your fiscal year end each year? C. Under the laws of what state or country are you organized? _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00107 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.078</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Ifyou are a partnership, provide the name of the state or country under whose laws your partnership was formed. 33824 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV ScheduleR Page 4 of7 SECTION 4 Your Name._ _ _ _ _ _ _ _ __ CRDNumber_ _ _ _ _ _ _ __ SEC 801- Number_ _ _ _ _ _ _ __ Date._ _ _ _ _ _ _ __ Control Persons In this Section 4, we ask you to identify each other person that, directly or indirectly, controls you. A Direct Owners and Executive Officers (1) Section 4.A asks for information about your direct owners and executive officers. (2) Direct Owners and Executive Officers. List below the names of: (a) each ChiefExecutive Officer, ChiefFinancial Officer, Chief Operations Officer, ChiefLegal Officer, director and any other individuals with similar status or functions; (b) if you are organized as a corporation, each shareholder that is a direct owner of 5% or more of a class of your voting securities, unless you are a public reporting company (a company subject to Section 12 or 15(d) of the Exchange Act); Direct owners include any person that owns, beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 5% or more of a class of your voting securities. For purposes of this Section 4.A, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security. (c) if you are organized as a partnership, illl.general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 5% or more of your capital; (d) in the case of a trust that directly owns 5% or more of a class of your voting securities, or that has the right to receive upon dissolution, or has contributed, 5% or more of your capital, the trust and each trustee; and (e) if you are organized as a limited liability company ("LLC"), (i) those members that have the right to receive upon dissolution, or have contributed, 5% or more of your capital, and (ii) if managed by elected managers, all elected managers. (3) Do you have any indirect owners to be reported in Section 4.B below? DYes D No (4) In the DE/FEll colunm below, enter "DE" if the owner is a domestic entity, "FE" if the owner is an entity incorporated or domiciled in a foreign country, or "I" if the owner or executive officer is an individual. (5) Complete the Title or Status colunm by entering board/management titles; status as partner, trustee, sole proprietor, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued). NA - less than 5% B - 10% but less than 25% A - 5% but less than 10% (6) Ownership codes are: D - 50% but less than 75% E- 75% or more C - 25% but less than 50% VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00108 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.079</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (7) (a) In the Control Person colunm, enter "Yes" iftheperson has control as defmed in the Glossary of Terms to FormADV, and enter "No" if the person does not have control. Note that under this defmition, most executive officers and all25% owners, general partners, elected managers, and trustees are control persons. (b) In the PR colunm, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) of the Exchange Act. (c) Complete each colunm. 33825 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules FORMADV Your Name,_ _ _ _ _ _ _ __ ScheduleR CRD Number_ _ _ _ _ _ _ __ SEC 801- Number_ _ _ _ _ _ _ __ Date__________ Page 5 of7 Check this box if you are filing this FonnADV through the lARD system and want the lARD system to pre-fill the chart below with the same direct owners and executive officers you have provided in Schedule A for your filing adviser. If you check the box, the system will pre-fill these fields for you, but you will be able to manually edit the information after it is pre-filled and before you submit your filing. D FULL LEGAL NAME (Individuals: Last Name, First Name, Middle Name) DE/FE/I Entity in Which Interest is Owned Status Date Status Acquired MM Ownership Code Control Person yyyy PR CRDNo. If None: SSNo. and Date of Birth, IRS TaxiDNo. or Employer IDNO B. Indirect Owners (1) Section 4.B asks for information about your indirect owners; you must first complete Section 4.A, which asks for information about your direct owners. (2) Indirect Owners. With respect to each owner listed in Section 4.A (except individual owners), list below: (a) in the case of an owner that is a corporation, each of its shareholders that beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 25% or more of a class of a voting security of that corporation; For purposes of this Section, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security. (b) in the case of an owner that is a partnership, all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 25% or more of the partnership's capital; (c) in the case of an owner that is a trust, the trust and each trustee; and (d) in the case of an owner that is a limited liability company ("LLC"), (i) those members that have the right to receive upon dissolution, or have contributed, 25% or more of the LLC's capital, and (ii) if managed by elected managers, all elected managers. (3) Continue up the chain of ownership listing all25% owners at each level. Once a public reporting company (a company subject to Sections 12 or 15(d) of the Exchange Act) is reached, no further ownership information need be given. (4) In the DE/FE/I column below, enter "DE" if the owner is a domestic entity, "FE" if the o\vner is an entity incorporated or domiciled in a foreign country, or "I" if the owner is an individual. (6) Ownership codes are: C- 25% but less than 50%, D- 50% but less than 75%, partner, trustee, or elected manager) E - 75% or more, F - Other (general (7) (a) In the Control Person column, enter "Yes" if the person has control as defmed in the Glossary of Terms to Form ADV, and enter "No" if the person does not have control. Note that under this defmition, most executive officers and all25% owners, general partners, elected managers, and trustees are control persons. VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00109 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.080</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (5) Complete the Status column by entering the owner's status as partner, trustee, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued). 33826 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules (b) In the PR colunm, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) of the Exchange Act. (c) Complete each column. Check this box if you are filing this FormADV through the lARD system and want the lARD system to pre-fill Schedule B with the same indirect owners you have provided in Schedule B for your filing adviser. If you check the box, the system will pre-fill these fields for you, but you will be able to manually edit the information after it is pre-filled and before you submit your filing. D FULL LEGAL NAME (Individuals Last Name, First Name, Middle Name) DE/FE/I Entity in Which Interest is Owned Status Date Status Acquired MM Ownership Code Control Person yyyy PR C. CRDNo. If None: S.S. No. and Date of Birth, IRS TaxiDNo. or Employer IDNO Does any person not named in Section l.A, Section 4.A, or Section 4.B directly or indirectly, control your management or D D policies? Yes No If yes, you must complete the information below for each control person not named in Section l.A, Section 4.A, or Section 4.B that directly or indirectly controls your management or policies. Check only one box: D Add D Delete D Amend (1) Firm or Organization Name (2) CRDNumber(ifany) _ _ __ Effective Date Termination Date------,-,. nun/dd/yyyy nun/dd/yyyy (3) Business Address: (number and street) (city) (state/countJY) If this address is a private residence, check this box: (zip+4/postal code) D (4) Individual Name (if applicable) (Last, First, Middle) (5) CRDNumber(ifany) _ _ __ Effective Date Termination Date nun!dd/yyyy ----- nun/dd/yyyy (number and street) (city) (state/countJY) If this address is a private residence, check this box: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00110 (zip+4/postal code) D Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.081</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (6) Business Address: Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33827 (7) Briefly describe the nature of the control: D. If any person named in Section 4.A, Section 4.B, or Section 4.C is a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934, complete the information below (you must complete this information for each public reporting company). Check only one box: D Add D Delete D Amend (1) Full legal name of the public reporting company: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00111 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.082</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (2) The public reporting company's CIK number (Central Index Key number that the SEC assigns to each reporting company): 33828 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CRIMINAL DISCLOSURE REPORTING PAGE (ADV) GENERALINSTR UCTJONS This Disclosure Reporting Page (DRP ADV) is an D INITIAL OR D AMENDED response used to report details for affim1ative responses to Items ll.A. or ll.B. of Form ADV. D ll.A(l) Check item(s) being responded to: D ll.A(2) Dll.B(l) Dll.B(2) Use a separate DRP for each event or proceeding. The same event or proceeding may be reported for more than one person or entity using one DRP. File with a completed Execution Page. Multiple counts of the same charge arising out of the same event( s) should be reported on the same DRP. Umelated criminal actions, including separate cases arising out of the same event, must be reported on separate DRPs. Use this DRP to report all charges arising out of the same event. One event may result in more than one affirmative answer to the items listed above. PART I A. The person (s) or entity( ies) for whom this DRP is being filed is (are) You (the advisory firm) You and one or more of your advisory affiliates One or more of your advisory affiliates If this DRP is being filed for an advisory affiliate, give the full name of the advisory affiliate below (for individuals, Last name, First name, Middle name). If the advisory affiliate has a CRD number, provide that number. If not, indicate "non-registered" by checking the appropriate box. ADV DRP -ADVISORY AFFILIATE I CRDNumber This advisory affiliate is Registered: Da firm Dan individual DNo DYes Name (For individuals, Last, First, Middle) This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. This DRP should be removed from the ADV record because: (1) the event or proceeding occurred more than ten years ago or (2) the adviser is registered or applying for registration with the SEC or reporting as an exempt reporting adviser with the SEC and the event was resolved in the adviser's or advisory affiliate's favor. This DRP should be removed from the ADV record because it was filed in error, such as due to a clerical or data-entry mistake. Explain the circumstances: If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with FormADV, BD or U-4) to the lARD or CRD for the event? If the answer is "Yes," no other information on this DRP must be provided. D Yes D No NOTE: The completion of this form does not relieve the advisory affiliate of its obligation to update its lARD or CRD records. (continued) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00112 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.083</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 B. 33829 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CRIMINAL DISCLOSURE REPORTING PAGE (ADV) (continuation) PART II 1. If charge( s) were brought against an organization over which you or an advisory affiliate exercise( d) control: Enter organization name, whether or not the organization was an investment-related business and your or the advisory affiliate's position, title, or relationship. 2. Formal Charge(s) were brought in: (include name of Federal, Military, State or Foreign Court, Location of Court- City or County and State or Country, Docket/Case number). 3. Event Disclosure Detail (Use this for both organizational and individual charges.) A. D Date First Charged (MMIDD/YYYY): Exact D Explanation If not exact, provide explanation: B. Event Disclosure Detail (include Charge( s)/Charge Description( s ), and for each charge provide: (1) number of counts, (2 )felony or misdemeanor, (3) plea for each charge, and (4) product type if charge is investment-related). C. Did any of the Charge(s) within the Event involve a felony? D. Current status of the Event? E. Event Status Date (complete unless status is Pending) (MMIDD/YYYY): D Exact D D Pending D D D Yes OnAppeal D No Final Explanation If not exact, provide explanation: Disposition Disclosure Detail: Include for each charge (a) Disposition Type (e.g., convicted, acquitted, dismissed, pretrial, etc.), (b) Date, (c) Sentence/Penalty, (d) Duration (if sentence-suspension, probation, etc.), (e) Start Date of Penalty, (f) Penalty/Fine Amount, and (g) Date Paid. (continued) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00113 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.084</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 4. 33830 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CRIMINAL DISCLOSURE REPORTING PAGE (ADV) (continuation) VerDate Sep<11>2014 Provide a brief summary of circumstances leading to the charge(s) as well as the disposition. Include the relevant dates when the conduct which was the subject of the charge( s) occurred. (Your response must fit within the space provided.) 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00114 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.085</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 5. Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules 33831 REGULATORY ACTION DISCLOSURE REPORTING PAGE (ADV) GENERAL INSTRUCTIONS This Disclosure Reporting Page (DRP ADV) is an D INITIAL OR D AMENDED response used to report details for affirmative responses to Items ll.C., ll.D., ll.E., ll.F. or ll.G. of Form ADV. D D D D Check item(s) being responded to: llC(l) ll.D(l) ll.E(l) ll.F. D D D D ll.C(2) ll.D(2) ll.E(2) ll.G. D ll.C(3) D ll.D(3) D ll.E(3) D ll.C(4) D ll.D(4) D ll.E(4) D ll.C(S) D ll.D(S) Use a separate DRP for each event or proceeding. The same event or proceeding may be reported for more than one person or entity using one DRP. File with a completed Execution Page. One event may result in more than one affirmative answer to Items ll.C., ll.D., ll.E., ll.F. or ll.G. Use only one DRP to report details related to the same event. If an event gives rise to actions by more than one regulator, provide details for each action on a separate DRP. PARTI A The person(s) or entity(ies) for whom this DRP is being filed is (are): You (the advisory firm) You and one or more of your advisory affiliates One or more of your advisory affiliates If this DRP is being filed for an advisory affiliate, give the full name of the advisory affiliate below (for individuals, Last name, First name, Middle name). If the advisory affiliate has a CRD number, provide that number. If not, indicate "non-registered" by checking the appropriate box. I YourName Your CRD Number ADV DRP -ADVISORY AFFILIATE CRD Number IThis advisory affiliate is D a firm I-·- - - - - - - - - - - - - - - - - - - ' · Registered: 'D Yes D D an individual No Name (For individuals, Last, First, Middle) D D This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. This DRP should be removed from the ADV record because: (1) the event or proceeding occurred more than ten years ago or (2) the adviser is registered or applying for registration with the SEC or reporting as an exempt reporting adviser with the SEC and the event was resolved in the adviser's or advisory affiliate's favor. If you are registered or registering with a state securities authority, you may remove a DRP for an event you reported only in response to Item ll.D(4), and only if that event occurred more than ten years ago. If you are registered or registering \v:ith the SEC, you may remove a DRP for any event listed in Item 11 that occurred more than ten years ago. mstockstill on DSK4VPTVN1PROD with PROPOSALS3 B. This DRP should be removed from the ADV record because it was filed in error, such as due to a clerical or data-entry mistake. Explain the circumstances: If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with FormADV, BD or U-4) to the lARD or CRD for the event? If the answer is "Yes," no other information on this DRP must be provided. D Yes D No NOTE: VerDate Sep<11>2014 The completion ofthis form does not relieve the advisory affiliate of its obligation to update its lARD or CRD records. (continued) 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00115 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.086</GPH> D 33832 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules REGULA TORY ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) I. RegUlatory Acb.on nnb.ated by: D SEC D Other Federal D State D SRO D Foreign (Full name of regulator ,foreign financial regulatory authority, federal, state or SRO) 2. Principal Sanction (check appropriate item): D D D D Civil and Administrative Penalty(ies)/Fine(s) Bar Cease and Desist Censure Denial 3. Date Initiated (MMJDD/YYYY): D D D D D D D D Disgorgement Expulsion Injunction Prohibition Reprimand Restitution Revocation Suspension Undertaking Other - - - - - - D D D D Exact D Explanation I If not exact, provide explanation: 4. Docket/Case Number: 5. Advisory Affiliate Employing Firm when activity occurred which led to the regulatory action (if applicable): 6. Principal Product Type (check appropriate item): 0Annuity(ies)- Fixed 0Annuity(ies)- Variable 0CD(s) 0Commodity Option(s) 0Debt - Asset Backed 0Debt - Corporate 0Debt - Government 0Debt - Municipal 0Derivative(s) 0Direct Investment(s)- DPP & LP Interest(s) 0Equity - OTC 0Equity Listed (Common & Preferred Stock) 0Futures - Commodity 0Futures - Financial 0Index Option(s) Dinsurance Dinvestment Contract(s) 0Money Market Fund( s) 0Mutual Fund(s) ONoProduct Ooptions 0Penny Stock(s) 0Unit Investment Trust( s) OOther _______ _ (continued) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00116 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.087</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Other Product Types: 33833 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules REGULATORY ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) 7. Describe the allegations related to this regulatory action (your response must fit within the space provided): D Pending D 8. Current status? DOn Appeal 9. If on appeal, regulatory action appealed to (SEC, SRO, Federal or State Court) and Date Appeal Filed: Final If Final or On Appeal, complete all items below. For Pending Actions, complete Item 13 only. 10. How was matter resolved (check appropriate item): 0Acceptance, Waiver & Consent (AWC) 0Consent 0Decision 0Decision & OrderofOffer of Settlement 0Dismissed OOrder Dsettled 0Stipulation and Consent 0Vacated 0Withdrawn Dother _ _ _ _ D 11. Resolution Date (MM/DD/YYYY): D Explanation Exact 12. Resolution Detail: A Were any of the following Sanctions Ordered (check all appropriate items)? B. Monetary/Fine D Amouut: $ D D . _ I_ _ _ __ . Revocation/Expulsion/Denial Censure D D Disgorgement/Restitution Cease and Desist!Injuuction D Bar D Suspension Other Sanctions Ordered: (continued) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00117 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.088</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 Sanction detail: if suspended, enjoined or barred, provide duration including start date and capacities affected (General Securities Principal, Financial Operations Principal, etc.). Ifrequalification by exam/retraining was a condition of the sanction, provide length of time given to requalify/retrain, type of exam required and whether condition has been satisfied. If disposition resulted in a fine, penalty, restitution, disgorgement or monetary compensation, provide total amount, portion levied against you or an advisory affiliate, date paid and if any portion ofpena1ty was waived: 33834 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules REGULATORY ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00118 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.089</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 13. Provide a brief summary of details related to the action status and (or) disposition and include relevant terms, conditions and dates (your response must fit within the space provided). 33835 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (ADV) GENERAL INSTRUCTIONS This Disclosure Reporting Page (DRP ADV) is an []NITlAL OR DAMENDED response used to report details for affnmative responses to Item ll.H. of Part lA and Item 2.F. of Part lB of Form ADV. Check Part lA item(s) being responded to: Check Part lB item(s) being responded to: Ol.H(l)(a) 02.F(l) 0 l.H(l)(b) 02.F(2) Ol.l.H(l)(c) 02.F(3) Oll.H(2) 02.F(4) o .. F(s) Use a separate DRP for each event or proceeding. The same event or proceeding may be reported for more than one person or entity using one DRP. File with a completed Execution Page. One event may result in more than one affinnative answer to Item ll.H. of Part lA or Item 2.F. of Part lB. Use only one DRP to report details related to the same event. Umelated civil judicial actions must be reported on separate DRPs. PARTI A The person(s) or entity(ies) for whom this DRP is being filed is (are): D You (the advisory firm) D You and one or more of your advisory affiliates D One or more of your advisory affiliates If this DRP is being filed for an advisory affiliate, give the full name of the advisory affiliate below (for individuals, Last name, First name, Middle name). Ifthe advisory affiliate has a CRD number, provide that number. If not, indicate "non-registered" by checking the appropriate box. ADV DRP- ADVISORY AFFILIATE I CRDNumber This advisory affiliate is Registered: D D afirm Yes D D an individual No Name (For individuals, Last, First, Middle) This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. This DRP should be removed from the ADV record because: (1) the event or proceeding occurred more than ten years ago or (2) the adviser is registered or applying for registration with the SEC or reporting as an exempt reporting adviser with the SEC and the event was resolved in the adviser's or advisory affiliate's favor. If you are registered or registering with a state securities authority, you may remove a DRP for an event you reported only in response to Item ll.H.(l )(a), and only if that event occurred more than ten years ago. If you are registered or registering with the SEC, you may remove a DRP for any event listed in Item 11 that occurred more than ten years ago. This DRP should be removed from the ADV record because it was filed in error, such as due to a clerical or dataentry mistake. Explain the circumstances: If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with FormADV, BD or U-4) to the lARD or CRD for the event? If the answer is "Yes," no other information on this DRP must be provided. D Yes D No NOTE: VerDate Sep<11>2014 The completion of this form does not relieve the advisory affiliate of its obligation to update its lARD or CRD records. (continued) 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00119 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.090</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 B. 33836 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) PART II 1. Court Action initiated by: (Name of regulator ,foreign financial regulatory authority, SRO, commodities exchange, agency, flrrn, private plaintiff, etc.) 2. 0Cease and Desist 0Civil Penalty(ies)/Fine(s) 0Disgorgement Dinjunction Principal Relief Sought (check appropriate item): 0Money Damages (Private/Civil Complaint) 0Restitution 0Restraining Order 00ther _ _ __ Other Relief Sought: 3. Filing Date of Court Action (MM!DD!fy.__Y_Y--'-):_ _ _ __, D Exatl] Explanation If not exact, provide explanation: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4. Principal Product Type (check appropriate item): 0Annuity(ies)- Fixed 0Annuity(ies)- Variable 0CD(s) 0Commodity Option(s) 0Debt - Asset Backed 0Debt - Corporate 0Debt - Government 0Debt - Municipal 0Derivative(s) 0Direct Investment(s)- DPP & LP Interest(s) 0Equity - OTC 0Equity Listed (Common & Preferred Stock) 0Futures - Commodity 0Futures - Financial Dindex Option( s) 0Insurance Dinvestrnent Contract(s) 0Money Market Fund( s) 0Mutual Fund( s) ONoProduct 00ptions 0Penny Stock(s) 0Unit Investment Trust(s) 00ther _ _ _ _ _ Other Product Types: 5. Formal Action was brought in (include name ofFederal, State or Foreign Court, Location of Court- City or County and State or Country, Docket/Case Number): 6. Advisory Affiliate Employing Firm when activity occurred which led to the civil judicial action (if applicable): VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00120 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.091</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (continued) 33837 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) 7. Describe the allegations related to this civil action (your response must fit within the space provided): D D Pending D 8. Current status? On Appeal 9. If on appeal, action appealed to (provide name of court) and Date Appeal Filed (MMIDD/YYYY): 10. If pending, date notice/process was served (MMIDD/YYYY): Final LI_________.ID Exact D Explanation I If not exact, provide explanation: If Final or On Appeal, complete all items below. For Pending Actions, complete Item 14 only. 11. How was matter resolved (check appropriate item): D Consent D Dismissed 12. 13. D D Judgment Rendered Opinion Resolution Date (MMIDD/YYYY): I ~oct, l [not D D Settled Withdrawn L----------1~ D Exact D Other _ _ _ __ D Explanation provide exp!onotinn Resolution Detail: A Were any of the following Sanctions Ordered or Relief Granted (check appropriate items)? D Monetary/Fine Amount: $ B. D Revocation/Expulsion/Denial I.______, D Censure D D Disgorgement!Restitution Cease and Desist/Injunction 0Bar 0Suspension Other Sanctions: VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00121 Fmt 4701 Sfmt 4725 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.092</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 (continued) 33838 Federal Register / Vol. 80, No. 113 / Friday, June 12, 2015 / Proposed Rules CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (ADV) (continuation) C. Sanction detail: if suspended, enjoined or barred, provide duration including start date and capacities affected (General Securities Principal, Financial Operations Principal, etc.). If requalification by exam/retraining was a condition of the sanction, provide length of time given to requalify/retrain, type of exam required and whether condition has been satisfied. If disposition resulted in a fine, penalty, restitution, disgorgement or monetary compensation, provide total amount, portion levied against you or an advisory affiliate, date paid and if any portion of penalty was waived: [FR Doc. 2015–12778 Filed 6–11–15; 8:45 am] BILLING CODE 8011–01–P VerDate Sep<11>2014 20:21 Jun 11, 2015 Jkt 235001 PO 00000 Frm 00122 Fmt 4701 Sfmt 9990 E:\FR\FM\12JNP3.SGM 12JNP3 EP12JN15.093</GPH> mstockstill on DSK4VPTVN1PROD with PROPOSALS3 14. Provide a brief summary of circumstances related to the action( s), allegation( s), disposition( s) and/or fmding( s) disclosed above (your response must fit within the space provided).

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 113 (Friday, June 12, 2015)]
[Proposed Rules]
[Pages 33717-33838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12778]

[[Page 33717]]

Vol. 80

Friday,

No. 113

June 12, 2015

Part III

Securities and Exchange Commission

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17 CFR Parts 275 and 279

Amendments to Form ADV and Investment Advisers Act Rules; Proposed Rule

Federal Register / Vol. 80 , No. 113 / Friday, June 12, 2015 /
Proposed Rules

[[Page 33718]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-4091; File No. S7-09-15] RIN 3235-AL75

Amendments to Form ADV and Investment Advisers Act Rules

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing 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
proposing 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: Comments should be received on or before August 11, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. S7-09-15 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-09-15. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Web site (https://www.sec.gov/rules/proposed.shtml).
Comments are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.
Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Bridget D. Farrell, Senior Counsel,
Sarah A. Buescher, Branch Chief, or Daniel S. Kahl, Assistant Director,
at (202) 551-6787 or IArules@sec.gov, Investment Adviser Regulation
Office, Division of Investment Management, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to
rules 204-2 [17 CFR 275.204-2], 202(a)(11)(G)-1 [17 CFR
275.202(a)(11)(G)-1], 203-1 [17 CFR 275.203-1], and 204-1 [17 CFR
275.204-1] under the Investment Advisers Act of 1940 [15 U.S.C. 80b]
(``Advisers Act'' or ``Act''),\1\ and amendments to Form ADV [17 CFR
279.1] under the Advisers Act. The Commission is also proposing to
rescind rule 203A-5 [17 CFR 275.203A-5] under the Advisers Act.

Table of Contents

I. Background
II. Discussion
A. Proposed Amendments to Form ADV
1. Information Regarding Separately Managed Accounts
2. Additional Information Regarding Investment Advisers
3. Umbrella Registration
4. Proposed Clarifying, Technical and Other Amendments to Form
ADV
B. Proposed Amendments to Investment Advisers Act Rules
1. Proposed Amendments to Books and Records Rule
2. Proposed Technical Amendments to Advisers Act Rules
III. Economic Analysis
A. Introduction
B. Proposed Amendments to Form ADV
1. Economic Baseline and Affected Market Participants
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\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.
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2. Benefits
3. Costs
4. Alternatives
C. Proposed Amendments to Advisers Act Rules
1. Economic Baseline and Affected Market Participants
2. Benefits
3. Costs
4. Alternatives
D. Request for Comment
IV. Paperwork Reduction Act Analysis
A. Form ADV
1. Changes in Average Burden Estimate and New Burden Estimates
2. Annual Burden Estimates
3. Total Revised Burdens
B. Rule 204-2
C. Request for Comment
V. Initial Regulatory Flexibility Analysis
A. Reason for the Proposed Action
B. Objectives and Legal Basis
C. Small Entities Subject to the Rule and Rule Amendments
D. Reporting, Recordkeeping and Other Compliance Requirements
E. Duplicative, Overlapping or Conflicting Federal Rules
F. Significant Alternatives
G. Solicitation of Comments
VI. Consideration of Impact on the Economy
VII. Statutory Authority
Text of Rule and Form Amendments
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

I. Background

Form ADV is used by investment advisers to register with the
Commission and with the states. The information collected on Form ADV
serves a vital role in our regulatory program and our ability to
protect investors. Our staff uses Form ADV data to prepare for,
conduct, and implement our risk-based examination program of investment
advisers, and that data also assists our staff in conducting
investigations and bringing enforcement actions. In addition to
providing information about each investment adviser, Form ADV data is
also aggregated by our staff across investment advisers to obtain
census data and to monitor industry trends. Census data and industry
trend information inform our regulatory program and the assessment of
emerging risks. Importantly, Form ADV also benefits clients and
prospective clients because the information filed by advisers is
available to the public on our Web site.\2\
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\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 https://www.adviserinfo.sec.gov.

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[[Page 33719]]

We have amended Form ADV several times to improve our ability to
oversee investment advisers. Most recently we significantly enhanced
reporting requirements for advisers to private funds in connection with
the Dodd-Frank Wall Street Reform and Consumer Protection Act's
(``Dodd-Frank Act's'') \3\ private fund adviser registration
requirements.\4\ Today, we are proposing a more limited set of
amendments to Part 1A of Form ADV in three areas: Revisions to fill
certain data gaps and to enhance current reporting requirements;
amendments to incorporate ``umbrella registration'' for private fund
advisers; and clarifying, technical and other amendments to existing
items and instructions.\5\
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\3\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\4\ See Rules Implementing Amendments to the Investment Advisers
Act of 1940, Investment Advisers Act Release No. 3221 (June 22,
2011), [76 FR 42950 (July 19, 2011)] (``Implementing Release'').
\5\ In general, this release discusses the Commission's proposed
rule and form amendments that would 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 Form ADV Part 1B
as part of their state registrations. We will accept any comments
and forward them to the North American Securities Administrators
Association (``NASAA'') for consideration by the state securities
authorities. We request that you clearly indicate in your comment
letter which of your comments relate to these items. Commenters
alternatively may send comments relating to these items directly to
NASAA at the following email address: NASAAcomments@nasaa.org.
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Several of the proposed amendments to Form ADV relate to separately
managed accounts. Investment advisers manage assets of pooled
investment vehicles, including registered and unregistered funds.
Advisers also manage assets of other clients, such as pension plans,
endowments, foundations, other institutional clients and retail
clients, through separately managed accounts. We currently collect
detailed information about pooled investment vehicles,\6\ but little
specific information regarding separately managed accounts. The
proposed amendments to Form ADV would require an adviser to provide
certain aggregate information on separately managed accounts it
advises, including information on regulatory assets under management,
investments and use of derivatives and borrowings.\7\ Other examples of
information we propose to collect from advisers include information on
the use of social media and information on an adviser's other
offices.\8\ These items, and others discussed below, are designed to
improve the depth and quality of the information we collect on
investment advisers and to facilitate our risk monitoring initiatives.
---------------------------------------------------------------------------

\6\ See, e.g., Form ADV, Part 1A, Section 7.B.(1) of Schedule D;
and Form PF [17 CFR 279.9].
\7\ Proposed Form ADV, Part 1A, Item 5.K.(1)-(4) and Section
5.K.(1)-(3) of Schedule D.
\8\ Proposed Form ADV, Part 1A, Items 1.I. and 1.F and Sections
1.I. and 1.F of Schedule D.
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We also are proposing amendments to Part 1A that would establish a
more efficient method for the registration of multiple private fund
adviser entities operating a single advisory business on one Form ADV
(``umbrella registration''). Form ADV was designed to accommodate the
typical registration of an investment adviser that is a single legal
entity. Advisers of private funds frequently are organized using
multiple legal entities, and the staff has provided guidance to private
fund advisers regarding umbrella registration within the confines of
the current form.\9\ The proposed amendments to incorporate umbrella
registration into Form ADV would make the availability of umbrella
registration more widely known to advisers. Uniform filing requirements
for umbrella registration in Form ADV also would provide more
consistent data about, and create a clearer picture of, groups of
advisers that operate as a single business by grouping Form ADV data
for each legal entity registered under the umbrella. Uniform filing
requirements also would allow for greater comparability across private
fund advisers.
---------------------------------------------------------------------------

\9\ See American Bar Association, Business Law Section, SEC
Staff Letter (Jan. 18, 2012), available at https://www.sec.gov/divisions/investment/noaction/2012/aba011812.htm (the ``2012 ABA
Letter'').
---------------------------------------------------------------------------

The last group of amendments we are proposing to Part 1A are
clarifying, technical, and other amendments that are informed by our
staff's experience with the form and responding to inquiries by
advisers and their service providers. Among other things, these
amendments should assist filers and their service providers by making
the form easier to understand and complete.
We also are proposing several amendments to Advisers Act rules
unrelated to the revisions to Form ADV described above. First, we are
proposing amendments to the books and records rule, rule 204-2, that
would 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. The proposed amendments also would require
advisers to maintain originals of all written communications received
and copies of written communications sent by an investment adviser
related to the performance or rate of return of any or all managed
accounts or securities recommendations.\10\ As discussed more fully
below, we believe that these proposed amendments would better protect
investors from fraudulent performance claims. Finally, we are proposing
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.
---------------------------------------------------------------------------

\10\ Rule 204-2 under the Advisers Act.
---------------------------------------------------------------------------

We 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 proposal 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 proposal,
including data regarding separately managed accounts and are cited in
the discussion below.\11\
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\11\ See Notice Seeking Comment on Asset Management Products and
Activities, 79 FR 77488 (Dec. 24, 2014) (``FSOC Request for
Comment'').
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II. Discussion

A. Proposed Amendments to Form ADV

1. Information Regarding Separately Managed Accounts
Several of the amendments to Form ADV that we are proposing today
are designed to collect more specific information about advisers'
separately managed accounts.\12\ 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
investment companies (i.e., private

[[Page 33720]]

funds)) to be separately managed accounts. We currently collect
detailed information about pooled investment vehicles that advisers
manage, but little specific information regarding separately managed
accounts.\13\ The proposed amendments are designed to enhance our
staff's ability to effectively carry out our risk-based examination
program and other risk assessment and monitoring activities with
respect to these separately managed accounts and their investment
advisers.
---------------------------------------------------------------------------

\12\ In response to the FSOC Request for Comment, supra note 11,
some commenters expressed support for collecting additional
information regarding separately managed accounts. See, e.g.,
Comment Letter of Americans for Financial Reform (March 27, 2015);
Comment Letter of State Street Corporation (March 25, 2015); and
Comment Letter of The Systemic Risk Council (March 25, 2015). Other
commenters did not support additional reporting regarding separately
managed accounts. See, e.g., Comment Letter of Money Management
Institute (March 25, 2015) and Comment Letter of Wellington
Management Group LLP (March 25, 2015).
\13\ Registered investment companies and business development
companies report information about their portfolio holdings and
investment strategies on reports filed with the Commission,
including in their registration statements and shareholder reports.
Today, in a contemporaneous release, we are proposing rule and form
amendments for registered investment companies that are designed to
modernize the reporting of information to the Commission. See
Investment Company Reporting Modernization, Investment Company Act
Release No. 31610, May 20, 2015. Investment advisers to private
funds file reports with the Commission on Form PF. Form PF also
collects information about private fund parallel managed accounts.
---------------------------------------------------------------------------

The proposed amendments regarding separately managed accounts would
require more detailed information than we currently receive in response
to Item 5 of Part 1A and Section 5 of Schedule D.\14\ Item 5 and
Section 5 currently require advisers to provide information about their
advisory business including percentages of types of clients and assets
managed for those clients. We propose to collect information
specifically about separately managed accounts, including types of
assets held, and the use of derivatives and borrowings in the accounts.
Advisers that report that they have regulatory assets under management
attributable to separately managed accounts in response to Item 5.K.(1)
would be required to complete several questions in Sections 5.K.(1),
5.K.(2) and 5.K.(3) of Schedule D regarding those accounts.
---------------------------------------------------------------------------

\14\ See section II.A.2. for a discussion of other proposed
amendments to Item 5 of Part 1A.
---------------------------------------------------------------------------

First, we propose to require advisers to report the approximate
percentage of separately managed account regulatory assets under
management invested in ten broad asset categories, such as exchange-
traded equity securities and U.S. government/agency bonds.\15\ These
categories are designed to collect general information about the broad
categories of assets held in separately managed accounts. We believe
that collecting information about the types of assets held in these
accounts would allow us to better monitor this segment of the
investment advisory industry by, for instance, allowing us to identify
advisers that specialize in certain asset classes. Advisers would
report this information annually. For advisers with at least $10
billion in regulatory assets under management attributable to
separately managed accounts, we propose to collect both mid-year and
year-end data on an annual basis.
---------------------------------------------------------------------------

\15\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)-
(b). The Glossary to Proposed Form ADV includes ``Sovereign Bonds,''
``Investment Grade'' and ``Non-Investment Grade,'' which are terms
used in the list of asset categories. The definitions are consistent
with those in Form PF.
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Second, we propose to require advisers with at least $150 million
in regulatory assets under management attributable to separately
managed accounts to report information on the use of borrowings and
derivatives in those accounts.\16\ For advisers with at least $150
million but less than $10 billion in regulatory assets under management
attributable to separately managed accounts, we propose reporting of
the number of accounts that correspond to certain categories of gross
notional exposure, and the weighted average amount of borrowings (as a
percentage of net asset value) in those accounts.\17\ For purposes of
this proposed item, gross notional exposure 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 net asset
value of the account. Reporting on the use of borrowings and
derivatives would only be required with respect to separately managed
accounts with a net asset value of at least $10 million. Advisers with
at least $10 billion in regulatory assets under management attributable
to separately managed accounts would have to report the gross notional
exposure and borrowing information described above, as well as the
weighted average gross notional value of derivatives (as a percentage
of the net asset value) in each of six different categories of
derivatives.\18\ We are proposing to collect information about gross
notional exposure, borrowings, and gross notional value of derivatives
because we believe it is important for us to better understand the use
of derivatives and borrowings by advisers in separately managed
accounts.\19\ We are proposing to use these measures because they are
commonly used metrics in assessing the use of derivatives and are
comparable to information collected on Form PF regarding private funds.
This reporting would be required for advisers managing at least $150
million in regulatory assets under management attributable to
separately managed accounts, but all advisers to separately managed
accounts would be required to report in Section 5.K.(1) the percentage
of separately managed account assets held in derivatives.
---------------------------------------------------------------------------

\16\ The $150 million threshold is consistent with Form PF,
which requires investment advisers registered with the Commission
that advise one or more private funds and have at least $150 million
in private fund assets under management to file Form PF.
\17\ The Glossary to Proposed Form ADV includes ``gross notional
value'', ``borrowings'' and ``net asset value.'' The Glossary to
Proposed Form ADV defines ``borrowings'' as ``[S]ecured borrowings
and unsecured borrowings, collectively. Secured borrowings are
obligations for borrowed money in respect of which the borrower has
posted collateral or other credit support and should include any
reverse repos (i.e., any sale of securities coupled with an
agreement to repurchase the same (or similar) securities at a later
date at an agreed price). Unsecured borrowings are obligations for
borrowed money in respect of which the borrower has not posted
collateral or other credit support.'' The Glossary to Proposed Form
ADV defines ``gross notional value'' 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.''
The Glossary to Proposed Form ADV defines ``net asset value'' as
``With respect to any client, the gross assets of the client's
accounts minus any outstanding indebtedness or other accrued but
unpaid liabilities.'' These definitions are consistent with those in
Form PF.
\18\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a).
\19\ In response to the FSOC Request for Comment, supra note 11,
several commenters discussed a variety of measures for reporting
leverage (which includes derivatives and borrowings). See, e.g.,
Comment Letter of the Asset Management Group of the Securities
Industry and Financial Markets Association and the Investment
Adviser Association (March 25, 2015); Comment Letter of BlackRock,
Inc. (March 25, 2015); Comment Letter of Fidelity Investments (March
25, 2015); and Comment Letter of Managed Funds Association (March
25, 2015).
---------------------------------------------------------------------------

Advisers would be 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. In addition, advisers with at least
$10 billion in separately managed account regulatory assets under
management would be required to report both mid-year and year-end
information as part of their annual filing.\20\ Note that we are not
proposing that advisers file information semi-annually. Rather, when
filing an annual amendment, the adviser would be required to provide
information as of each semi-annual period. Requiring less detailed
reporting for advisers that manage less than $10 billion in separately
managed account assets, and requiring reporting on borrowings and
derivatives only with respect to separately managed accounts with a net
asset value of at least $10

[[Page 33721]]

million, are designed to balance our regulatory need for this
information while seeking to minimize the reporting burden on smaller
advisers where appropriate. Our staff estimates that approximately six
percent of advisers that manage separately managed accounts would be
required to provide the more detailed semi-annual information.\21\ The
proposed amendments are designed to provide mid-year and end of year
data points to assist our staff in identifying the use of borrowings
and derivative exposures in large separately managed accounts as part
of the staff's risk assessment and monitoring programs, and to allow
Commission staff to identify and monitor trends in borrowings and
derivatives transactions in separately managed accounts.
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\20\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a).
\21\ We propose to focus the proposed semi-annual reporting
requirements on the top five to ten percent of registered investment
advisers to separately managed accounts. Based on IARD data as of
April 1, 2015, of the 8,500 registered investment advisers that
reported regulatory assets under management from clients other than
registered investment companies, business development companies and
pooled investment vehicles (indicating that they have assets under
management attributable to separately managed accounts)
approximately 535 (approximately 6.3%) reported at least $10 billion
in regulatory assets under management attributable to separately
managed account clients. Having additional information about these
larger advisers assists the staff in risk assessment.
---------------------------------------------------------------------------

Finally, we propose 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.\22\ Information about assets held,
custodians and the use of borrowings and derivatives in separately
managed accounts is similar to information collected about pooled
investment vehicles, and it would significantly improve our
understanding of this segment of advisers' accounts. This information
would allow examination staff to identify advisers whose clients use
the same custodian in the event, for example, a concern is raised about
a particular custodian.\23\ Advisers frequently have client accounts at
many custodians as a result of client requirements. Accordingly, we are
proposing a ten percent threshold in order to focus the proposed
reporting requirements on the identification of custodians that serve a
significant number of advisers' separately managed account clients.
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\22\ Proposed Form ADV, Part 1A, Item 5.K.(4) and Schedule D,
Section 5.K.(3). We acknowledge that advisers that have custody (or
whose related persons have custody) of client assets also currently
report the number of persons who act as qualified custodians for
their clients in connection with advisory services provided to
clients in response to Part 1A, Item 9.F. The proposed item would
provide the Commission with more detailed information about
custodians by requiring advisers to separately managed accounts to
identify all custodians, not just qualified custodians, that service
ten percent or greater of separately managed account client assets,
and would require a response whether or not the adviser or the
adviser's related person has custody of assets in separately managed
accounts.
\23\ Information about custodians of separately managed accounts
also would complement similar information that we obtain for pooled
investment vehicles. See Form ADV, Part 1A, Schedule D, Section
7.B.(1), Question 25. Registered investment companies are required
to identify their custodians, see, e.g., Form N-1A, Item 19(h)(3)
[17 CFR 274.11A].
---------------------------------------------------------------------------

We request comment on the changes we propose to make to Form ADV
regarding separately managed accounts.
Advisers would be required to update separately managed
account information annually. Should we require more frequent
reporting, such as quarterly reporting? Should an adviser be required
to update information on separately managed accounts any time the
adviser files an other-than-annual amendment to Form ADV? Is it
appropriate to require semi-annual data in annual reporting instead of
semi-annual reporting for advisers that manage at least $10 billion in
separately managed accounts? Why or why not?
In order to better understand the use of derivatives in
separately managed accounts, would we need more data points from each
adviser than the annual and semi-annual proposed data points? Why or
why not?
Are the $10 million, $150 million and $10 billion
thresholds appropriate? Why or why not? Should we require advisers that
manage less than $150 million in assets under management attributable
to separately managed accounts to report additional information about
those accounts or report semi-annual information?
Should we ask about the investment strategies used in
separately managed accounts as opposed or in addition to asset types?
If so, how should we define the investment strategies so that
information reported to us is meaningful? Should we use some or all of
the investment strategies listed in Form PF for private funds? \24\ Is
there other information about separately managed accounts that we
should consider instead?
---------------------------------------------------------------------------

\24\ See, e.g., Form PF, Section 1c, Item B., Question 20.
---------------------------------------------------------------------------

Is there any overlap among the proposed asset types? If
so, which particular types? Are there any additional asset types that
should be included?
Would disclosure of aggregate holdings, derivatives and
borrowings in separately managed accounts raise concerns, in light of
Section 210(c) of the Advisers Act, regarding the identity,
investments, or affairs of any clients owning those accounts when
clients are not identified? If so, please explain, and address whether
there are ways in which the Commission could address these concerns and
still request comparable information.
Would the disclosure of information about separately
managed accounts in the aggregate be useful for risk monitoring and
data analysis purposes? Why or why not?
Are the proposed definitions related to Schedule D,
Section 5.K.(1) and (2) sufficiently clear to allow advisers to provide
the requested information? If not, please explain why and provide
alternative definitions or suggestions. Would a definition of
``derivatives'' improve the reporting requirements? If so, how should
that term be defined? For instance, should it be defined broadly to
include instruments whose price is dependent on or derives from one or
more underlying assets? Alternatively, should it be defined to mean
futures and forward contracts, options, swaps, security-based swaps,
combinations of the foregoing, or any similar instruments, or should it
be defined in some other manner? If, so, how?
Are gross notional exposures and gross notional values
appropriate measures of the use of derivatives? Are there alternative
or additional measures that we should consider?
Would the disclosure of information about separately
managed accounts affect or influence business or other decisions by
advisers?
Is ten percent an appropriate threshold for information on
custodians that serve a significant number of separately managed
accounts? Should it be higher or lower? If so, why?
Should we require advisers to report information about the
use of securities lending and repurchase agreements in separately
managed accounts? If so, is there specific information we should
collect, and should we require information only from advisers that
manage a large amount of separately managed account assets? Are
securities lending arrangements and repurchase agreements used by
separately managed accounts to such an extent that we should require
all advisers that manage separately managed accounts to report this
information?
Is there additional information we should collect that
would assist us in

[[Page 33722]]

learning more about separately managed accounts?
Is the information required to answer these proposed
questions readily available to advisers? If not, why?
2. Additional Information Regarding Investment Advisers
In addition to the proposals outlined above regarding separately
managed accounts, we are proposing to add several new questions and
amend existing questions on Form ADV regarding identifying information,
an adviser's advisory business, and affiliations. These items,
developed through our staff's experience in examining and monitoring
investment advisers, are designed to enhance our understanding and
oversight of investment advisers and to assist our staff in its risk-
based examination program.
Additional Identifying Information
We propose several amendments to Item 1 of Part 1A of Form ADV to
improve certain identifying information that we obtain. 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.\25\ We propose to remove this question from Item 1.N. and add a
question to Item 1.D. that would require an adviser to provide all of
its CIK Numbers if it has one or more such numbers assigned,\26\
regardless of public reporting company status.\27\ Requiring
registrants to provide all of their assigned CIK numbers, if any, would
improve our staff's ability to use and coordinate Form ADV information
with information from other sources to investigate relationships
relating to investment advisers.
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\25\ Form ADV, Part 1A, Item 1.N.
\26\ 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 another capacity, such as a transfer
agent.
\27\ Proposed Form ADV, Part 1A, Item 1.D.(3).
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Item 1.I of Part 1A of Form ADV currently asks whether an adviser
has one or more Web sites, and Section 1.I. of Schedule D requests the
Web site address. We propose to amend Item 1.I. to ask whether the
adviser has one or more Web sites or Web sites for social media
platforms, such as Twitter, Facebook and LinkedIn, and request the
social media addresses in addition to the adviser's Web site address in
Section 1.I. of Schedule D.\28\ Along with Web sites, advisers
increasingly utilize social media to communicate and it would be useful
for this information to be available to us and the general public. Our
staff could 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 identifying and
monitoring new platforms. Current and prospective clients could use
this information to learn more about advisers and make more informed
decisions regarding the selection of advisers.
---------------------------------------------------------------------------

\28\ Proposed Form ADV, Part 1A, Item 1.I. and Section 1.I. of
Schedule D.
---------------------------------------------------------------------------

We propose amending Item 1.F of Part 1A of Form ADV and Section
1.F. of Schedule D 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.\29\ In
order to assist Commission examination staff to learn more about an
investment adviser's business and identify locations to conduct
examinations, we are now proposing that advisers provide us with the
total number of offices at which they conduct investment advisory
business and provide information in Schedule D about their 25 largest
offices in terms of number of employees.\30\ We propose 25 offices as
the number to be reported because it would 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.\31\
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\29\ Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule
D.
\30\ Proposed Form ADV, Part 1A, Item 1.F. and Section 1.F. of
Schedule D.
\31\ IAPD Investment Adviser Registered Representative State
Data as of April 1, 2015 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.
---------------------------------------------------------------------------

In addition to providing contact information for the 25 largest
offices, we propose to amend Section 1.F. of Schedule D to require
advisers to report each office's CRD branch number (if applicable) and
the number of employees who performed 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 would 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. In addition, if
the staff wanted to focus on offices that conducted a combination of
activities, such as those that engaged in municipal advisory activities
as well as investment advisory activities, it would have that
information readily available.
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 propose to amend 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, and, if so, to report the
name and IRS Employer Identification Number (if any) of that other
person. Our examination staff has observed a wide spectrum of both
quality and effectiveness of outsourced chief compliance officers and
firms. Identifying information for these third-party service providers,
like others on Form ADV,\32\ would allow us to identify all advisers
relying on a particular service provider and could be used to improve
our ability to assess potential risks.
---------------------------------------------------------------------------

\32\ 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.
---------------------------------------------------------------------------

We propose to amend Item 1.O. to require advisers to report their
own assets within a range.\33\ We added this item in 2011, and it
currently requires an adviser to check a box to indicate if it has
assets of $1 billion or more, in connection with the Dodd-Frank Act's
requirements concerning certain incentive-based compensation
arrangements.\34\ Requiring advisers to report assets within a given
range would provide more accurate data for use in Commission rulemaking
arising from ongoing Dodd-Frank Act implementation.\35\
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\33\ Proposed Form ADV, Part 1A, Item 1.O.
\34\ See Implementing Release, supra note 4; Section 956 of the
Dodd-Frank Act. We also propose to move 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.
\35\ See, e.g., Section 165(i) of the Dodd-Frank Act, which
requires the Commission and other financial regulators to establish
methodologies for the conduct of stress tests required by section
165 of the Act.
---------------------------------------------------------------------------

We request comment on the proposed changes to Item 1 of Part 1A and
Section 1 of Schedule D.

[[Page 33723]]

Are there concerns with providing all CIK numbers assigned
to an adviser? If so, please explain those concerns.
Are there concerns with providing social media information
for advisers? If so, please explain those concerns. Are there ways that
we could address these concerns and still request comparable
information?
Would the proposed social media information be useful to
investors? Why or why not?
Is there additional social media information that we
should collect? Should we ask advisers whether they permit employees to
have social media accounts associated with the advisers' business? And,
if so, should we ask advisers to identify the number or percentage of
employees that have those accounts? How burdensome would it be for
advisers to report that information?
As proposed, information would be required regarding an
adviser's 25 largest offices. We selected 25 in order to balance the
burden to investment advisers with providing this information with our
need for information about additional offices. If instead we were to
require all offices to be reported, would the burden on advisers be
significant? Should we decrease the number of offices or provide
another standard to identify the offices that should be reported?
Would additional information about an adviser's offices be
helpful to investors? Why or why not?
Are there concerns related to disclosure of information
regarding outsourced chief compliance officers? If so, please explain
those concerns.
In addition to the identification of outsourced chief
compliance officers, should we also request information about advisers'
use of third-party compliance auditors? If so, what information should
we request?
Are there any concerns related to disclosing the range of
an adviser's own assets? If so, please explain those concerns. Should
the ranges be different than proposed? Why or why not?
Are the proposed requirements clearly stated?
Do advisers readily have access to the data and
information requested by these proposed changes?
Additional Information About Advisory Business
In addition to the proposed amendments to Item 5 regarding
separately managed accounts discussed above, we are proposing a number
of other amendments to Item 5. Item 5 currently requires an adviser to
provide approximate ranges for three important 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.\36\ We propose to amend these items to require an
adviser to report the number of clients 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.\37\
Replacing ranges with more precise information would provide more
accurate information about investment advisers and would significantly
enhance our ability to analyze data across investment advisers because
providing actual numbers of clients and regulatory assets under
management allows us to see the scale and concentration of assets by
client type. 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 should be readily
available to advisers because, among other reasons, 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 propose to require reporting on the
number of clients for whom an adviser provided advisory services but
does not have regulatory assets under management in order to obtain a
more complete understanding of the adviser's advisory business.\38\
This information also would assist in our risk assessment process and
increase the effectiveness of our examinations.
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\36\ Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)-(2).
\37\ Proposed Form ADV, Part 1A, Item 5.D.(1)-(2). The
categories of clients are the same as those in Item 5.D. of the
current Form ADV, except that we propose 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.
\38\ Proposed 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.
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We are proposing 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 reported in Part 1A of Form ADV would be required to
check a box noting that election.\39\ This information would allow our
examination staff to review across advisers the extent to which
advisers report assets under management in Part 2A that differ from the
regulatory assets under management reported in Part 1A of Form ADV.
Having this information would 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. In addition,
we propose to add a question asking the approximate amount of an
adviser's regulatory assets under management that is attributable to
non-U.S. clients \40\ to complement the current requirement that each
adviser report the percentage of its clients that are non-U.S. persons,
which, based on our experience, is not always a reliable indicator of
an adviser's relationships with non-U.S. clients.\41\ Our examination
staff could use this information to better understand the extent of
investment advice provided to non-U.S. clients which would assist us in
our risk assessment process.
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\39\ Proposed 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 (March 3, 2008) [73 FR 13958 (March.
14, 2008)].
\40\ Proposed Form ADV, Part 1A, Item 5.F.(3).
\41\ Form ADV, Part 1A, Item 5.C.(2). For example, an adviser
may report a significant percentage of clients that are non-U.S.
persons, but the regulatory assets under management attributable to
those clients is a small percentage of the adviser's regulatory
assets under management.
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Section 5.G.(3) of Schedule D currently requires the SEC File
Number for registered investment companies and business development
companies advised by the adviser. We propose 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 business development company that is advised by
the adviser.\42\ This information

[[Page 33724]]

would be helpful because it would 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. This
information also would show the extent of any shift in assets between
parallel managed accounts and registered investment companies or
business development companies.
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\42\ Proposed Form ADV, Part 1A, Section 5.G.(3) of Schedule D.
The Glossary to Proposed Form ADV includes ``parallel managed
account,'' which would be defined as: ``With respect to any
registered investment company 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 business development company that you advise.''
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Finally, we propose to amend Item 5 to obtain additional
information concerning wrap fee programs.\43\ 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 propose to
amend Item 5.I. to require an adviser to report the total amount of
regulatory assets under management attributable to acting as a sponsor
and/or portfolio manager of a wrap fee program.\44\ Section 5.I.(2) of
Schedule D currently requires advisers to list the name and sponsor of
each wrap fee program for which the adviser serves as portfolio
manager. We propose amending Section 5.I.(2) to add questions that
would require an adviser to provide any SEC File Number and CRD Number
for sponsors to those wrap fee programs.\45\ This information would
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. Wrap fee
accounts are held by a large number of retail clients, and we believe
additional information about the capacity in which advisers serve these
accounts would help us better protect investors.
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\43\ Form ADV, Glossary 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 proposing any
change to this definition.
\44\ Proposed Form ADV, Part 1A, Item 5.I.
\45\ Proposed Form ADV, Part 1A, Section 5.I.(2) of Schedule D.
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We request comment on the additional changes we propose to make to
Item 5 and related sections of Schedule D.
Please describe any benefits or concerns with using more
precise numbers in Item 5, rather than ranges.
Is there any overlap among the categories of clients, and
if so, among which particular categories? How could we address any
overlaps?
Please describe any concerns with providing information
on: (a) The number of clients for whom investment advisers provide
advisory services but do not have regulatory assets under management;
(b) the regulatory assets under management attributable to non-U.S.
clients; or (c) parallel managed accounts. Are there other types of
information advisers could report that would meet our goals?
Would the additional information on wrap fee programs be
helpful to investors and other market participants? Should any
additional information be required?
Would advisers readily have access to the data requested?
Are the proposed requirements clearly stated?
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 private funds managed by the
adviser. We are proposing amendments to Sections 7.A. and 7.B.(1) of
Schedule D that would require advisers to provide identifying numbers
(e.g., Public Company Accounting Oversight Board (``PCAOB'')
registration numbers \46\ and CIK numbers \47\) in several questions to
allow us to better compare information across data sets and understand
relationships of advisers to other financial service providers. We are
also proposing a new question that would require advisers to report the
percentage of a private fund owned by qualified clients, as defined in
rule 205-3 under the Advisers Act.\48\ This information would help us
better understand the nature of investors in private funds.
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\46\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 23(e).
\47\ Proposed Form ADV, Part 1A, Section 7.A of Schedule D,
Question 4(b).
\48\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 15(b).
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We request comment on the proposed changes to Sections 7.A. and
7.B.(1) of Schedule D.
Would advisers readily have access to the data requested?
Please describe any concerns with providing: (a)
Identifying numbers; or (b) the percentage of a private fund owned by
qualified clients.
Are the requirements clearly stated?
3. Umbrella Registration
The Dodd-Frank Act, among other things, repealed the private
adviser exemption that used to be in section 203(b)(3) of the Advisers
Act.\49\ As a result, many previously unregistered advisers to private
funds,\50\ including hedge funds and private equity funds, were
required to register under the Advisers Act. Today, about 4,364
registered investment advisers provide advice on approximately $10.1
trillion in assets to approximately 28,532 private funds clients.\51\
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\49\ 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.
\50\ 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.''
\51\ Based on IARD data as of April 1, 2015.
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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,\52\ Form ADV is designed to accommodate the registration
request of an adviser structured as a single legal entity. As a result,
a private fund adviser organized as a group of related advisers could
have to file multiple registration forms for the same 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 Web site.
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\52\ We will 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 (July 6, 2011)]
(``Exemptions Release''); see also In the Matter of TL Ventures
Inc., Investment Advisers Act Release No. 3859 (June 20, 2014)
(settled action).
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Our staff provided guidance to private fund advisers before the
compliance date of the Dodd-Frank Act private fund adviser registration
requirements

[[Page 33725]]

designed to address concerns raised by advisers.\53\ The guidance
provided conditions under which the staff believed one adviser (the
``filing adviser'') may file a single Form ADV on behalf of itself and
other advisers that are controlled by or under common control with the
filing adviser (each, a ``relying adviser''), provided that they
conduct a single advisory business (collectively an ``umbrella
registration''). We believe that the staff's position has been
successful in addressing the registration concerns that can arise from
the legal structures of private fund advisers. Most advisers that can
rely on umbrella registration are doing so, with approximately 750
filing advisers and approximately 2,500 relying advisers filing
umbrella registrations.\54\
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\53\ See 2012 ABA Letter. 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), Question G1, available at
https://www.sec.gov/divisions/investment/noaction/aba120805.htm (the
``2005 ABA Letter'').
\54\ Based on IARD data as of April 1, 2015.
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The method outlined in the staff guidance for filing Form ADV on
behalf of multiple entities is limited, however, by the form being
designed for a single legal entity, and in some cases complicates data
collection and analysis on umbrella registrants and can confuse filers
and the public.\55\ The amendments to Part 1A that we propose would
yield additional and more consistent data about, and create a clearer
picture of, groups of private fund advisers that operate as a single
business, while codifying the concept of umbrella registration and
simplifying the process of registration for such advisers. The
amendments also would allow for greater comparability across private
fund advisers.
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\55\ Under the guidance provided by the staff, for example,
umbrella registration is appropriate where a relying adviser is not
prohibited from registering with the Commission by section 203A of
the Advisers Act. See 2012 ABA Letter, supra note 9. However, a
relying adviser does not currently have a way to answer Item 2
regarding the basis on which it is eligible for SEC registration. In
addition, relying advisers often must list owners and executive
officers in a confusing manner in Schedules A and B which were not
designed to accommodate multiple advisers and do not always provide
the Commission staff with useful information on the owners of each
relying adviser. Also, the filing adviser currently discloses its
reliance on the 2012 ABA Letter in the Miscellaneous Section of
Schedule D.
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Under the amendments we are proposing, umbrella registration would
be available where a filing adviser and one or more relying advisers
conduct a single private fund advisory business and each relying
adviser is controlled by or under common control with the filing
adviser. As proposed, umbrella registration would only be available in
the scenario of a private fund adviser operating as a single business
through multiple legal entities. At this time, we do not believe
umbrella registration would be 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.\56\ In addition, providing for disparate businesses to
register on a single Form ADV as it is designed today would limit
investors' ability to assess information on investment advisers
because, based on our experience, reporting information about multiple
advisers' businesses together on a single form would make Part 1A
difficult to understand.
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\56\ The filing of a single Form ADV for exempt reporting
advisers in a manner similar to the filing of an umbrella
registration for registered advisers also would not be available as
the conditions of a single advisory business are designed, in part,
to reflect requirements that only apply to registered advisers,
including the requirement for compliance policies and procedures
pursuant to rule 206(4)-7 under the Advisers Act and for a code of
ethics pursuant to rule 204A-1 under the Advisers Act. 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.
---------------------------------------------------------------------------

Accordingly, we are proposing amendments to Form ADV's General
Instructions that would establish conditions for an adviser to assess
whether umbrella registration is available. The conditions, which are
indicia of a single advisory business, include the following:
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 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; \57\
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\57\ As we have previously stated, we do not apply most of the
substantive provisions of the Advisers Act to the non-U.S. clients
of a non-U.S. adviser registered with the Commission. See Exemptions
Release, supra note 52, at section II.D. 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.
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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.\58\
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\58\ Under this approach, 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.
---------------------------------------------------------------------------

The conditions are drawn from our experience with examining
investment advisers and are designed to capture advisers to private
funds that operate as a single business through commonality of the
application of the Advisers Act and rules to all entities,
implementation of compliance requirements, and advisory services. They
are designed to include advisers to private funds (as discussed in
condition 1) that operate as a single business. Conditions 2 and 4
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
address the requirement that the filing and relying advisers operate as
a single business. Advisers that operate under common supervision and
control and have a single set of compliance policies and procedures and
code of ethics are likely to operate as a

[[Page 33726]]

single business. Finally, the conditions are the same as those 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 proposal).\59\
---------------------------------------------------------------------------

\59\ See 2012 ABA Letter, supra note 9, Question 4.
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In addition, we propose to amend the General Instructions 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.\60\
To satisfy the requirements of Form ADV while using umbrella
registration, the filing adviser would be 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 proposed revisions to the form's
Instructions and Form ADV would further specify those questions that
should be answered solely with respect to the filing adviser and those
that require the filing adviser to answer on behalf of itself and its
relying adviser(s).\61\ Additionally, we propose amending the Glossary
to add the following three terms: (i) ``Filing adviser;'' \62\ (ii)
``relying adviser;'' \63\ and (iii) ``umbrella registration.'' \64\
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\60\ See Proposed Form ADV General Instruction 5.
\61\ See, e.g., statements added to Proposed Form ADV,
Instructions and Part 1A, Items 1, 2, 3, 7, 10 and 11.
\62\ ``Filing Adviser'' would mean: ``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 Proposed Form ADV Glossary.
\63\ ``Relying Adviser'' would mean: ``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
Proposed Form ADV Glossary.
\64\ ``Umbrella Registration'' would mean: ``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 Proposed
Form ADV Glossary.
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We also are proposing a new schedule to Part 1A--Schedule R--that
would have to be filed for each relying adviser.\65\ Schedule R would
require identifying information, basis for SEC registration, and
ownership information about each relying adviser, some of which is
already filed by an adviser relying on the staff guidance.\66\ This new
schedule would consolidate in one location important information for
each relying adviser and address 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 accommodate umbrella registration.\67\ Finally, we
propose to add a new question to Schedule D that would require advisers
to identify the filing advisers and relying advisers that manage or
sponsor private funds reported on Form ADV. This information would
allow us to identify the specific adviser managing the private fund
reported on Form ADV if it is part of an umbrella registration.\68\
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\65\ Advisers that choose to file an umbrella registration would
be directed by Item 1.B. to complete a new Schedule R for each
relying adviser. Proposed Form ADV, Part 1A, Item 1.B.(2).
\66\ Schedule R would require 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 do not include categories that would make the relying adviser
ineligible for umbrella registration, such as serving as an adviser
to a registered investment company.
\67\ Under the staff's guidance in the 2012 ABA Letter, an
adviser reports in its Form ADV (Miscellaneous Section of Schedule
D) that it and its relying advisers are together filing a single
Form ADV in reliance on the position expressed in the letter and
identifies each relying adviser by completing a separate Section
1.B., Schedule D, of Form ADV for each relying adviser and
identifying it as such by including the notation ``(relying
adviser).'' See 2012 ABA Letter, supra note 9, Question 4.
\68\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 3(b).
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Advisers registering in reliance on the staff's umbrella
registration approach outlined in the 2012 ABA Letter do not provide
information about each relying adviser's address, CRD, unique
identifier numbers, basis for registration or form of organization. Our
proposal would require this information to be reported. We believe that
certain information that we propose requiring as part of umbrella
registration (such as mailing address and basis for registration) would
be the same for nearly all relying advisers, and the filing adviser
could check a box indicating that the mailing address of the relying
advisers is the same as that of the filing adviser. Advisers relying on
the 2012 ABA Letter do not currently identify the filing adviser or
relying adviser that advises private funds reported on Section 7.B.(1)
of Schedule D, and our proposal would require this information to be
reported. We believe that this information would help us better
understand the management of private funds, would provide information
to contact relying advisers, and would help us better understand the
relationship between relying advisers and filing advisers.
We request comment on the changes we propose to make to Form ADV
regarding umbrella registration.
Should we amend Form ADV to accommodate umbrella
registration? Why or why not?
Would these amendments be helpful for private fund
advisers and investors?
Is umbrella registration appropriate or should we require
separate registration by each adviser?
Would umbrella registration provide more consistent and
clear information about groups of private fund advisers that operate as
a single business? Why or why not?
Are there additional or different conditions we should
consider for umbrella registration?
Should we require that the availability of umbrella
registration be expanded to include advisers with clients that are not
primarily private funds, and if so, what are the legal structures that
it should accommodate and are the proposed conditions sufficient to
capture only single advisory businesses?
We are not proposing to make filing an umbrella
registration mandatory, because we believe it is appropriate to permit
advisers to file a separate Form ADV for each relying adviser if they
choose to do so.\69\ Should umbrella registration be required? Should
firms indicate if they could, but chose not to, rely on umbrella
registration?
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\69\ Under the proposed amendments, multiple private advisers
operating a single advisory business may elect to apply separately
for registration.
---------------------------------------------------------------------------

Are the proposed amendments to the instructions and Form
ADV sufficient to implement umbrella registration? If not, what
amendments are necessary?
Should we require more, less or different information on
proposed Schedule R? What information should be added or deleted?
4. Proposed Clarifying, Technical and Other Amendments to Form ADV
We are proposing several amendments to Form ADV that are designed
to clarify the form and its instructions. We believe these proposed
amendments to Form ADV would make the filing process clearer and
therefore more efficient for advisers, and increase the reliability and
the consistency of information provided by investment

[[Page 33727]]

advisers. More reliable and consistent information would improve our
staff's ability to interpret, understand, and place in context the
information provided by advisers, and also would allow our staff to
make comparisons across investment advisers, and improve the risk
assessment and examination program. Many of these proposed amendments
are derived from questions frequently received by our staff.
Proposed 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.\70\ Section 2.A.(9) of Schedule D. is entitled ``Newly Formed
Adviser'' and requests the adviser to make certain representations. 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 we propose
to delete the phrase ``newly formed adviser'' from Item 2.A.(9) and
Section 2.A.(9) of Schedule D. Section 2.A.(9) would be renamed
``Investment Advisers Expecting to be Eligible for Commission
Registration within 120 Days.'' \71\
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\70\ Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of
Schedule D.
\71\ Proposed Form ADV, Part 1A, Item 2.A.(9); see rule 203A-
2(c) under the Advisers Act.
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Proposed 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 circumstances, including if
the adviser has changed its structure or legal status (e.g., form of
organization or state of incorporation). Our staff frequently receives
questions from investment advisers regarding this item and we propose
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).\72\
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\72\ Proposed Form ADV, Part 1A, Item 4.A.
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Proposed 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 propose
several technical amendments to Item 7. We propose to revise 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 should
instead 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.\73\
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\73\ Proposed 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 https://www.sec.gov/divisions/investment/iard/iardfaq.shtml.
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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
propose 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 also propose 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 currently a note informing
advisers when they should answer yes to the first question regarding
whether the private fund is a ``fund of funds.'' We propose renaming
the first question as Question 8(a), moving the note to directly after
Question 8(a), and making the second question Question 8(b).\74\ We
believe these proposed changes would assist filers in answering
Question 8.
---------------------------------------------------------------------------

\74\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Questions 8(a)-(b).
---------------------------------------------------------------------------

Question 10 of Section 7.B.(1) of Schedule D asks the adviser to
identify the category of the private fund. We propose to delete 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.\75\ 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 propose to add text to
Question 19 to make clear that the 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.\76\ 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 propose a clarifying revision to
Question 21 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.\77\ 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.\78\
---------------------------------------------------------------------------

\75\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 10. See General Instruction 7 to Form PF.
\76\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 19.
\77\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 21.
---------------------------------------------------------------------------

We propose a revision to Question 23(a)(2). 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'').\79\ We
propose to add 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 private fund's financial statements
are subject to an annual audit.\80\ This revision will clarify when an
adviser is actually required to answer Question 23(a)(2). We also
propose to

[[Page 33728]]

revise Question 23(g). The question currently asks whether the private
fund's audited financial statements are distributed to private fund
investors. We propose adding ``for the most recent fiscal year'' to
clarify the question. In addition, we propose to revise Question 23(h).
This question currently asks whether the report prepared by the
auditing firm contains an unqualified opinion.\81\ This question has
prompted questions from advisers regarding which report and what
timeframe the question refers to. We propose to clarify the question to
ask whether all of the reports prepared by the auditing firm since the
date the adviser last filed its annual updating amendment contain
unqualified opinions.\82\ Finally, we propose adding Question 25(g),
which would request 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. This information would
help our examination staff more readily identify the use of particular
custodians by private funds.
---------------------------------------------------------------------------

\78\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question
21.
\79\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question
23(a)(2).
\80\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 23(a)(2).
\81\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question
23(h).
\82\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D,
Question 23(h).
---------------------------------------------------------------------------

Proposed Amendments to Item 8
In order to address a frequent question from filers, we propose to
clarify that advisers should answer Item 8 based on the types of
participation and interest the adviser expects to engage in during the
next year. Item 8.B.(2) of Part 1A of Form ADV currently asks whether
the adviser or any related person of the adviser recommended 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.\83\ The current wording has
caused confusion regarding the treatment of purchaser representatives.
We are proposing to reword 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.
This proposed 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, general or managing partner.\84\
---------------------------------------------------------------------------

\83\ Form ADV, Part 1A, Item 8.B.(2).
\84\ Proposed Form ADV, Part 1A, Item 8.B.(2).
---------------------------------------------------------------------------

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 proposing revisions to Item 8.H. to
break the question into two parts to increase our understanding of
compensation for client referrals. Proposed Item 8.H.(1) would cover
compensation to persons other than employees for client referrals.\85\
Proposed Item 8.H.(2) would cover compensation to employees, in
addition to employees' regular salaries, for obtaining clients for the
firm.\86\ Item 8.I. asks whether the adviser or any related person of
the adviser directly or indirectly receives compensation from any
person for client referrals. We have also proposed wording to clarify
that Item 8.I. is not designed to include the regular salary that the
adviser pays to an employee.\87\ We have proposed these edits to better
understand how advisers compensate both their staff and third parties
for client referrals. The proposed revisions to this item do not change
the scope of the information collected, but instead provide more
precise information about compensation for client referrals.
---------------------------------------------------------------------------

\85\ Proposed Form ADV, Part 1A, Item 8.H.(1).
\86\ Proposed Form ADV, Part 1A, Item 8.H.(2).
\87\ Proposed Form ADV, Part 1A, Item 8.I.
---------------------------------------------------------------------------

Proposed 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 propose two
changes to Section 9.C. of Schedule D. First, we propose to add text
requiring an adviser to provide the PCAOB registration number of the
adviser's independent public accountant to improve our staff's ability
to cross-reference information submitted through other systems and
monitor compliance with the custody rule.\88\ 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
propose to amend 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 would 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.\89\
---------------------------------------------------------------------------

\88\ Proposed Form ADV, Part 1A, Section 9.C.(3) of Schedule D.
\89\ Proposed Form ADV, Part 1A, Section 9.C.(6) of Schedule D.
---------------------------------------------------------------------------

Proposed 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.'' \90\ We propose 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 (or advisory
affiliate's) favor.\91\ This proposal would make disciplinary reporting
uniform across registered and exempt reporting advisers, consistent
with requiring exempt reporting advisers to report disciplinary events
on Form ADV.
---------------------------------------------------------------------------

\80\ Form ADV, Part 1.A., Criminal, Regulatory Action and Civil
Judicial Action Disclosure Reporting Pages.
\91\ Proposed Form ADV, Part 1A, Criminal, Regulatory Action and
Civil Judicial Action Disclosure Reporting Pages.
---------------------------------------------------------------------------

Proposed Amendments to Instructions and Glossary
Together with the proposed amendments to Part 1A, we are also
proposing conforming amendments to the General Instructions and the
Glossary for Form ADV. As discussed above, we propose to amend the
General Instructions to include instructions regarding umbrella
registration. We also propose to remove 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 propose to update the definition of ``Legal Entity
Identifier'' to reflect recent advancements in this protocol.\92\
---------------------------------------------------------------------------

\92\ The proposed definition of Legal Entity Identifier is: A
``legal entity identifier'' assigned or recognized by the Global LEI
Regulatory Oversight Committee (ROC) or the Global LEI Foundation
(GLEIF). See Proposed Form ADV: Glossary. In Item 1, we propose
removing outdated text referring to the ``legal entity identifier''
as being ``in development'' in the first half of 2011.

---------------------------------------------------------------------------

[[Page 33729]]

Where applicable, we propose to make technical revisions to specify
that an adviser must ``apply for registration'' (rather than simply
``register'') to more accurately reflect the rule text. We also propose
to delete text in the instructions related to Item 1.O. because this
text is proposed to appear directly in the corresponding section of
Part 1 of Form ADV. We propose to add 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 request comment on our proposed clarifying, technical and other
amendments.
Are the proposed amendments necessary? Should we consider
different or additional amendments? If so, please specify.
Are there any ambiguities or concerns that we should
address in the form, instructions or glossary?
Should we ask additional questions in Section 7.B.(1) of
Schedule D regarding an adviser's reliance on Regulation D? If so, what
additional information should we request?
Are the proposed amendments regarding payment for client
referrals in Item 8 clear? Why or why not?

B. Proposed Amendments to Investment Advisers Act Rules

1. Proposed Amendments to Books and Records Rule
We are proposing two amendments to the Advisers Act books and
records rule, rule 204-2, that would require investment 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.\93\ Although 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, the books and records rule requires such records
only when the communication is distributed to ten or more persons. We
are proposing to amend rule 204-2(a)(16) by removing the ten or more
persons condition and replacing it with ``any person.'' Accordingly,
advisers would 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. 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.
---------------------------------------------------------------------------

\93\ 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.''
---------------------------------------------------------------------------

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 communications
sent by such advisers.\94\ We are proposing to amend 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. We believe these
records would be useful in examining and evaluating adviser performance
claims. A recent enforcement action demonstrated to us the
disadvantages of not requiring investment advisers to maintain records
forming the basis of performance calculations or performance
communications sent to individuals.\95\
---------------------------------------------------------------------------

\94\ 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.''
\95\ 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).
---------------------------------------------------------------------------

Based on our staff's experience, we believe that most advisers
already maintain this information as part of their compliance with rule
206(4)-1 under the Advisers Act, which regulates advertisements by
investment advisers. The proposed amendments would provide our
examination staff with additional information to review an adviser's
compliance with rule 206(4)-1 and would assist us in enforcing rule
206(4)-1 in cases of fraudulent advertising. Investors would benefit to
the extent that the proposed amendments reduce the incidence of
misleading or fraudulent advertising.
We request comment on the proposed amendments to rule 204-2.
Do investment advisers currently maintain these records?
If so, are there concerns with making these required records?
Are there alternate means that would be sufficient to
collect performance information and client communications regarding
performance?
Are there exceptions that we should consider?
2. Proposed Technical Amendments to Advisers Act Rules
We are proposing technical amendments to several rules under the
Advisers Act and the withdrawal of transition rule 203A-5 under the
Advisers Act. The proposed amendments would remove 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 provisions were added when we amended Form ADV and
several Advisers Act rules to require advisers to electronically file
their brochures with the Commission.
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.\96\ Rule 203A-5 provided a temporary exemption from the
prohibition on registration for mid-sized advisers to facilitate their
transition to state registration.\97\ We propose withdrawing rule 203A-
5 because the transition of mid-sized advisers from SEC to state
registration was completed in June 2012.
---------------------------------------------------------------------------

\96\ See Section 410 of the Dodd-Frank Act.
\97\ See Implementing Release, supra note 4.
---------------------------------------------------------------------------

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

[[Page 33730]]

section 202(a)(11)(G) of the Advisers Act for family offices. The
Commission adopted rule 202(a)(11)(G)-1 \98\ 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.\99\ We propose 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.
---------------------------------------------------------------------------

\98\ Family Offices, Investment Advisers Act Release No. 3220
(June 22, 2011) [76 FR 37983 (June 29, 2011)].
\99\ Section 203(b)(3) of the Advisers Act as in effect before
July 21, 2011, repealed by section 403 of the Dodd-Frank Act.
---------------------------------------------------------------------------

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'' exemption \100\ to remain
exempt from registration until March 30, 2012 under certain
conditions.\101\ We propose removing paragraph (e) from Rule 203-1
because the transition for private advisers is now complete.
---------------------------------------------------------------------------

\100\ Id.
\101\ See Implementing Release, supra note 4. 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.
---------------------------------------------------------------------------

Rule 203-1(b) and Rule 204-1(c)
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 with the Investment Adviser
Registration Depository (``IARD'').\102\ 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.\103\ 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. We propose removing
paragraph (b) from rule 203-1 and paragraph (c) from rule 204-1 because
the transition to electronic filing is now complete.\104\
---------------------------------------------------------------------------

\102\ Amendments to Form ADV, Investment Advisers Act Release
No. 3060 (July 28, 2010) [75 FR 49233 (Aug. 12, 2010)].
\103\ The continuing hardship exemption under rule 203-3 will
not be withdrawn by these technical amendments.
\104\ We propose redesignating current paragraphs (c) and (d) of
Rule 203-1 as (b) and (c) and redesignating current paragraphs (d)
and (e) of Rule 204-1 as (c) and (d).
---------------------------------------------------------------------------

We request comment on these proposed changes.
Is there any benefit to keeping any of these provisions?

III. Economic Analysis

A. Introduction

The Commission is sensitive to the benefits and costs of its rules.
The following economic analysis identifies and considers the benefits
and costs--including the effects on efficiency, competition, and
capital formation--that would result from the proposed amendments to
Form ADV and the proposed amendments to and rescission of certain rules
under the Investment Advisers Act. The economic effects of the proposed
amendments are discussed below and have informed the policy choices
described in this release.
We are proposing 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 proposing the following amendments to Form
ADV and Advisers Act rules:
Amendments to Form ADV that are 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 that
would 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.
We rely on information reported by investment advisers to us on
Form ADV to monitor trends, assess emerging risks, inform policy
choices and rulemaking, and assist Commission staff in examination and
enforcement efforts. We believe that the proposed amendments to Form
ADV would improve the information provided by investment advisers to
the Commission, clients and prospective clients and would improve
investor protection by informing policy choices and focusing
examination activities. We also believe that the proposed amendments to
the Advisers Act books and records rule would improve investor
protections by providing useful information to evaluate advisers'
performance claims.
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 proposed amendments are discussed. The baseline includes the
current requirement for investment advisers to file Form ADV, the staff
guidance that permits filing advisers to file a single Form ADV on
behalf of itself and each relying adviser,\105\ the current
requirements for investment advisers to maintain books and records, and
other current rules under the Advisers Act. The parties that would be
affected by the proposed 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.
---------------------------------------------------------------------------

\105\ See 2012 ABA Letter, supra note 9.
---------------------------------------------------------------------------

Based on IARD system data as of April 2015, approximately 11,600
investment advisers are registered with the Commission, and 2,914
exempt reporting advisers file reports with the Commission.
Approximately 8,500 investment advisers registered with us (73%)
reported assets under management attributable to separately managed
account clients. Of those 8,500 advisers, approximately 5,366 advisers
reported regulatory assets under management attributable to separately
managed account clients of at least $150 million but less than $10
billion and approximately 535 advisers reported regulatory assets under
management attributable to separately managed account clients of at
least $10 billion.\106\

[[Page 33731]]

Advisers with at least $10 billion in regulatory assets under
management attributable to separately managed accounts would be subject
to proposed additional reporting on separately managed accounts on Form
ADV. Approximately 750 registered advisers to private funds currently
submit a single Form ADV on behalf of themselves and 2,500 relying
advisers, relying on the 2012 ABA Letter. All investment advisers
registered or required to be registered with us are subject to the
Advisers Act books and records rule.
---------------------------------------------------------------------------

\106\ Based on IARD data as of April 1, 2015. 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. Proposed Item 5.D.(1)-(2)
would 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.
---------------------------------------------------------------------------

We have sought, where possible, to quantify the costs, benefits,
and effects on efficiency, competition, and capital formation expected
to result from the proposed amendments to Form ADV and Investment
Advisers Act rules, and reasonable alternatives. As discussed below, in
certain cases, we are unable to quantify the economic effects because
we lack the information necessary to provide reasonable estimates. The
economic effects of the proposal also depend upon a number of factors
some of which we cannot estimate, such as the extent to which investor
protection and our ability to oversee investment advisers will improve,
and the extent to which investors would utilize the information in Form
ADV to choose or retain an investment adviser. Therefore, some of the
discussion below is qualitative in nature. We request comment on all
aspects of the economic effects of the amendments that we are
proposing, such as the costs and benefits, effects on efficiency,
competition and capital formation, and reasonable alternatives to the
proposed amendments. We request that commenters identify sources of
data and information as well as provide data and information to assist
us in analyzing the economic consequences of the proposed rulemaking.

B. Proposed Amendments to Form ADV

Some of the proposed amendments to Form ADV are designed to address
certain gaps in information, such as information about advisers'
separately managed accounts. We are also proposing to collect
additional information on Form ADV on topics such as social media,
offices, foreign clients, and wrap fee accounts. These items are
designed to improve the depth and quality of information that we
collect on investment advisers, which would be important for oversight
activities. We are also proposing amendments to Form ADV to establish a
more efficient method for advisers to private funds that are organized
as multiple legal entities to register with us using a single Form ADV
(``umbrella registration''). Finally, we are proposing a number of
clarifying, technical and other amendments to Form ADV.
1. Economic Baseline and Affected Market Participants
As noted above, 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 proposed amendments to Form ADV are discussed. Form
ADV is used by investment advisers to register with the SEC 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 end,
and more frequently if required by the instructions to Form ADV.\107\
Form ADV is also used by exempt reporting advisers to submit, and
periodically update, reports to us by completing a limited subset of
items on Form ADV. Information filed on Form ADV is publicly available
through the IAPD Web site.\108\ The parties that would be directly
affected by the proposed 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.
---------------------------------------------------------------------------

\107\ See Rule 204-1(a) under the Advisers Act.
\108\ Certain personal identifying information is not made
public.
---------------------------------------------------------------------------

2. Benefits
As discussed in section II. above, the proposed amendments to Form
ADV would improve our ability to oversee investment advisers and
identify potential risks by increasing the amount, usefulness,
consistency, and reliability of the information disclosed by investment
advisers, which would enhance our staff's ability to effectively carry
out the risk-based examination program and other risk monitoring
activities, and could improve investor protection by informing policy
choices and focusing examination activities. The enhanced reporting
requirements should also improve the ability of clients and potential
clients of investment advisers to make more informed decisions about
the selection and retention of investment advisers.
We are proposing that advisers report additional information on
Form ADV regarding separately managed accounts, which are clients other
than registered investment companies, business development companies
and other pooled investment vehicles, such as private funds, and are
designed to meet the needs of institutional and individual investors.
Based on IARD data, more than 73% of investment advisers registered
with us indicate that they manage assets of separately managed
accounts.\109\ We do not currently collect additional information
specific to separately managed accounts managed by investment advisers.
We currently collect detailed information about registered investment
companies and private funds, but only limited information regarding the
management of separately managed accounts. The absence of information
about separately managed accounts, such as information about
investments, compared to the information we receive describing
registered investment companies and private funds, limits our ability
to understand, monitor and oversee the investment advisers that advise
these accounts, and recognize the potential risks relating to these
accounts.\110\
---------------------------------------------------------------------------

\109\ Based on IARD data as of April 1, 2015.
\110\ See, e.g., Form N-1A for investment companies and Form PF
for private funds.
---------------------------------------------------------------------------

The proposed amendments are intended to enhance our ability to
effectively carry out our risk-based examination program and other
risk-monitoring activities in relation to advisers of separately
managed accounts. The additional information regarding separately
managed accounts would assist us in addressing regulatory issues,
anticipating the implications of various regulatory actions that we may
consider, and identifying areas for additional examination and
enforcement activities. The proposed amendments are also intended to
improve our ability to monitor risks related to those advisers that
manage greater amounts of regulatory assets under management in
separately managed accounts, while reducing the potential reporting
burden for those advisers that manage lesser amounts of regulatory
assets under management in these accounts.
In addition to information regarding separately managed accounts,
the proposed amendments to Form ADV include requests for additional
information that we believe would be useful to our risk assessment,
examination and oversight of

[[Page 33732]]

investment advisers. For example, we propose requesting information
regarding social media platforms used by investment advisers. This
information would assist our staff with examinations and provide them
with better awareness of an adviser's social media activities and how
advisers use social media to communicate with their clients and
prospective clients. We also are proposing to request additional
information about an adviser's participation in and assets under
management attributable to wrap fee programs. These programs are widely
used by individual retail clients, and we believe it would be useful
for us and the public to learn more about an adviser's participation in
these programs. For example, if our staff identifies an issue with a
particular wrap fee program, then this information also would assist
the staff in identifying other advisers associated with the program.
Other proposed items that would assist our examination activities
include replacing ranges with more precise information about the number
of advisory clients and related assets under management, the total
number of offices that conduct investment advisory business, and
information regarding each adviser's top 25 largest offices in terms of
employees.
For several items, we are proposing additional identifying
information, such as the CIK numbers for all advisers that have
obtained one or more of them, PCAOB registration numbers for auditing
firms, and the SEC file number and the CRD number for sponsors of wrap
fee programs. The identifiers will improve our ability and that of
other current and future users of Form ADV information to cross-
reference information from Form ADV with information from other sources
to investigate and obtain a more complete understanding of the business
and relationships of investment advisers.
The proposed amendments to Form ADV that would incorporate the
concept of umbrella registration and establish a method on Form ADV for
certain private fund advisers to use umbrella registration would
clarify, simplify, and therefore make more efficient the filing
procedures for these advisers and provide greater certainty about the
availability of umbrella registration. The proposed amendments also
would improve the consistency and quality of 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. As of April 1, 2015, approximately 750 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.
The proposed clarifying, technical and other amendments to Form ADV
would 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 would 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. To the extent the
proposed clarifying and technical amendments would make Form ADV easier
to understand and complete, the proposed amendments would decrease
future costs, especially for those investment advisers registering with
us for the first time.
As discussed above, an improvement in our ability to oversee the
business and assess the risks of investment advisers would benefit
clients and prospective clients of investment advisers. To the extent
that these proposed amendments would allow our staff to identify
potential risks at investment advisers before any clients are
disadvantaged, clients and potential clients would benefit. In
addition, an increase in the amount, consistency and usefulness of
information disclosed by investment advisers would allow advisory
clients and potential advisory clients to make more informed decisions
about the selection and retention of investment advisers. For example,
these proposed amendments should allow prospective clients to review,
either directly from Form ADV or through third-party information
providers, additional or more precise information about the number of
clients and amount of regulatory assets under management attributable
to various client types which may provide useful information about an
adviser's experience and business practices. As another example, the
proposed amendments should allow clients and potential clients to
identify the social media platforms of an investment adviser from which
additional information about the adviser may be available. An increase
in the ability of clients and potential clients to differentiate
investment advisers could result in a limited increase in competition
among investment advisers for clients. The proposed amendments would
likely not have a significant effect on capital formation or on the
ability of investors to efficiently allocate capital across investments
because the proposed amendments do not directly relate to the amount of
capital investors allocate to investments or their ability to allocate
capital across investments.
3. Costs
The proposed amendments to Form ADV would require investment
advisers to provide additional information about certain aspects of
their business, including separately managed accounts, social media
platforms, wrap fee programs and offices. Reporting this additional
information would impose additional costs on investment advisers, but
we believe that much of the information we propose requesting on Form
ADV would be readily available because, based on our experience, we
understand that it is information used by advisers to conduct their
business.
Costs would vary across advisers, depending on the nature of an
adviser's business and its business model. For example, advisers that
manage a limited number of separately managed accounts or that manage
smaller amounts of assets under management in those accounts would have
fewer reporting requirements than advisers that manage a large number
of or assets in such accounts. In addition, advisers with a large
number of offices would be required to report more information on a
greater number of offices than what is currently required in Form ADV.
To the extent possible, we have attempted to quantify these costs. As
discussed in section IV., for purposes of the increased Paperwork
Reduction Act burden for Form ADV, we estimate that each adviser would
incur average costs in connection with the proposed amendments to Form
ADV of approximately $750,\111\ for a total aggregate cost of
$8,700,000.\112\
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\111\ We estimate that each adviser will spend, on average, 2
hours to complete the proposed questions regarding separately
managed accounts. We further estimate that the proposed amendments
to Part 1A that request other additional information would take each
adviser, on average, 1 hour to complete. As a result, we estimate a
three hour increase in the total average time burden related to the
proposed amendments to Form ADV. We expect that the performance of
this function would 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 to account
for an 1,800-hour work-year 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
$217 and $283 per hour, respectively. [1.5 hours x $217 = $325.5] +
[1.5 hours x $283 = $424.5] = $750.
\112\ 11,600 advisers x $750 = $8,700,000.
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The proposed amendments regarding the reporting of information
about

[[Page 33733]]

separately managed accounts may have a limited impact on competition
between advisers that manage a significant number of separately managed
accounts and those that manage a small number of such accounts. If
disclosure of aggregate information about separately managed accounts
resulted in public disclosure of sensitive information about a small
number of clients' derivative exposures because an adviser has only one
or a very small number of separately managed account clients, then that
adviser could be competitively disadvantaged compared with an adviser
with numerous separately managed account clients because of concerns
that the public disclosure of derivatives exposures would indirectly
reveal sensitive information about a particular separately managed
account client. We believe that this possible concern is mitigated by
the fact that the proposed item does not require the disclosure or
reporting of positions or specific exposures or of client identities.
Regarding the proposed amendments to Form ADV that would codify
umbrella registration, we estimate that each adviser that files
Schedule R would incur average costs of approximately $250,\113\ for a
total aggregate cost of $187,500.\114\ We do not believe the proposed
amendments to provide for umbrella registration would impose
significant costs on investment advisers because advisers currently
relying on the 2012 ABA Letter are already reporting much of the
information that would be reported on proposed Schedule R. The
additional information that would be reported for relying advisers on
Schedule R, such as basis for SEC registration and form of
organization, should be readily available to filing advisers.
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\113\ We estimate that for purposes of the PRA, the filing
adviser would spend on average 1 hour completing the proposed
Schedule R on behalf of its relying advisers. We expect that the
performance of this function would most likely be equally allocated
between a senior compliance examiner and a compliance manager. Data
from the SIFMA Management and Professional Earnings Report, modified
to account for an 1,800- hour work-year 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 $217 and $283 per hour, respectively. [.5 hours x $217 =
$108.5] + [.5 hours x $283 = $141.5] = $250.
\114\ 750 advisers x $250 = $187,500.
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We do not believe that the proposed clarifying, technical and other
amendments to Form ADV would 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. Discussed above, the proposed
clarifications and revisions to the questions and instructions of Form
ADV would increase the efficiency of investment advisers to disclose
information, and our ability to oversee investment advisers. We do not
anticipate that the proposed clarifying, technical and other amendments
would have a significant impact on competition or capital formation
because they do not directly relate to investors' ability to
differentiate among investment advisers or the amount of capital that
investors allocate to investments or their ability to efficiently
allocate capital across securities.
We do not believe the proposed amendments to Form ADV would
increase costs for exempt reporting advisers. Exempt reporting advisers
are 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) and would not be eligible to file proposed
Schedule R. We are proposing limited amendments to the items that
exempt reporting advisers are required to complete, including the
proposed amendments to Item 1 regarding the use of social media and the
reporting of information on up to 25 offices. Of the approximately
2,914 exempt reporting advisers that file information with us on Form
ADV, approximately 17 reported that they had five or more other
offices. Therefore, there would be a minimal increase in costs for
these advisers to report this information.
4. Alternatives
Alternatives to the proposed amendments to Form ADV include the
disclosure of different additional information from investment
advisers. For example, with respect to separately managed accounts, we
could have proposed requiring information as of each quarter, proposed
other reporting thresholds to differentiate smaller and larger amounts
of regulatory assets under management, or proposed narrower asset
categories. Other examples include additional information describing an
adviser's use of social media platforms, and additional information
about the size and operations of offices.
When determining the specific proposed amendments to Form ADV for
purposes of this proposal, we considered what information would be
important for our oversight activities and for advisory clients and
prospective clients, and the costs to investment advisers to provide
this information. Additional information could improve our ability to
oversee investment advisers and protect advisory clients and potential
advisory clients, and increase clients' ability to make more informed
decisions about the selection and retention of investment advisers.
However, we currently believe the one-time and ongoing reporting costs
for investment advisers to provide this information in addition to what
we have proposed could be significant when compared to its potential
benefits. Another alternative to the proposed 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 examination. An absence of information about
advisers would reduce our ability to identify industry trends and
assess risks.

C. Proposed Amendments to Investment Advisers Act Rules

As discussed above, we are proposing 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 proposed 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 proposed amendments to rule 204-2 would require investment
advisers to maintain records supporting performance claims in
communications that are distributed or circulated to any person.
Advisers also would be required to maintain originals of all written
communications received and copies of all written communications sent
relating to the performance or rate of return of any or all managed
accounts or securities recommendations. The proposal would require
investment advisers to maintain records that they have already created,
rather than create new records. We believe that most investment
advisers currently maintain the information proposed to be required
under the rule, as part of their compliance with the Advisers Act
advertising rule (rule 206(4)-1) or as a result of their implementation
of recordkeeping controls to comply with the current requirements of
rule 204-2. Under the proposed amendments, each

[[Page 33734]]

respondent would 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 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 proposed amendments to the Advisers Act books and
records rule (rule 204-2). The parties that would be directly affected
by the proposed 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 11,600 investment advisers are currently registered with
the Commission.
2. Benefits
The proposed amendments to the Advisers Act books and records rule
(rule 204-2) would 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 proposed amendments to the books and records rule would provide
our enforcement and examination staff with additional information to
review an adviser's compliance with the Advisers Act advertising rule,
rule 206(4)-1, regardless of the number of clients or prospective
clients that receive performance communications. The increased
efficiency in examining and enforcing the rule may increase investor
protection by increasing the disincentive for misleading or fraudulent
communications, which may reduce the incidence of fraud. In addition,
investors may benefit from the proposed amendments to the books and
records rule as these records would assist us in enforcing rule 206(4)-
1 against, for example, fraudulent performance advertising.
To the extent that the proposed amendments to the rule reduce
misleading or fraudulent communications, the competitive position of
investment advisers could be improved because clients and potential
clients would receive more accurate information regarding an adviser's
performance and thus would be better able to differentiate advisers
based on skill. In addition, to the extent that the proposed amendments
to the rule improve the ability of clients and potential clients to
differentiate advisers based on skill, potential clients may be more
likely to obtain investment advice from an investment adviser, which
would increase the ability of investment advisers to compete for
investor capital. The proposed 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.
3. Costs
We estimate that for purposes of the PRA, advisers would incur an
aggregate cost of approximately $324,800 per year for the total hours
advisory personnel would spend in complying with the proposed
recordkeeping requirements.\115\ A possible non-quantifiable cost as a
result of the proposed recordkeeping requirements would be discouraging
advisers from creating and communicating custom performance information
to individual clients, who would then lose the benefit of having that
information available to them. Although we believe that such a response
to the rule would be unlikely, a decrease in communications could
reduce the ability of clients and potential clients to compare advisers
and potentially decrease competition.
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\115\ We estimate that for purposes of the PRA, the proposed
amendments to rule 204-2 would increase the burden by 0.5 hours per
adviser annually. We expect that the function of recording and
maintaining records of performance information and communications
would be performed by a combination of compliance clerks and general
clerks at a cost of $64 per hour and $53 per hour, respectively. We
anticipate that compliance clerks will perform an estimated 0.1
hours of this work and clerical staff will perform the remaining 0.4
hours. Therefore the total cost per adviser would be (0.1 hours x
$64 per hour = $6.4) + (0.4 hour x $53 = $21.2) = approximately $28
for a total cost of $324,800 (11,600 advisers x $28).
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Included in this cost estimate is our expectation that these costs
would 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 would 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 would be required.
4. Alternatives
An alternative to the proposed amendments to rule 204-2 would be to
not propose the amendments. The proposed amendments are designed to
address a potential recordkeeping gap that could limit our ability to
examine and oversee advisers and ultimately protect investors. The
proposed amendment to require maintenance of the performance
calculations and communications regardless of the number of clients or
potential clients that receive the information would address this
issue. An alternative that would require maintenance of records
supporting performance claims in communications that are distributed or
circulated to less than the current threshold of ten persons could
reduce our ability to examine and oversee advisers. We believe that the
limited costs of these amendments are appropriate given its benefits.

D. Request for Comment

We request comment on our estimates and assumptions regarding the
costs and benefits of the proposed amendments to Form ADV and certain
rules under the Investment Advisers Act. Commenters are requested to
provide empirical data to support their views. In addition to our
general request for comment on the costs and benefits of the proposed
amendments, we request the following specific comment on certain
aspects of our economic analysis.
To what extent would clients and prospective clients use
information reported in Form ADV to select or retain investment
advisers? Are there other benefits to clients and prospective clients
or to other interested parties not outlined above?
To what extent would advisers benefit from incorporation
of umbrella registration into Form ADV?
Do commenters expect that advisers would incur costs in
addition to, or that differ from, the costs we outlined above? In
particular, do commenters expect that advisers would incur costs
different from the costs we outline above with respect to the
collection or retention of additional information?
What are the benefits and costs of the proposed reporting
thresholds for separately managed account information? Are there other
thresholds that would increase benefits and be just as costly or
provide similar benefits and be more cost effective? Please explain.
Would any of the effects of these proposed amendments be
large enough to affect the behavior of investment advisers or their
clients? For instance, would the public disclosure of aggregate
separately managed account information raise confidentiality concerns,
and would disclosure impact a client's

[[Page 33735]]

selection of an investment adviser? Please explain.

IV. Paperwork Reduction Act Analysis

Certain provisions of our proposal contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA''),\116\ and we are submitting 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 proposing
to amend 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.
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\116\ 44 U.S.C. 3501-3520.
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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 proposing changes to Part 2 at this time. 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 data as of April
2015, approximately 11,600 investment advisers are registered with the
Commission, and 2,914 exempt reporting advisers file reports with the
Commission.
The currently approved total annual burden estimate for all
advisers of completing, amending and filing Form ADV (Part 1 and Part
2) with the Commission is 154,402 hours. This burden is based on an
average total hour burden of 40.74 hours per Commission-registered
adviser for the first year that an adviser completes Form ADV but
excluding private fund reporting.\117\
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\117\ The currently approved one-time initial cost burden for
outside legal and compliance consulting fees in connection with
initial preparation of Part 2 of Form ADV is $3,600,000. We are not
proposing any amendments to Part 2 of Form ADV and therefore we are
not modifying this estimate.
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As discussed above, we are proposing 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 proposing would increase
the information requested in Part 1A of Form ADV, and we expect that
this would correspondingly increase the average burden to an adviser
filing Form ADV.
We discuss below, in three subsections, the estimated revised
collection of information requirements for Form ADV: First, we provide
estimates for the revised and new burdens resulting from the proposed
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.
1. Changes in Average Burden Estimates and New Burden Estimates
As a result of the differing burdens on advisers to complete Form
ADV, we have divided the effect of the proposed 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 proposed
amendments to Part 1A of Form ADV excluding those changes related to
private funds; second, we discuss the proposed amendments to Form ADV
related to registered advisers to private funds, including the proposed
amendments to Section 7.B. of Schedule D and the proposed new Schedule
R that would implement umbrella registration; and third, we address the
proposed amendments to Form ADV affecting exempt reporting advisers.
a. Estimated Change in Burden Related to Part 1A Proposed Amendments
(Not Including Private Fund Reporting)
We are proposing amendments to Part 1A, some of which are merely
technical changes or very simple in nature, and others that would
require more time for an adviser to prepare a response. The paperwork
burdens of filing an amended Form ADV, Part 1A would 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. Advisers should have ready access to all the information
necessary to respond to the proposed items in their normal course of
operations because, among other things, they likely maintain and use
the proposed requested information in connection with managing client
assets. We anticipate that the responses to many of the questions would
be unlikely to change from year to year, which would minimize the
ongoing reporting burden associated with these questions.
i. Proposed Amendments Related to Reporting of Separately Managed
Account Information
The proposed 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. Those proposed amendments would 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 would include regulatory assets under management reported by
asset type, borrowings and derivatives information, and the identity of
custodians that account for at least ten percent of separately managed
account regulatory assets under management. We believe much of this
information is readily available to advisers to separately managed
accounts because, among other things, they may maintain and use this or
similar information for operational reasons (e.g., trading systems) and
for customary account

[[Page 33736]]

reporting to clients in separately managed accounts.
Although we understand that much of the proposed information is
readily available to advisers to separately managed accounts, we expect
that these amendments could 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. For this and other reasons,
as we explained above, we propose to minimize the burden on advisers
with a smaller amount of separately managed account assets under
management by proposing to require 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, while those advisers with regulatory assets under management
attributable to separately managed accounts of at least $10 billion
would report information as of that date and six months before that
date.
Considering the proposed changes in 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) as well as our efforts to mitigate the reporting burden to
advisers that manage a smaller amount of separately managed account
regulatory assets under management, we estimate that each adviser will
spend, on average, 2 hours to complete the questions regarding
separately managed accounts in the first year a new or existing
investment adviser completes these questions.\118\
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\118\ Based on IARD data, as of April 1, 2015, approximately
8,500 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 companies and pooled investment vehicles,
indicating that they have assets under management attributable to
separately managed accounts. Of those approximately 8,500 advisers,
we estimate approximately 535 (approximately 6.3%) reported at least
$10 billion in regulatory assets under management from separately
managed account clients.
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ii. Other Additional Information Regarding Investment Advisers
We are proposing to add several new questions and amend existing
questions on Form ADV regarding identifying information, an adviser's
advisory business, and affiliations. The proposed questions primarily
refine or expand existing questions or request information we believe
that advisers already have for compliance purposes. For example, we
propose to require each adviser to provide Central Index Key (CIK)
numbers if it has one or more such numbers and to provide identifying
information for social media platforms that it uses. Other proposed
questions would require advisers to provide readily available or easily
accessible information, such as the proposed amendment to Part IA, Item
1.O. that would require advisers to report their assets within ranges.
However, some of the proposed questions may take longer for advisers to
complete, such as the proposed amendments to Schedule D, Section 1.F
that would require information about an adviser's 25 largest offices
other than its principal office and place of business. While this
information is readily available to an adviser because it should be
aware of its offices, a clerk would be required to manually enter
expanded information about the adviser's offices in the first year the
adviser responds to the proposed item and then make updates in
subsequent years.
We are proposing 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 would merely require advisers to provide readily available or
easily accessible 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
proposed items would 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 proposed
disclosure regarding wrap fee programs or non-U.S. clients would 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.
We estimate that these proposed amendments 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 these proposed questions. We have arrived at this estimate,
in part, by comparing the relative complexity and availability of the
information required by the proposed amended items to the current form
and its approved burden, and by considering the advisers affected by
the proposed amendments.
iii. Proposed Clarifying, Technical and Other Amendments
We are proposing several further amendments to Form ADV that are
designed to clarify the Form and its instructions and address technical
issues. These proposed changes primarily refine existing questions,
such as 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, and the proposed
amendments to 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 proposed
changes do not change the scope or amount of information required to be
reported on Form ADV, we do not believe that these proposed clarifying,
technical and other amendments to Part 1A of Form ADV would increase or
decrease the average total collection of information burden for
advisers in their first year filing Form ADV.
As a result of the proposed amendments to Form ADV Part 1A
discussed above, including the proposed amendments related to
separately managed accounts, additional items and technical and
clarifying amendments, we estimate the average total collection of
information burden would increase 3 hours to 43.74 hours per adviser
for the first year that an adviser completes Form ADV (Part 1 and Part
2).\119\
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\119\ Currently approved estimate of the average total
collection if information burden per SEC registered adviser for the
first year that an adviser completes Form ADV (40.74 hours) + 2
hours to complete the proposed questions about separately managed
accounts + 1 hour to complete other additional information regarding
investment advisers = 43.74 hours.
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b. Estimated Changes in Burden Related to Private Fund Reporting
Requirements
We propose several amendments to Part 1A, Schedule D, Section 7.B.
that refine and enhance existing information we receive about advisers
to private funds. In addition, as part of our proposal to provide for
umbrella registration, we propose 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.

[[Page 33737]]

We believe the information required by the few proposed amendments
to Part 1A, Schedule D, Section 7.B would be readily available or
easily accessible to advisers to private funds, such as information
about the percentage of a private fund owned by qualified clients, and
the PCAOB registration number for a private fund auditor. 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 proposed amendments to Schedule D, Section 7.B
would increase or decrease the total annual burden because the
information is readily available to advisers.
The proposal to incorporate umbrella registration into Form ADV
would 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 would 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 would 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 registration under defined
circumstances since 2012,\120\ and the proposed amendments to Form ADV
would provide for umbrella registration and simplify the process of
umbrella registration for advisers constituting a single advisory
business. We are proposing a new schedule to Part 1A, Schedule R, that
would have to be filed with respect to each relying adviser, as well as
a new question to Schedule D that would link private funds reported on
Form ADV to the specific (filing or relying) adviser that advises it.
Schedule R would require identifying information, basis for SEC
registration, and ownership information about each relying adviser.
---------------------------------------------------------------------------

\120\ See 2012 ABA Letter, supra note 9.
---------------------------------------------------------------------------

We believe that much of the information we are proposing to include
in Schedule R should 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 proposed
requirements would be 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 should
the new process be codified and Schedule R available. We also believe
that new filing advisers using umbrella registration would readily have
information available about relying advisers, because they are
operating as a single advisory business.
There is no currently approved annual burden estimate of completing
Schedule R because it is a new Schedule. Taking into account the scope
of information we propose to request, our understanding that much of
the information is readily available and currently required on Form
ADV, and our belief that many private fund advisers that file an
umbrella registration will have only a small number of relying
advisers,\121\ we 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.
---------------------------------------------------------------------------

\121\ Based on IARD data as of April1, 2015, approximately 750
investment advisers rely on the 2012 ABA Letter to file Form ADV on
behalf of themselves and 2,500 relying advisers, an average of
approximately 3 relying advisers per filing adviser.
---------------------------------------------------------------------------

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), and are not required to complete
Part 2 and would not be eligible to file proposed Schedule R. The
proposed amendments to Part 1A would revise only Items 1 and 7 for
exempt reporting advisers. We believe the information required by these
proposed revisions should be readily available to any adviser as part
of their ongoing operations and management of client assets, and,
moreover, are unlikely to require additional reporting for most exempt
reporting advisers. For instance, we estimate that almost all exempt
reporting advisers currently have five or fewer offices (the number of
offices currently required by Form ADV) and thus would not have to
provide information on additional offices.\122\ Accordingly, we do not
expect that the proposed amendments would increase or decrease the
currently approved total annual burden estimate per exempt reporting
adviser initially completing these items in Form ADV, other than Item
7.B., of 2 hours. We also do not expect that the proposed amendments
would increase or decrease the currently approved total annual burden
estimate per exempt reporting adviser initially completing Item 7.B.
and Section 7.B. of Schedule D of 1 hour per private fund.
---------------------------------------------------------------------------

\122\ Based on IARD data as of April 1, 2015, only 17 ERAs
reported on Form ADV that they had five or more other offices.
---------------------------------------------------------------------------

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 Completes Form ADV (Part 1 and
Part 2)
We estimate that, as a result of the proposed amendments to Form
ADV Part 1A discussed above, other than those applicable to private
funds, the average total collection of information burden per
respondent would increase 3 hours to 43.74 hours per adviser for the
first year that an adviser completes Form ADV (Part 1 and Part 2).
Approximately 11,600 investment advisers are currently registered
with the Commission.\123\ Not including private fund reporting, the
estimated aggregate annual burden applicable to these advisers would be
507,384 hours \124\ (34,800 hours of it attributable to the proposed
amendments).\125\ As with the Commission's prior Paperwork Reduction
Act estimates for Form ADV, we believe that most of the paperwork
burden would be incurred in advisers' initial submission of the amended
Form ADV, and that over time this burden would decrease substantially
because the paperwork burden would be limited

[[Page 33738]]

to updating information.\126\ Amortizing the burden imposed by Form ADV
over a three-year period to reflect the anticipated period of time that
advisers would use the revised Form would result in an average annual
burden of an estimated 169,128 hours per year \127\ (11,600 hours per
year of it attributable to the proposed amendments),\128\ or 14.58
hours per year for each adviser currently registered with the
Commission.\129\
---------------------------------------------------------------------------

\123\ Based on IARD data as of April 1, 2015. 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.
\124\ 43.74 hour per-adviser burden x 11,600 advisers = 507,384
hours.
\125\ 3 hour per-adviser additional burden x 11,600 advisers =
34,800 hours.
\126\ We discuss the burden for advisers making annual updating
amendments to Form ADV in section iii below.
\127\ 507,384 hours/3 = 169.128 hours.
\128\ 34,800 hours/3 = 11,600 hours.
\129\ 169,128 hours/11,600 advisers = 14.58 hours.
---------------------------------------------------------------------------

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 burden
applicable to these advisers for the first year that they complete Form
ADV but excluding private fund reporting requirements is 43,740 hours
(1,000 advisers x 43.74 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 would use the revised Form
would result in an average annual burden of an estimated 14,580 hours
per year \130\ (1,000 of it attributable to the proposed
amendments).\131\ We therefore estimate the total hour burden to be
183,708 hours per year.\132\
---------------------------------------------------------------------------

\130\ 43,740 hours/3 = 14,580 hours.
\131\ 3,000 hours/3 = 1,000 hours.
\132\ 14,580 hours for new registrants + 169,128 hours for
existing registrants = 183,708 hours.
---------------------------------------------------------------------------

ii. Estimated Initial Hour Burden Applicable to Registered Advisers to
Private Funds
The amount of time that a registered adviser managing private funds
would 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 4,364 registered advisers advise a total of 28,532
private funds, and, on average, 300 SEC-registered advisers annually
would make their initial filing with us reporting approximately 1,100
private funds.\133\ The currently approved annual burden estimate for
advisers making their initial filing in completing Item 7.B. and
Schedule D, Item 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 would add 29,632 hours to
the overall annual burden applicable to registered advisers.\134\ As
noted above, we believe most of the paperwork burden would be incurred
in connection with advisers' initial submission of Form ADV, and that
over time the burden would decrease substantially because it would be
limited to 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 average estimated burden
of 9,877 hours per year.\135\
---------------------------------------------------------------------------

\133\ Based on IARD data as of April 1, 2015. 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, Item 7.B per fund in a three year period,
which is the period after which estimates are required to be
renewed.
\134\ 1 hour x 28,532 private funds = 28,532 hours. 1 hour x
1,100 private funds = 1,100 hours. 28,532 hours + 1,100 hours =
29,632 hours.
\135\ 29,632 hours/3 = 9,877 hours.
---------------------------------------------------------------------------

We also propose a new Schedule R to Form ADV for umbrella filing.
Of the advisers currently registered with us, we estimate based on
current Form ADV filings that approximately 750 registered advisers
currently submit a single Form ADV on behalf of themselves and
approximately 2,500 relying advisers.\136\ Taking into account the
scope of information we propose to request 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 would add 750 \137\ hours to the annual burden applicable
to registered advisers. We estimate that, on average, 65 SEC registered
advisers annually would make their initial filing with us as filing
advisers, increasing the overall annual burden for advisers to private
funds an additional 65 hours, or 815 hours in total. Amortizing these
hours for a three year period as with the rest of the burdens
associated with Form ADV, results in 272 additional hours per
year.\138\
---------------------------------------------------------------------------

\136\ Based on IARD data as of April 1, 2015.
\137\ 750 filing advisers x 1 hour per completing Schedule R =
750 hours.
\138\ 815 hours/3 = 271.66 hours.
---------------------------------------------------------------------------

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 proposed amendments to Form ADV would increase the currently
approved annual burden estimate associated with annual amendments to
Form ADV from 6 hours to 7 hours per adviser, but would not impact
interim updating amendments to Form ADV.
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 data, that advisers, on average, make
one interim updating amendment (at an estimated 0.5 hours per
amendment) and one annual updating amendment (at an estimated 7 hours
per amendment) each year.\139\
---------------------------------------------------------------------------

\139\ (11,600 advisers x 0.5 hours/other than annual amendment)
+ (11,600 advisers x 7 hours/annual amendment) = 87,000 hours.
---------------------------------------------------------------------------

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,\140\
and an additional 1 hour per year to prepare new brochure supplements
as required by Part 2.\141\ 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.\142\ We are not
changing these estimates as the proposed amendments do not affect these
requirements. Therefore we estimate the total annual burden for
advisers registered with us attributable to amendments, brochure
supplements and obligations to deliver codes of ethics to be 125,280
hours.\143\
---------------------------------------------------------------------------

\140\ 11,600 hours attributable to interim amendments to the
brochure supplements = 11,600 advisers x 1 hour = 11,600 hours.
\141\ 11,600 hours attributable to new brochure supplements =
11,600 advisers x 1 hour = 11,600 hours.
\142\ 15,080 hours for the delivery of codes of ethics = 11,600
advisers x 1.3 hours = 15,080 hours.
\143\ 87,000 hours + 11,600 hours + 11,600 hours + 15,080 hours
= 125,280 hours.
---------------------------------------------------------------------------

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

[[Page 33739]]

connection with the initial preparation of Part 2 of Form ADV. We do
not anticipate that the amendments we are proposing 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 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 would be $4,400 for legal services and $5,000 for
compliance consulting services, in each case, for those advisers who
engaged legal counsel or consultants. We anticipate that a quarter of
these advisers would seek the help of outside legal services and half
would seek the help of compliance consulting services. Accordingly, we
estimate that 250 of these advisers would use outside legal services,
for a total cost burden of $1,100,000,\144\ and 500 advisers would use
outside compliance consulting services, for a total cost burden of
$2,500,000,\145\ resulting in a total cost burden among all respondents
of $3,600,000 for outside legal and compliance consulting fees related
to drafting narrative brochures.\146\
---------------------------------------------------------------------------

\144\ 25% x 1000 SEC registered advisers = approximately 250
advisers. $4,400 for legal services x 250 advisers = $1,100,000.
\145\ 50% x 1000 SEC registered advisers = 500 advisers. $5,000
for consulting services x 500 advisers = $2,500,000.
\146\ $1,100,000 + $2,500,000 = $3,600,000.
---------------------------------------------------------------------------

We estimate that 3% 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
current IARD data, 4,364 registered advisers currently advise private
funds. We therefore estimate that approximately 131 registered advisers
may incur costs of $37,625 each on an annual basis, for an aggregate
annual total cost of $4,928,875.\147\
---------------------------------------------------------------------------

\147\ 131 advisers x $37,625 = $4,928,875.
---------------------------------------------------------------------------

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 $8,528,875.\148\
---------------------------------------------------------------------------

\148\ $3,600,000 + $4,928,875 = $8,528,875.
---------------------------------------------------------------------------

b. Estimated Annual Burden Applicable to Exempt Reporting Advisers
i. Estimated Initial Hour Burden
Based on IARD system data, there are approximately 2,914 exempt
reporting advisers currently filing reports with the SEC.\149\ The
paperwork burden applicable to these exempt reporting advisers consists
of the burden attributable to 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.
---------------------------------------------------------------------------

\149\ Based on IARD data as of April 1, 2015. 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.
---------------------------------------------------------------------------

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 proposed
amendments to Form ADV would 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 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 is
6,828 hours.\150\ Amortizing the burden imposed by Form ADV over a
three-year period to reflect the anticipated period of time that
advisers would use the revised Form ADV results in an average annual
burden of an estimated 2,276 hours per year.\151\
---------------------------------------------------------------------------

\150\ 2 hours x (2,914 reporting exempt reporting advisers + 500
new exempt reporting advisers) = 6,828 hours.
\151\ 6,828 hours/3 = 2,276 hours.
---------------------------------------------------------------------------

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 proposed amendments to Form ADV would affect the
per exempt reporting adviser burden of completing Item 7.B. and Section
7.B. of Schedule D. Based on IARD data, we estimate that, on average,
the 2,914 current exempt reporting advisers will report 9,896 funds and
the projected 500 new exempt reporting advisers making their initial
filing will report approximately 1,000 funds, resulting in a total
annual burden of 10,896 hours.\152\ Amortizing this total burden over
three years as we did above for registered advisers results in an
average burden of an estimated 3,632 hours per year,\153\ or
approximately 1 hour per year, on average, for each exempt reporting
adviser.\154\
---------------------------------------------------------------------------

\152\ 9,896 funds + 1,000 funds = 10,896 funds. 10,896 x 1 hour
= 10,896 hours.
\153\ 10,896 hours/3 years = 3,632 hours per year.
\154\ 3,632 hours per year/3,414 exempt reporting advisers = 1
hour per year.
---------------------------------------------------------------------------

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 data, each exempt
reporting adviser would amend its form 2 times per year. On average,
these consist of one interim updating amendment (at an estimated 0.5
hours per amendment) \155\ and one annual updating amendment (at an
estimated 1 hour per amendment) \156\ each year. In addition, we
anticipate 200 final filings by exempt reporting advisers annually (at
an estimated 0.1 hours per filing).\157\ We do not anticipate that our
proposed amendments to Form ADV would affect the per exempt reporting
adviser burden. The total annual burden associated with exempt
reporting advisers filing amendments and final filings is 4,391
hours.\158\
---------------------------------------------------------------------------

\155\ 2,914 x .5 hours = 1,457 hours.
\156\ 2,914 x 1 hour = 2,914 hours.
\157\ 200 x 0.1 hours = 20 hours.
\158\ 1,457 hours + 2,914 hours + 20 hours = 4,391 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 as required by Part 2 of Form ADV.
---------------------------------------------------------------------------

3. Total Revised Burdens
The revised total annual 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 amendments to the form, preparing brochure supplements and
delivering codes of ethics to clients, is estimated to be approximately
319,137 hours per year, for a monetized total of $79,784,000.\159\
---------------------------------------------------------------------------

\159\ 183,708 hours per year attributable to initial preparation
of Form ADV + 9,877 hours per year attributable to initial private
fund reporting requirements + 272 hours per year for initial
umbrella registration + 125,280 hours per year for attributable to
amendments, brochure supplements and obligations to deliver codes of
ethics = 319,137 hours. We expect that the performance of this
function would 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 to account for an 1,800-hour work year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead, suggest that costs for these positions are
$217 and $283 per hour, respectively. (159,568 hours x $217) +
(159,568 hours x 283) = $79,784,000.

---------------------------------------------------------------------------

[[Page 33740]]

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 burdens associated with private fund
reporting, amendments to the form and final filings, would be
approximately 10,299 hours per year, for a monetized total of
$2,574,500.\160\
---------------------------------------------------------------------------

\160\ 2,276 hours per year attributable to initial preparation
of Form ADV + 3,632 hours per year attributable to initial private
fund reporting requirements + 4,391 hours per year for amendments
and final filings = 10,299 hours. We expect that the performance of
this function would 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 to account for an 1,800-hour
work year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead, suggest that costs for these
positions are $217 and $283 per hour, respectively. (5,149 x $217) +
(5,149 x $283) = $2,574,500.
---------------------------------------------------------------------------

We estimate that if the proposed amendments to Form ADV are
adopted, the total annual hour burden for the form would be 329,436
hours and a monetized total of $82,358,500.\161\ This is an increase of
175,034 hours and $45,688,073 from the currently approved burden
estimates,\162\ 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. The resulting blended average per adviser burden for Form ADV
is 22.69 hours (for a monetized total of $5,674.42),\163\ which
consists of an average annual burden of 27.51 hours \164\ for each of
the estimated 11,600 SEC registered advisers, and 3.53 hours \165\ for
each of the estimated 2,914 exempt reporting advisers.
---------------------------------------------------------------------------

\161\ 319,137 hours + 10,299 hours = 329,436 hours. $79,784,000
+ $2,574,500 = $82,358,500.
\162\ 329,436 hours - 154,402 hours = 175,034 hours. $82,358,500
- $36,670,427 = $45,688,073.
\163\ 329,436 hours/(11,600 registered advisers + 2,914 exempt
reporting advisers) = 22.69 hours. $82,358,500/(11,600 registered
advisers + 2,914 exempt reporting advisers) = $5,674.42.
\164\ 319,137 hours/11,600 registered advisers = 27.51 hours.
\165\ 10,299 hours/2,914 exempt reporting advisers = 3.53 hours.
---------------------------------------------------------------------------

Registered investment advisers are also expected to incur an annual
cost burden of $8,528,875, an increase of $4,928,875 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, and
the information is generally kept confidential.\166\ The collection of
information is mandatory.
---------------------------------------------------------------------------

\166\ See section 210(b) of the Advisers Act.
---------------------------------------------------------------------------

The proposed amendments to rule 204-2 would 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 of 1,986,152 hours. Based upon updated IARD data,
the current approximate number of investment advisers is 11,600. As a
result in 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 118,668 hours.\167\ We
estimate that most advisers provide, or seek to provide, performance
information to their clients. Under the proposed amendments, each
adviser would be required to retain the records in the same manner, and
for the same period of time, as other books and records under rule. We
believe 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. Accordingly, the proposed
amendments to rule 204-2 are estimated to increase the burden by
approximately 0.5 hours per adviser annually for a total increase of
5,800 hours.\168\ The revised annual aggregate burden would be
2,110,620 hours.\169\ The revised average burden per adviser would be
approximately 182 hours per year.\170\
---------------------------------------------------------------------------

\167\ 11,600 advisers x 181.45 hours = 2,104,820 hours.
2,104,820 hours - 1,986,152 hours = 118,668 hours.
\168\ 11,600 advisers x 0.5 hours = 5,800 hours.
\169\ 1,986,152 (current approved burden) + 118,668 (burden for
additional registrants) + 5,800 (burden for proposed amendments) =
2,110,620 hours.
\170\ 2,110,620 hours/11,600 advisers = 181.9 hours.
---------------------------------------------------------------------------

Advisers would 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 cost burden is
$108,708,557.10. We estimate the hourly wage for compliance clerks to
be $64 per hour, including benefits, and the hourly wage for general
clerks to be $53 per hour, including benefits.\171\ For each adviser,
182 burden hours would 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 of this work, and clerical staff
will perform the remaining 150 hours. The total cost per respondent
therefore will be an estimated $9,998,\172\ for a total burden cost of
approximately $115,976,800,\173\ an increase of $7,268,243 from the
currently approved total cost per respondent.\174\ The increase in cost
is attributable to a larger registered investment adviser population
since the most recent approval as well as the proposed rule 204-2
amendments discussed in this release.
---------------------------------------------------------------------------

\171\ Our hourly wage rate estimate for a compliance manager and
compliance clerk is based on data from the SIFMA Office Salaries in
the Securities Industry Report 2013, modified by Commission staff to
account for an 1800-hour work-year and multiplied by 5.35, for
compliance clerks to account for bonuses, firm size, employee
benefits and overhead.
\172\ (32 hours per compliance clerk x $64) + (150 hours per
clerical staff x $53) = ($2,048 + $7,950) = $9,998.
\173\ $9,998 per adviser x 11,600 advisers = approximately
$115,976,800.
\174\ $115,976,800 - $108,708,557 = $7,268,243.
---------------------------------------------------------------------------

C. Request for Comment

We request comment on whether our estimates for the change in
burden hours and associated costs described above are reasonable.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments
in order to: (i) Evaluate whether the proposed collections of
information are necessary

[[Page 33741]]

for the proper performance of the functions of the Commission,
including whether the information will have practical utility; (ii)
evaluate the accuracy of the Commission's estimate of the burden of the
proposed collections of information; (iii) determine whether there are
ways to enhance the quality, utility, and clarity of the information to
be collected; and (iv) determine whether there are ways to minimize the
burden of the collections of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
The agency has submitted the proposed collection of information to
OMB for approval. Persons wishing to submit comments on the collection
of information requirements of the proposed amendments should direct
them to the Office of Management and Budget, Attention Desk Officer for
the Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Washington, DC 20503, and should send a copy to
Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090, with reference to File No. S7-
09-15. As OMB is required to make a decision concerning the collections
of information between 30 and 60 days after publication, a comment to
OMB is best assured of having its full effect if OMB receives it within
30 days of publication. Requests for materials submitted to OMB by the
Commission with regard to these collections of information should be in
writing, refer to File No. S7-09-15, and be submitted to the Securities
and Exchange Commission, Office of FOIA Services, 100 F Street NE.,
Washington, DC 20549-2736.

V. Initial Regulatory Flexibility Analysis

The Commission has prepared the following Initial Regulatory
Flexibility Analysis (``IRFA'') in accordance with section 3(a) of the
Regulatory Flexibility Act \175\ regarding our proposed amendments to
Form ADV and rule 204-2 and our proposed technical amendments to
certain other rules under the Advisers Act.
---------------------------------------------------------------------------

\175\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reason for the Proposed Action

The proposed amendments to Form ADV are designed to provide the
Commission with additional information about registered investment
advisers, including information about separately managed accounts,
provide for umbrella registration for multiple investment advisers
operating as a single advisory business, and provide technical,
clarifying and other amendments to certain Form ADV provisions. The
proposed amendments to Form ADV would improve the information provided
by investment advisers to the Commission and the public.
We are also proposing amendments to the Advisers Act books and
records rule that would 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
proposed amendments to the books and records rule would improve
investor protections by providing useful information in examining and
evaluating advisers' performance claims.
Finally, we are proposing technical amendments to certain rules
under the Advisers Act to remove transition provisions where the
transition process is complete.

B. Objectives and Legal Basis

The proposed amendments to Form ADV would address certain data gaps
and enhance current reporting provided by investment advisers,
particularly about separately managed accounts, in order to increase
our ability to effectively oversee and monitor their activities, and to
incorporate umbrella registration for private fund advisers that
operate as a single advisory business. The proposed amendments to the
Advisers Act books and records rule would 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 and indirectly, to any
persons.
The Commission is proposing 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 sections 203(c)(1), 204, and 211(a) of the
Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)]. The Commission is proposing to amend 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 proposing to amend 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 proposing to amend rule 203-1 pursuant to authority in
section 206A of the Advisers Act [15 U.S.C. 80b-6A]. The Commission is
proposing to rescind rule 203A-5 and amend 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)].

C. Small Entities Subject to the Rule and Rule Amendments

In developing these proposals, we have considered their potential
impact on small entities that would be subject to the proposed
amendments. The proposed amendments would 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.\176\
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\176\ Rule 0-7(a) under the Advisers Act.
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Our proposed rule and Form ADV amendments would 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 state regulators. Based on IARD data, we estimate that as
of April 1, 2015, approximately 489 advisers that are small entities
are registered with the Commission.\177\ Because these entities are
registered, they, like all SEC-registered investment advisers, would
all be subject to the proposed amendments to Form ADV, rule 204-2 and
other Advisers Act rules.
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\177\ Based on SEC-registered investment adviser responses to
Form ADV, Item 5.F and Item 12.
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The only small entity exempt reporting advisers that would be
subject to the proposed amendments would be exempt reporting advisers
that maintain their principal office and place of

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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.\178\ 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 18% of registered
investment advisers with their principal office and place of business
outside the U.S. are small entities. There are approximately 1,148
exempt reporting advisers with their principal office and place of
business outside the U.S. We estimate that 18% of those advisers,
approximately 206, are small entities.
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\178\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A,
Question 11.
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D. Reporting, Recordkeeping and Other Compliance Requirements

The proposed amendments to Form ADV and rule 204-2 would impose
certain reporting, recordkeeping, and compliance requirements on all
Commission-registered advisers, including small advisers. All
Commission-registered small advisers would be required to file Form
ADV, including the proposed amendments, and all Commission-registered
small advisers would be subject to the proposed amended recordkeeping
requirements. We do not believe that our proposed technical amendments
to other Advisers Act rules would impose different reporting,
recordkeeping, or other compliance requirements on small advisers.
Proposed Form ADV Amendments
The proposed amendments to Form ADV would require registered
investment advisers to report different or additional information than
what is currently required. Approximately 489 small advisers currently
registered with us would be subject to these requirements. We expect
these 489 small advisers to spend, on average, 3 hours to respond to
the proposed new and amended questions, not including items relating to
private fund reporting.\179\ We expect the aggregate cost to small
advisers associated with this process would be $366,500.\180\
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\179\ See supra section IV. of this release.
\180\ 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 to account for an 1,800-hour
work year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead, suggest that costs for these
positions are $217 and $283 per hour, respectively. 489 small
advisers x 3 hours = 1,467 hours. [733 hours x $217 = $159,061] +
[733 hours x $283 = $207,439] = $366,500.
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In addition, of these 489 small advisers, we estimate that 4 small
advisers currently rely on the 2012 ABA Letter to act as filing
advisers for their relying advisers.\181\ We expect that our proposed
changes to codify umbrella registration would take 4 hours \182\ in the
aggregate, at a cost to small advisers of $1,000.\183\ We do not know
how many additional small advisers would use umbrella registration if
it was incorporated into Form ADV. We estimate for purposes of the
Paperwork Reduction Act that they would also have a burden of 1 hour
per filing adviser.
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\181\ Based on IARD data as of April 1, 2015.
\182\ For purposes of the Paperwork Reduction Act, we estimated
in section IV. of this release that amendments to codify umbrella
registration would take an additional 1 hour per filing adviser.
\183\ 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 to account for an 1,800-hour work year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead, suggest that costs for these positions are
$217 and $283 per hour, respectively. 4 filing advisers x 1 hour = 4
hours. [2 hours x $217 = $434] + [2 hours x $283 = 566] = $1,000.
---------------------------------------------------------------------------

We do not estimate any increase or decrease in burden related to
our proposed amendments for private fund advisers, other than the hours
related to proposed Schedule R or for exempt reporting advisers. The
total estimated labor costs associated with our amendments that we
expect will be borne by small advisers is $367,500.\184\
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\184\ $366,500 + $1,000 = $367,500. These costs are discussed in
Paperwork Reduction Act Analysis in section IV. of the release.
---------------------------------------------------------------------------

Proposed Amendments to Books and Records Rule
Our proposed amendments to rule 204-2's performance information
recordkeeping provisions are meant to 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 would create
reporting, recordkeeping, and other compliance requirements for small
advisers. As discussed in the Paperwork Reduction Act Analysis in
section IV. above, the proposed amendments to rule 204-2 would increase
the burden by approximately 0.5 hours per adviser. We expect the
aggregate cost to small advisers associated with our proposed
amendments would be $13,415.\185\
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\185\ 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
in the Securities Industry Report 2013, modified to account for an
1,800-hour work year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead, suggest that costs for
these positions are $64 and $53, respectively. 489 small advisers x
0.5 hours = 244.5 hours. [0.17 x 244.5 hours x $64 = $2,660] + [0.83
x 244.5 hours x $53 = $10,755] = $13,415.
---------------------------------------------------------------------------

E. Duplicative, Overlapping, or Conflicting Federal Rules

We believe there are no federal rules that duplicate, overlap, or
conflict with the proposed rule and form amendments.

F. Significant Alternatives

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 proposed Form ADV and rule amendments, the
Commission considered the following alternatives: (i) The establishment
of differing compliance or reporting requirements that take into
account the resources available to small entities; (ii) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the proposed 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 proposed
Form ADV and rule amendments, or any part thereof, for such small
entities.
Regarding the first and second alternatives, for certain proposed
reporting requirements regarding separately managed accounts on Form
ADV, we propose to require semi-annual information filed annually for

[[Page 33743]]

advisers with regulatory assets under management attributable to
separately managed accounts of $10 billion or more and annual
information for other advisers.\186\ Requiring less detailed reporting
on these items 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.
---------------------------------------------------------------------------

\186\ Proposed Form ADV, Part 1A, Schedule D, Sections 5.K.(1).
---------------------------------------------------------------------------

Regarding the first and fourth alternatives for the other proposed
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. Because the protections of the
Advisers Act are intended to apply equally to clients of both large and
small advisers, it would be inconsistent with the purposes of the Act
to specify differences for small entities under the proposed
amendments.
Regarding the second alternative for the other proposed amendments
to Form ADV and the Advisers Act rules, we will continue to consider
whether further clarification, consolidation, or simplification of the
compliance requirements is feasible or necessary, but we believe that
the current proposal is clear. The remaining Form ADV amendments do not
change that all SEC-registered advisers use a single form, Form ADV,
and an existing filing system, IARD, for reporting and registration
purposes, and this would 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 consider using performance
rather than design standards with respect to the proposed amendments to
Form ADV and rule 204-2 to be inconsistent with our statutory mandate
to protect investors, as 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.

G. Solicitation of Comments

We encourage written comments on matters discussed in this IRFA. We
solicit comment on the number of small entities subject to the proposed
Form ADV and rule amendments; and whether the proposed Form ADV and
rule amendments discussed in this release could have an effect on small
entities that has not been considered. We request that commenters
describe the nature of any impact on small entities and provide
empirical data to support the extent of such impact.

VI. Consideration of Impact on the Economy

For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \187\ we must advise OMB whether a proposed
regulation constitutes a ``major'' rule. Under SBREFA, a rule is
considered ``major'' where, if adopted, it results in or is likely to
result in (1) an annual effect on the economy of $100 million or more;
(2) a major increase in costs or prices for consumers or individual
industries; or (3) significant adverse effects on competition,
investment or innovation.
---------------------------------------------------------------------------

\187\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

We request comment on the potential impact of the proposed
amendments on the economy on an annual basis. Commenters are requested
to provide empirical data and other factual support for their views to
the extent possible.

VII. Statutory Authority

The Commission is proposing 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 sections 203(c)(1), 204, and 211(a) of the
Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)]. The Commission is proposing to amend 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 proposing to amend 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 proposing to amend rule 203-1 pursuant to authority in
section 206A of the Advisers Act [15 U.S.C. 80b-6A]. The Commission is
proposing to rescind rule 203A-5 and amend 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)].

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 proposed to be amended as follows.

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The authority citation for part 275 continues to read in part as
follows:

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.

Sec. 275.202(a)(11)(G)-1 [Amended]

0
2. Amend Sec. 275.202(a)(11)(G)-1 by removing paragraph (e).
0
3. Amend Sec. 275.203-1 by:
0
a. In the first sentence of paragraph (a) removing the phrase ``Subject
to paragraph (b), to'' and adding in its place ``To'';
0
b. Removing paragraph (b);
0
c. In the Note to paragraphs (a) and (b), revising the paragraph
heading;
0
d. Redesignating paragraphs (c) and (d) as paragraphs (b) and (c); and
0
e. Removing paragraph (e).
The revision reads as follows:

Sec. 275.203-1 Application for investment adviser registration.

(a) * * *
Note to paragraph (a): * * *
* * * * *

Sec. 275.203A-5 [Removed and Reserved]

0
4. Sec. 275.203A-5 is removed and reserved.

Sec. 275.204-1 [Amended]

0
5. Amend Sec. 275.204-1 by:
0
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'';
0
b. Removing paragraph (c); and
0
c. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d).
0
6. Amend Sec. 275.204-2 by:
0
a. Revising paragraph (a)(7); and
0
b. In paragraph (a)(16) removing the phrase ``to 10 or more persons''
and adding in its place ``to any person''.

Sec. 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:

[[Page 33744]]

(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: 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
(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; or
(iv) The performance or rate of return of any or all managed
accounts or securities recommendations.
* * * * *

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF
1940

0
7. The authority citation for part 279 continues to read in part as
follows:

Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1,
et seq.

0
a. Form ADV [referenced in Sec. 279.1] is amended by: In the
instructions to the form, revising the section entitled ``Form ADV:
General Instructions.'' The revised version of Form ADV: General
Instructions is attached as Appendix A;
0
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;
0
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;
0
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.

Dated: May 20, 2015.
Robert W. Errett,
Deputy Secretary.
BILLING CODE 8011-01-O

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[FR Doc. 2015-12778 Filed 6-11-15; 8:45 am]
BILLING CODE 8011-01-P

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