Form ADV and Investment Advisers Act Rules, 60417-60575 [2016-20832]

Download as PDF Vol. 81 Thursday, No. 170 September 1, 2016 Part II Securities and Exchange Commission asabaliauskas on DSK3SPTVN1PROD with RULES 17 CFR Parts 275 and 279 Form ADV and Investment Advisers Act Rules; Final Rule VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\01SER2.SGM 01SER2 60418 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 203A–5 [17 CFR 275.203A–5] under the Advisers Act. SECURITIES AND EXCHANGE COMMISSION Table of Contents 17 CFR Parts 275 and 279 [Release No. IA–4509; File No. S7–09–15] RIN 3235–AL75 Form ADV and Investment Advisers Act Rules Securities and Exchange Commission. ACTION: Final rule. AGENCY: The Securities and Exchange Commission (the ‘‘Commission’’ or ‘‘SEC’’) is adopting amendments to Form ADV that are designed to provide additional information regarding advisers, including information about their separately managed account business, incorporate a method for private fund adviser entities operating a single advisory business to register using a single Form ADV, and make clarifying, technical and other amendments to certain Form ADV items and instructions. The Commission also is adopting amendments to the Advisers Act books and records rule and technical amendments to several Advisers Act rules to remove transition provisions that are no longer necessary. DATES: Effective October 31, 2016. Compliance Date: See Section III of this final rule. FOR FURTHER INFORMATION CONTACT: Bridget D. Farrell, Senior Counsel, Jennifer Songer, Senior Counsel, Betselot Zeleke, Attorney-Adviser, or Sara Cortes, Assistant Director at (202) 551–6787 or IArules@sec.gov, Investment Adviser Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to rules 202(a)(11)(G)–1 [17 CFR 275.202(a)(11)(G)–1], 203–1 [17 CFR 275.203–1], 204–1 [17 CFR 275.204–1], 204–2 [17 CFR 275.204–2], and 204–3 [17 CFR 275.204–3] under the Investment Advisers Act of 1940 [15 U.S.C. 80b] (‘‘Advisers Act’’ or ‘‘Act’’),1 and amendments to Form ADV [17 CFR 279.1] under the Advisers Act. The Commission is also rescinding rule asabaliauskas on DSK3SPTVN1PROD with RULES SUMMARY: 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 part 275], in which these rules are published. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 I. Background II. Discussion A. Amendments to Form ADV 1. Information Regarding Separately Managed Accounts a. Amendments to Item 5 of Part 1A and Section 5 of Schedule D b. Section 5.K.(1) of Schedule D c. Section 5.K.(2) of Schedule D d. Section 5.K.(3) of Schedule D e. Public Disclosure of Separately Managed Account Information f. Additional Comments About Reporting of Separately Managed Accounts 2. Additional Information Regarding Investment Advisers a. Additional Identifying Information b. Additional Information About Advisory Business c. Additional Information About Financial Industry Affiliations and Private Fund Reporting 3. Umbrella Registration 4. Clarifying, Technical and Other Amendments to Form ADV a. Amendments to Item 2 b. Amendments to Item 4 c. Amendments to Item 7 d. Amendments to Item 8 e. Amendments to Section 9.C. of Schedule D f. Amendments to Disclosure Reporting Pages g. Amendments to Instructions and Glossary B. Amendments to Investment Advisers Act Rules 1. Amendments to Books and Records Rule 2. Technical Amendments to Advisers Act Rules a. Rule 203A–5 b. Rule 202(a)(11)(G)–1(e) c. Rule 203–1(e) d. Rule 203–1(b), Rule 204–1(c) and Rule 204–3(g) III. Effective and Compliance Dates A. Effective Date B. Compliance Dates IV. Economic Analysis A. Introduction B. Amendments to Form ADV 1. Economic Baseline and Affected Market Participants 2. Analysis of the Amendments to Form ADV and Alternatives a. Information Regarding Separately Managed Accounts b. Additional Information Regarding Investment Advisers c. Costs Applicable to Reporting Information Regarding Separately Managed Accounts and Additional Information on Form ADV d. Umbrella Registration e. Clarifying, Technical and Other Amendments to Form ADV f. Exempt Reporting Advisers C. Amendments to Investment Advisers Act Rules 1. Economic Baseline and Affected Market Participants PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 2. Analysis of the Effects of the Amendments to the Advisers Act Books and Records Rule V. Paperwork Reduction Act Analysis A. Form ADV 1. Changes in Average Burden Estimates a. Estimated Change in Burden Related to Part 1A Amendments (Not Including Private Fund Reporting) i. Amendments Related to Reporting of Separately Managed Account Information ii. Other Additional Information Regarding Investment Advisers iii. Clarifying, Technical and Other Amendments b. Estimated Changes in Burden Related to Private Fund Reporting Requirements c. Estimated Changes in Burden Related to Exempt Reporting Adviser Reporting Requirements 2. Annual Burden Estimates a. Estimated Annual Burden Applicable to All Registered Investment Advisers i. Estimated Initial Hour Burden (Not Including Burden Applicable to Private Funds) for First Year Adviser To Complete Form ADV (Part 1 and Part 2) ii. Estimated Initial Burden Applicable to Registered Advisers to Private Funds iii. Estimated Annual Hour Burden Associated With Amendments, New Brochure Supplements, and Delivery Obligations iv. Estimated Annual Cost Burden b. Estimated Annual Burden Applicable to Exempt Reporting Advisers i. Estimated Initial Hour Burden ii. Estimated Annual Burden Associated With Amendments and Final Filings 3. Total Revised Burden B. Rule 204–2 VI. Final Regulatory Flexibility Analysis A. Need for and Objectives of the Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Rule and Rule Amendments D. Projected Reporting Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities VII. Statutory Authority Appendix A: Form ADV: General Instructions Appendix B: Form ADV: Instructions for Part 1A Appendix C: Form ADV: Glossary of Terms Appendix D: Form ADV, Part 1A I. Background Form ADV is used by investment advisers to register with the Commission and with the states.2 The information collected on Form ADV serves a vital role in our regulatory program and our ability to protect 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. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES investors. On May 20, 2015,3 we proposed amendments to Part 1A of Form ADV in three areas: Revisions to fill certain data gaps and to provide additional information about investment advisers, including their separately managed account business; amendments to incorporate a method for private fund adviser entities operating a single advisory business to register with us using a single Form ADV; and clarifying, technical and other amendments to existing items and instructions.4 Several of the amendments to Form ADV relate to separately managed accounts. These amendments will require advisers to provide certain aggregate information about separately managed accounts that they advise. Other amendments to Form ADV that we are adopting are designed to improve the depth and quality of information that we collect on investment advisers, facilitate our risk monitoring initiatives and assist our staff in its risk-based examination program. Moreover, because Form ADV is available to the public on our Web site, these amendments also are intended to provide advisory clients and the public additional information regarding registered investment advisers. We are also adopting amendments to Part 1A that will provide a more efficient method for the registration on one Form ADV of multiple private fund adviser entities operating a single advisory business (‘‘umbrella registration’’). The staff has provided guidance to private fund advisers regarding umbrella registration,5 and the amendments to incorporate umbrella registration into Form ADV will make the availability of umbrella registration more widely known to advisers. Uniform filing requirements for umbrella registration in Form ADV will provide more consistent data about, and create a clearer picture of, groups of private fund advisers that operate as a single business. The last set of amendments to Part 1A of Form ADV includes clarifying, 3 See Amendments to Form ADV and Investment Advisers Act Rules, Investment Advisers Act Release No. 4091 (May 20, 2015) [80 FR 33718 (June 12, 2015)] (‘‘Proposing Release’’). 4 In general, this Release discusses the Commission’s rule and form amendments that will affect advisers registered with the Commission. We understand that the state securities authorities intend to consider similar changes that affect advisers registered with the states, who are also required to complete Part 1B of Form ADV as part of their state registrations. 5 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 (‘‘2012 ABA Letter’’). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 technical and other amendments that are based on our staff’s experience with the form and responding to inquiries from advisers and their service providers. These amendments should make it easier for advisers to understand and complete the form. Separate from Form ADV, we are adopting amendments to several Advisers Act rules. First, we are adopting amendments to the books and records rule, rule 204–2, to require advisers to make and keep supporting documentation that demonstrates performance calculations or rates of return in any written communications that the adviser circulates or distributes, directly or indirectly, to any person. Advisers also will be required to maintain originals of all written communications received and copies of written communications sent by them related to the performance or rate of return of any or all managed accounts or securities recommendations. As discussed in the Proposing Release, we believe that these amendments will better protect investors from fraudulent performance claims.6 Finally, we are adopting several technical amendments to rules under the Advisers Act to remove transition provisions that were adopted in conjunction with previous rulemaking initiatives, but that are no longer necessary. We received 50 comment letters on our proposals, most of which were from investment advisers, trade or professional organizations, law firms and consultants.7 Commenters generally supported the goals of the proposal. The majority of comments focused on reporting of separately managed accounts and umbrella registration. Several commenters supported collection of information on separately 6 See Proposing Release, supra footnote 3 at Section I. 7 Comment letters submitted in File No. S7-09-15 are available on the Commission’s Web site at https://www.sec.gov/comments/s7-09-15/ s70915.shtml. We also considered those comments submitted in File No. S7–08–15 (Investment Company Reporting Modernization, Investment Company Act Release No. 9776 (May 20, 2015) [80 FR 33589 (June 12, 2015)]) that addressed the amendments adopted in this Release. Those comments are available on the Commission’s Web site at https://www.sec.gov/comments/s7-08-15/ s70815.shtml. We also note that in December 2014, the Financial Stability Oversight Council (‘‘FSOC’’) issued a notice requesting comment on aspects of the asset management industry, which includes, among other entities, registered investment advisers. Although this rulemaking is independent of FSOC, the notice included requests for comment on additional data or information that would be helpful to regulators and market participants. In response to the notice, several commenters discussed issues concerning data that are relevant to this rulemaking, including data regarding separately managed accounts that was cited and considered as part of the Proposing Release. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 60419 managed account clients, but many raised concerns about the public availability of the information and reporting on derivatives and borrowings. A diverse group of commenters supported umbrella registration. Commenters also generally supported the amendments to certain Advisers Act rules. We are adopting the proposed amendments with several modifications to address commenters’ concerns. We discuss these modifications and concerns below. II. Discussion A. Amendments to Form ADV 1. Information Regarding Separately Managed Accounts Several of the amendments to Form ADV that we are adopting are designed to collect more specific information about advisers’ separately managed accounts. For purposes of reporting on Form ADV, we consider advisory accounts other than those that are pooled investment vehicles (i.e., registered investment companies, business development companies and pooled investment vehicles that are not registered (including, but not limited to, private funds)) to be separately managed accounts. As we discussed in the Proposing Release, we currently collect detailed information about pooled investment vehicles that advisers manage, but little specific information about separately managed accounts.8 We believe that collecting additional information about separately managed accounts will enhance our staff’s ability to effectively carry out our risk-based examination program and other risk assessment and monitoring activities. We discuss below the specific separate account reporting requirements. Commenters stated that they generally understood our interest in collecting additional data on separately managed accounts,9 but many raised concerns 8 See Proposing Release, supra footnote 3 at Section II.A.1. 9 See, e.g., Comment Letter of Blackrock, Inc. (Aug. 11, 2015) (‘‘BlackRock Letter’’); Comment Letter of Dechert LLP (Aug. 11, 2015) (‘‘Dechert Letter’’); Comment Letter of Investment Adviser Association (Aug. 11, 2015) (‘‘IAA Letter’’); Comment Letter of Investment Company Institute (Aug. 11, 2015) (‘‘ICI Letter’’); Comment Letter of Invesco Advisers, Inc. (Aug. 11, 2015) (‘‘Invesco Letter’’); Comment Letter of LPL Financial LLC (Aug. 11, 2015) (‘‘LPL Letter’’); Comment Letter of Managed Funds Association (Aug. 11, 2015) (‘‘MFA Letter’’); Comment Letter of Money Management Institute (Aug. 11, 2015) (‘‘MMI Letter’’); Comment Letter of Morningstar, Inc. (Aug. 12, 2015) (‘‘Morningstar Letter’’); Comment Letter of North American Securities Administrators Association, Inc. (Aug. 11, 2015) (‘‘NASAA Letter’’); Comment Letter of National Regulatory Services (Aug. 11, 2015) (‘‘NRS Letter’’); Comment Letter of E:\FR\FM\01SER2.SGM Continued 01SER2 60420 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations regarding separately managed account reporting as proposed, and we discuss those concerns below. a. Amendments to Item 5 of Part 1A and Section 5 of Schedule D Item 5 of Part 1A and Section 5 of Schedule D currently require advisers to provide information about their advisory business including percentages of types of clients and assets managed for those clients. We had proposed to collect information specifically about separately managed accounts, including types of assets held, and the use of derivatives and borrowings in the accounts.10 We are adopting the amendments to Item 5 of Part 1A and Section 5 of Schedule D largely as proposed, with some modifications in response to comments we received, as discussed below. We are amending Item 5 of Part 1A and Section 5 of Schedule D to require advisers to provide information on an aggregate level regarding separately managed accounts that they manage.11 Advisers will be required to report information about the types of assets held and the use of derivatives and borrowings in separately managed accounts. Advisers that report that they have regulatory assets under management attributable to separately managed accounts in response to new Item 5.K.(1) of Part 1A will be required to complete new Section 5.K.(1) of Schedule D, and may be required to complete new Sections 5.K.(2) and 5.K.(3) of Schedule D regarding those accounts. asabaliauskas on DSK3SPTVN1PROD with RULES b. Section 5.K.(1) of Schedule D In Section 5.K.(1) of Schedule D advisers will be required to report the approximate percentage of separately managed account regulatory assets under management that are invested in twelve broad asset categories, modified from the ten that were proposed in response to comments received and discussed below. As proposed, advisers with at least $10 billion in regulatory OppenheimerFunds, Inc. (Aug. 10, 2015) (‘‘Oppenheimer Letter’’); Comment Letter of Charles Schwab & Co., Inc. (Aug. 11, 2015) (‘‘Schwab & Co. Letter’’); Comment Letter of Securities Industry and Financial Markets Association, Asset Management Group and Asset Managers Forum (Aug. 11, 2015) (‘‘SIFMA Letter’’); Comment Letter of the Systemic Risk Council (Aug. 7, 2015) (‘‘SRC Letter’’); Comment Letter of T. Rowe Price Associates, Inc. (Aug. 11, 2015) (‘‘T. Rowe Price Letter’’). However, certain commenters expressed their disapproval of the collection this data. See Comment Letter of The Alternative Investment Management Association Limited (Aug. 6, 2015) (‘‘AIMA Letter’’) (stating that this data should not be collected unless kept confidential). 10 See Proposing Release, supra footnote 3 at Section II.A.1. 11 See infra Section II.A.2.b. for a discussion of other amendments to Item 5 of Part 1A. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 assets under management attributable to separately managed accounts will report, on an annual basis, both midyear and end of year 12 percentages while advisers with less than $10 billion in regulatory assets under management attributable to separately managed accounts will report only end of year percentages. As we stated in the Proposing Release, we believe this information will allow us to better monitor this segment of the investment advisory industry and identify advisers that specialize in particular asset classes.13 We are adopting the amendments to Section 5.K.(1) of Schedule D largely as proposed, with some minor modifications in response to comments we received, as discussed below. While some commenters generally supported the collection of this information,14 others suggested requiring a minimum regulatory assets under management or number of account threshold for reporting on this section to minimize burdens on small and mid-sized advisers.15 We recognize that this reporting will impose some burden on all advisers, including smaller advisers, but we believe that gathering this information for all registered advisers is important for us to gain a full understanding of assets held in separately managed accounts managed by investment advisers of different sizes. This section requires advisers, on an annual basis, to report aggregate separate account investments across twelve categories of investments. We believe that requiring all advisers to separately managed accounts to report this information will enable us to gain a more fulsome picture of assets held in separately managed accounts. We have also tailored and limited the scope of 12 As stated in Amended Form ADV, Part 1A, Schedule D, Section 5.K.(1), end of year refers to the date used by the adviser to calculate its regulatory assets under management, and mid-year is the date six months before the end of year date. 13 See Proposing Release, supra footnote 3 at Section II.A.1. 14 See Schwab & Co. Letter (‘‘We support the SEC’s efforts to collect additional data seeking to minimize as much as possible the burden on regulated entities and the investors they service while helping the SEC to enhance their ability to conduct risk-based examinations of advisers.’’); BlackRock Letter (‘‘We believe this information will help the Commission identify which managers specialize in SMAs that invest in certain asset classes.’’). 15 Comment Letter of Advisor Solutions Group, Inc. (Aug. 11, 2015) (‘‘ASG Letter’’); AIMA Letter (suggesting that advisers with a small number of separately managed account clients or a small amount of separately managed account assets under management be exempt from reporting on separately managed accounts). PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 information to be reported and the frequency of such reporting. With respect to the categories of investments listed in Section 5.K.(1), we proposed to require advisers to report the approximate percentage of separately managed account regulatory assets under management invested in ten broad asset categories.16 Several commenters sought clarification on how to classify assets in certain categories 17 Another commenter suggested new categories, such as ‘‘private real estate’’ and ‘‘structured products.’’ 18 In response to that commenter’s suggestion 19 we have included a new category for ‘‘Cash and Cash Equivalents.’’ 20 We also believe that additional delineation of equity securities would be helpful for our staff and the public, and accordingly, we have added a ‘‘Non-Exchange-Traded Equity Securities’’ category in addition to the ‘‘Exchange-Traded Equity Securities’’ category, to clarify where to report equities that are not listed on a regulated securities exchange. This information will assist our examination staff in monitoring risks associated with advisers managing separately managed account assets in securities that are not exchange traded. Some commenters also sought clarification about how to report assets that may be classified into multiple categories.21 Commenters also suggested that advisers be permitted to use reasonable and documented systems and methodologies for determining 16 Proposing Release, supra footnote 3 at Section II.A.1. 17 LPL Letter; MMI Letter. See also Dechert Letter (stating that advisers may not maintain systems that permit them to efficiently categorize assets based on asset types in the proposed amendments); IAA Letter. 18 BlackRock Letter. BlackRock also suggested removing ‘‘derivatives’’ as a category, because derivatives information for some advisers will be collected in Section 5.K.(2). We have not removed ‘‘derivatives’’ as a category, because are collecting different information in Section 5.K.(2) than in Section 5.K.(1). 19 BlackRock Letter; MMI Letter. 20 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)–(b). The text proceeding Section 5.K.(1) gives examples of cash and cash equivalents, including bank deposits, certificates of deposit, bankers’ acceptances, and similar bank instruments. We also added an instruction to the text preceding Section 5.K.(1)(a) stating that advisers should round to the nearest percent when reporting this information. 21 Comment Letter of Anonymous (Aug. 11, 2015) (‘‘Anonymous Letter’’) (‘‘derivatives’’ category may overlap with others); Comment Letter of JAG Capital Management LLC (June 24, 2015) (‘‘JAG Letter’’) (convertible bonds, TIPS and ETFs); MMI Letter (convertible bonds, fixed income securities, preferred securities); Comment Letter of Professional Compliance Assistance, Inc. (Aug. 11, 2015) (‘‘PCA Letter’’) (balanced mutual funds). See also IAA Letter (U.S. government agency, corporate bonds, other). E:\FR\FM\01SER2.SGM 01SER2 asabaliauskas on DSK3SPTVN1PROD with RULES Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations appropriate asset categories.22 We acknowledge that some assets may be classified into more than one category or require advisers to apply discretion about which category applies to a particular asset, and agree that advisers should be permitted to use reasonable methodologies in selecting a category in which to report such an asset, but should not double count assets. Accordingly, in response to these comments, we are adding an instruction to Item 5.K.1 that advisers may use their own internal methodologies and the conventions of their service providers in determining how to categorize assets, so long as their methodologies are consistently applied and consistent with information the advisers report internally and to current and prospective clients, but should not double count assets. We believe that providing this flexibility, which we modeled after an instruction in Form PF, acknowledges that advisers may categorize the same or similar assets differently based on different methodologies. Some commenters expressed concerns about the proposed reporting of ‘‘Corporate Bonds—Investment Grade’’ and ‘‘Corporate Bonds—Non-Investment Grade,’’ based on the proposed definitions of such terms, as they believed that this would require advisers to make subjective decisions about how to classify assets and could result in inconsistent reporting. These commenters requested that the Commission eliminate the reporting requirement, or either provide a more objective definition or permit an adviser to follow and rely on the classifications made by another investment adviser.23 Another commenter noted the reference to ‘‘liquidity’’ in the definition and requested that the Commission seek a consistent approach to liquidity-related concepts across reporting regimes.24 In response to these comments, we are removing the proposed definitions of these terms from Form ADV. Given the instruction we have added permitting advisers to use their own consistently applied methodologies to select asset categories, we believe that the definitions are no longer necessary. We recognize that an adviser might reasonably categorize the same or similar assets differently from another adviser. Even with such differences, we believe that this categorization will provide useful information, particularly given the Commission’s intended purpose for requiring such reporting, 22 Dechert Letter; IAA Letter. Letter; MMI Letter. 24 IAA Letter. 23 LPL VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 which is to better understand how assets in separately managed accounts are invested across that industry, rather than to impose a standard of creditworthiness for such assets. Other commenters suggested we provide instructions as to whether advisers need to look through investments in funds or ETFs, for example, and report the underlying asset type.25 With respect to looking through an account’s investments in funds, advisers should not do so and we have clarified this in the form.26 Advisers should not look through investments in funds because we want to understand the extent to which separately managed account assets are invested in funds as well as other types of investments. c. Section 5.K.(2) of Schedule D We are also adopting amendments to add Section 5.K.(2) of Schedule D to Form ADV to require advisers to separately managed accounts to report information regarding the use of borrowings and derivatives in those accounts with modifications from the proposal in response to commenters. These amendments are designed to provide data to assist our staff in identifying and monitoring the use of borrowings and derivatives exposures in separately managed accounts as part of the staff’s risk assessment and monitoring programs. Some commenters supported our proposal for the collection of that data.27 However, as discussed below, several other commenters expressed concern about the proposed reporting thresholds, the public disclosure of certain information,28 the use of gross notional metrics and the burden associated with reporting this information. The specific gross notional metrics used in Section 5.K.(2) are ‘‘gross notional value’’ and ‘‘gross notional exposure,’’ as proposed. The calculation of gross notional exposure includes borrowings and the gross notional value of derivatives. The definition of ‘‘gross notional value’’ specifies how derivatives are measured when determining an account’s gross notional exposure.29 25 ASG Letter; MMI Letter; NRS Letter; Schwab & Co. Letter. 26 We have added the following sentence to the text preceding Schedule D, Section 5.K.(1)(a): ‘‘Investments in derivatives, registered investment companies, business development companies, and pooled investment vehicles should be reported in those categories. Do not report those investments based on related or underlying portfolio assets.’’ 27 NASAA Letter; SRC Letter. 28 We discuss public disclosure of separately managed account information in Section II.A.1.e. 29 Gross notional exposure of an account is ‘‘the percentage obtained by dividing (i) the sum of (a) PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 60421 One commenter suggested requiring reporting on derivatives only if there is a minimum gross notional amount of derivatives.30 Another commenter suggested as an alternative requiring derivatives reporting only if the adviser uses leverage as part of its investment strategy.31 We disagree with these approaches as they would give us information only about a segment of the separately managed account industry that uses derivatives or borrowings, and because the line between advisers that use derivatives and borrowings strategically and those that do not can be fluid and difficult to define. While we are adopting Section 5.K.(2) largely as proposed, we have modified it in certain places in response to commenters’ concerns, as discussed below. As proposed, advisers with at least $150 million but less than $10 billion in regulatory assets under management attributable to separately managed accounts would have been required to annually report in Section 5.K.(2)(b) the number of accounts and average borrowings that corresponded to ranges of net asset values and gross notional exposures, as of the date the adviser used to calculate its regulatory assets under management for purposes of the adviser’s annual updating amendment. Advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts would have been required to annually report in Section 5.K.(2)(a) the number of accounts, average borrowings, and average derivatives exposures across six categories of derivatives, based on the same ranges of net asset values and gross notional exposures in Section 5.K.(2)(b), as of the date used by the adviser to calculate its regulatory assets under management for purposes of its annual updating amendment, and six months before that date. We received a diversity of views about whether the proposed reporting thresholds of at least $150 million in regulatory assets under management attributable to separately managed the dollar amount of any borrowings and (b) the gross notional value of all derivatives, by (ii) the regulatory assets under management of the account.’’ Amended Form ADV, Part 1A, Schedule D, Item 5.K.(2). Gross notional value is defined in the Glossary to Form ADV as ‘‘The gross nominal or notional value of all transactions that have been entered into but not yet settled as of the reporting date. For contracts with variable nominal or notional principal amounts, the basis for reporting is the nominal or notional principal amounts as of the reporting date. For options, use delta adjusted notional value.’’ 30 Anonymous Letter. 31 JAG Letter. E:\FR\FM\01SER2.SGM 01SER2 60422 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES accounts, and at least $10 billion in regulatory assets under management attributable to separately managed accounts for additional reporting, were appropriate, and if not, what these thresholds should be.32 Certain commenters suggested thresholds based on number of accounts or the size of individual separately managed accounts. However, we believe establishing thresholds based on regulatory assets under management attributable to separately managed accounts better provides us with comparability across advisers and appropriately advances our regulatory goal of gaining a more complete understanding of advisers’ separately managed account business as compared to the alternatives suggested by commenters. Several commenters recommended that we increase the $150 million threshold to $500 million on the basis that such a change would allow the Commission to collect 95% of the data that it would using the $150 million threshold, while relieving approximately 3,000 advisers from having to report derivatives and borrowings information.33 On balance, 32 ASG agreed with the $150 million threshold. Oppenheimer agreed with the thresholds, but also suggested a threshold based on number of accounts, below which the adviser would not be required to respond to Section 5.K.(2), and permitting advisers to round number of accounts to the nearest five in a particular range. IAA recommended increasing the $150 million threshold to $500 million but supported the $10 billion threshold. SIFMA also agreed with the thresholds, but suggested changing the account-level reporting thresholds to minimize confidentiality concerns and permitting advisers to round to the nearest 5 accounts in a particular range. AIMA noted that the proposed thresholds at the adviser level and at the individual separately managed account level are low for advisers with institutional clients and recommended not requiring advisers with less than $150 million in separately managed account assets to report any separately managed account information, including in Sections 5.K.(1) and 5.K.(3). Anonymous suggested that the reporting threshold should be based on a minimum gross notional amount in relation to the adviser’s total regulatory assets under management. BlackRock suggested that reporting thresholds should not be tied to aggregate adviser separately managed account regulatory assets under management, but rather only to individual separately managed account regulatory assets under management. 33 IAA Letter; Comment Letter of the New York State Bar Association, Business Law Section, Securities Regulation Committee, Private Investment Funds Subcommittee (Aug. 12, 2015) (‘‘NYSBA Committee Letter’’); PCA Letter; Schwab & Co. Letter. IAA estimated that if the minimum threshold were $150 million, the Commission would collect data on approximately $37.8 trillion in separately managed account assets under management from 7,257 advisers. However, it estimated that if the threshold were raised to $500 million, the Commission would collect data on approximately $36.8 trillion in separately managed account assets under management from approximately 3,700 advisers. A recent analysis of Form ADV by Commission staff filings shows that over 2,800 advisers will be relieved from the filing VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 and based on our staff’s experience with small advisers, we agree with commenters that this is a sensible accommodation that would allow us to meet our regulatory objectives while alleviating reporting burdens on smaller advisers. As a result, we have raised the minimum reporting threshold to $500 million. Advisers with at least $500 million but less than $10 billion in separately managed account regulatory assets under management will be required to report on Section 5.K.(2)(b) the amount of separately managed account regulatory assets under management and the dollar amount (rather than the proposed average amount) of borrowings attributable to those assets that correspond to three levels of gross notional exposures rather than four levels as proposed. Advisers with at least $10 billion in separately managed account regulatory assets under management will be required to report on Section 5.K.(2)(a) the information required in Section 5.K.(2)(b) as well as the derivative exposures across the same six derivatives categories that were proposed. Also as proposed, advisers may limit their reporting for both (a) and (b) to individual accounts of at least $10 million.34 Another change we are making to Section 5.K.(2) in response to commenters is to base the reporting of borrowings and derivatives on regulatory assets under management in separately managed accounts, rather than net asset value as proposed. One commenter noted that advisers do not currently characterize their individual client accounts according to net asset values.35 We agree, and accordingly advisers will be required to report both the amount of regulatory assets under management and borrowings in their separately managed accounts that correspond to ranges of gross notional exposure of those accounts. Regulatory assets under management is already used throughout Form ADV, and should be available to advisers for purposes of Section 5.K.(2). Similarly, the reporting of borrowings in Section 5.K.(2) has requirement and we will receive information on 98% of the assets for which we would have received reporting under the proposed $150 million threshold. IARD system data as of May 16, 2016. 34 Some commenters suggested making the exclusion of individual accounts under $10 million optional because excluding those accounts might, in some cases, be more costly to firms. See Dechert Letter; IAA Letter; NYSBA Committee Letter. We have revised the text in Section 5.K.(2) to read, ‘‘You may, but are not required to, complete the table with respect to any separately managed account with regulatory assets under management of less than $10,000,000.’’ 35 IAA Letter. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 been revised to require information about the total dollar amount of borrowings that correspond to different ranges of gross notional exposure, and not the weighted average amount (which is based on a percentage of net asset value).36 We believe these changes will reduce burdens for advisers completing this section, while providing our staff with additional information regarding borrowings and derivatives exposures in separately managed accounts. Commenters presented a range of concerns and suggestions about the use of gross notional metrics in reporting on Section 5.K.(2). Some commenters supported the use of gross notional metrics for assessing the use of derivatives and borrowings in separately managed accounts,37 while others raised issues concerning the utility of gross notional metrics.38 Several commenters stated that gross notional metrics are not accurate measures of leverage or risk and argued that they provide little value without context, and they could be misleading or misunderstood.39 Some commenters suggested reporting derivatives and borrowings in Form ADV similar to how leverage is reported in Form PF or in the AIFMD framework.40 For example, one 36 One commenter suggested that reporting of borrowing is duplicative of reporting of margin by broker-dealer custodians to FINRA. JAG Letter. While we recognize that broker-dealers report this information, we note that parties other than brokerdealers may serve as custodians to separately managed accounts. 37 Comment Letter of CFA Institute (Aug. 10, 2015) (‘‘CFA Letter’’) (observing that notional exposure metrics are valuable in conducting investment and operational analyses, but provide less value for risk management); NASAA Letter (stating that the proposal contemplates collecting commonly used metrics on the use of derivatives and borrowings, consistent with Form PF); and SRC Letter (suggesting that the collection of data relating to gross notional exposure, borrowings and gross notional value of derivatives would provide the Commission with ‘‘invaluable insight into the use of derivatives and borrowings by advisers in separately managed accounts.’’). 38 See, e.g. NYSBA Committee Letter (stating that publicly reporting gross notional exposures without also reflecting actual exposure on the form would be misleading and potentially alarming to investors) and MFA Letter (asserting that gross notional disclosures provide an inaccurate representation of economic or market exposures and would not provide meaningful information, and thus should not be required). 39 BlackRock Letter; Dechert Letter; IAA Letter; Invesco Letter. 40 Dechert Letter (suggesting allowing additional data points, such as the ones required in Form PF, to better provide the Commission a more comprehensive understanding of the extent to which derivatives are used in separately managed accounts and the relevant risks associated with them); Blackrock Letter (providing an appendix containing a comprehensive framework for calculating leverage, similar to AIFMD’s commitment leverage approach, under which derivatives used for hedging positions and E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES commenter suggested reporting long and short dollar amounts, similar to Form PF.41 We acknowledge these commenters’ concerns and recognize that gross notional metrics may not always reflect the way in which derivatives are used in a separately managed account and are not a risk measure.42 We also recognize that there are other measures or additional data points that could be used to evaluate the use of derivatives in a separately managed account, which may depend on various considerations, such as investment strategy, types of investments, and the specific risks that are being considered. The calculations of gross notional exposure and gross notional value that we proposed and are adopting today rely on measures common to all advisers: regulatory assets under management of an account; total amount of borrowings in an account; and the notional value of derivatives. As we noted in the Proposing Release, gross notional metrics are commonly used metrics and are comparable to the information collected on Form PF regarding private funds. On balance, therefore, we continue to believe that, for most types of derivatives the gross notional metrics generally provide a measure that is sufficient for this regulatory purpose, which is to collect information about the scale of an account’s derivatives activities, rather than to collect specific risk metrics or more granular information regarding the ways in which derivatives are used in a separate account. Section 5.K.(2) also provides advisers the option of including a narrative description of the strategies and/or manner in which borrowings and derivatives are used in the management of separately managed accounts. To the extent that advisers are concerned that disclosure of gross notional metrics would be misleading, they could provide in the space provided in Section 5.K.(2) an additional narrative description regarding their use of derivatives in these accounts. Many commenters requested that the term ‘‘derivatives’’ be defined as part of this rulemaking.43 Several of these commenters suggested the Commission offsetting long and short positions do not create leverage). 41 AIMA Letter. 42 For example, different derivatives transactions having the same notional amount but different underlying reference assets—for example, an interest rate swap and a credit default swap having the same notional amount—may expose a separately managed account to very different potential investment risks and potential payment obligations. 43 ASG Letter; Oppenheimer Letter; PCA Letter; SIFMA Letter; T. Rowe Price Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 adopt a definition that provides flexibility to adapt to changing financial markets and instruments, such as the characteristic-based definition of derivatives in FASB ASC 815.44 Another commenter, however, suggested that we should not define derivatives, similar to Form PF.45 We believe that Form ADV, which collects aggregate portfolio information, is similar to Form PF. Thus, consistent with adviser reporting on Form PF and the proposal, we have decided not to define the term at this time. Several commenters requested clarification on whether interest rate derivatives should be presented in terms of 10-year bond equivalents, consistent with Form PF.46 We have added a sentence to the definition of ‘‘interest rate derivative’’ in the Glossary that interest rate derivative information should be presented in terms of 10-year bond equivalents. Regarding the term ‘‘equity derivative,’’ one commenter requested confirmation that the term ‘‘listed’’ as used in Form ADV has the same meaning as in Form PF. We confirm that the term ‘‘listed equity derivatives’’ refers to exposures to derivatives for which the underlying asset is listed equities.47 Finally, we are also revising the proposal in ways that should both alleviate concerns about confidentiality, which we discuss more fully below, and simplify reporting of separately managed account information. First, we reduced the number of categories of gross notional exposure that we proposed in the charts. As proposed, Section 5.K.(2) included four categories of gross notional exposure by which accounts and borrowings were reported. This has been reduced to three categories of gross notional exposure: less than 10%, 10—149% and 150% or more. In addition to reducing the number of categories from four to three, we changed the highest threshold from 200% or more to 150% or more. After consideration of comments received regarding the potential burdens of providing this information, we believe that the use of three categories instead of four and changing the highest threshold from 200% or more to 150% or more will reduce the reporting burden on advisers while providing us with sufficient information regarding the use of derivatives and borrowings by investment advisers in separately 44 Oppenheimer Letter; SIFMA Letter; T. Rowe Price Letter. 45 IAA Letter. 46 AIMA Letter; IAA Letter; MFA Letter. 47 We note that current staff guidance regarding this term in Form PF takes a similar approach. See Form PF, Frequently Asked Questions, Question 26.1. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 60423 managed accounts. In addition, we believe that these modifications provide less granular information than proposed, thereby mitigating some concerns commenters raised regarding confidentiality. We also modified Section 5.K.(2) to remove reporting of the number of separately managed accounts. As proposed, Section 5.K.(2) would have required advisers to report the number of accounts that corresponded to the accounts’ net asset value and gross notional exposure. Section 5.K.(2)(a) and (b) now require reporting of regulatory assets under management based on ranges of gross notional exposure of accounts.48 d. Section 5.K.(3) of Schedule D As proposed, we are amending Form ADV to require advisers to identify any custodians that account for at least ten percent of separately managed account regulatory assets under management, and the amount of the adviser’s regulatory assets under management attributable to separately managed accounts held at the custodian.49 This information will allow our examination staff to identify advisers whose clients use the same custodian in the event, for example, a concern is raised about a particular custodian. As we discussed in the Proposing Release, similar disclosures are required for custodians to pooled investment vehicles 50 and registered investment companies.51 We received several comments on this aspect of the proposal. For example, a commenter suggested that we obtain this information from other parties, including custodians.52 However, we do not directly regulate all separately managed account custodians and we believe this information is available to advisers because advisers interact with custodians when placing trades on behalf of separately managed account clients. Some commenters agreed with the ten percent of regulatory assets under management threshold for reporting custodians of the adviser’s separately managed account client 48 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2). 49 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(3). We added ‘‘aggregate’’ before ‘‘separately managed account regulatory assets under management’’ to the text preceding the section for clarity. 50 Amended Form ADV, Part 1A, Schedule D, Section 7.B.(1), Question 25. 51 Form N–1A, Item 19(h)(3). 52 BlackRock Letter. See also Comment Letter of Financial Engines Advisors, LLC (Aug. 11, 2015) (‘‘Financial Engines Letter’’) (suggesting identification of recordkeeper, rather than custodian, where advised assets are associated with a 401(k) plan). E:\FR\FM\01SER2.SGM 01SER2 60424 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations assets.53 Other commenters recommended that the Commission modify the threshold, and raised concerns about this reporting for smaller advisers.54 We agree with the commenters who believe that the ten percent threshold is appropriate. We recognize that this reporting will impose some burdens on all advisers, including smaller advisers. However, we are adopting the ten percent threshold as proposed because we continue to believe it, rather than a higher threshold, most appropriately advances our regulatory goal of identifying and obtaining a more complete picture regarding the custodians serving a significant proportion of an adviser’s separately managed account clients. Moreover, we believe we have appropriately tailored and limited the scope of information to be reported since this requirement at most will require advisers to identify ten custodians. In addition, some commenters recommended deleting or clarifying the requirement to identify the location of the custodian’s office.55 These commenters reasoned that because of the electronic nature of custodian records, and the current advisers’ practice of not maintaining this physical location information as a matter of course, disclosure of the identity of the custodian, rather than the location of the office, would be of primary benefit to the Commission. This information is consistent with similar questions we ask about custodians in Schedule D, Section 7.B.(1), Question 25 of Form ADV. Location information allows us to identify the appropriate contacts when a custodian is part of a large organization with multiple offices.56 Therefore, we are adopting these requirements as proposed. e. Public Disclosure of Separately Managed Account Information While commenters understood our reasons for collecting information on separately managed accounts, many expressed concerns that the new reporting would lead to disclosure of 53 Anonymous Letter; CFA Letter; PCA Letter. Letter (suggested a twenty percent threshold); BlackRock Letter; IAA Letter; MMI Letter; NRS Letter (suggested a minimum separately managed account regulatory assets under management threshold in lieu of or in addition to the ten percent threshold). 55 ASG Letter; IAA Letter; MMI Letter; Oppenheimer Letter; PCA Letter; SIFMA Letter. 56 One commenter also sought clarification about reporting custodians who have multiple legal entities. IAA Letter. Advisers do not have to determine affiliations of related custodians for purposes of this item, but rather should report the particular legal entity that is custodian for the adviser’s separately managed account assets. asabaliauskas on DSK3SPTVN1PROD with RULES 54 AIMA VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 client-identifying information or confidential or proprietary information about investment strategy.57 Commenters also expressed concern that public disclosure of separately managed account information could put advisers with a small number of separately managed account clients at a competitive disadvantage if clients were concerned about the reporting on Form ADV being linked or attributable to their separately managed accounts.58 We address these concerns below. Section 210(a) of the Advisers Act requires information in Form ADV to be publicly disclosed, unless we find that public disclosure is neither necessary nor appropriate in the public interest or for the protection of investors.59 As discussed in the Proposing Release, we believe these amendments will enhance our staff’s risk assessment and monitoring activities, which also serve to benefit investors.60 We also believe that aggregate information about separately managed accounts may assist the public in better understanding advisers’ management of separately managed account clients.61 This information may directly improve the ability of clients and potential clients of investment advisers to make more informed decisions about the selection and retention of investment advisers, which, in turn, may also benefit the public by increasing competition among 57 Comment Letter of the American Bar Association, Section of Business Law, Federal Regulation of Securities Committee (Sept. 3, 2015) (‘‘ABA Committee Letter’’); AIMA Letter; Anonymous Letter; ASG Letter; BlackRock Letter; Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; Comment Letter of Schulte Roth & Zabel LLP (Aug. 11, 2015) (‘‘Schulte Letter’’); Comment Letter of Shearman & Sterling LLP (Aug. 11, 2015) (‘‘Shearman Letter’’); SIFMA Letter; Comment Letter of Securities Industry and Financial Markets Association Asset Management Group and Asset Managers Forum (Jan. 13, 2016) (‘‘SIFMA II Letter’’). See also Comment Letter of Private Equity Growth Capital Council (Aug. 11, 2015) (‘‘PEGCC Letter’’). 58 ABA Committee Letter; AIMA Letter; Anonymous Letter; BlackRock Letter; Dechert Letter; IAA Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; Schulte Letter; Shearman Letter; SIFMA Letter; SIFMA II Letter. 59 Advisers Act section 210(a). Certain commenters suggested that this information be filed in a nonpublic manner, similar to Form PF. See ABA Committee Letter; PEGCC Letter. We note that Form PF is filed on a confidential basis under Advisers Act section 204(b), which prohibits the Commission from disclosing Form PF information unless those disclosures are made to Congress, other Federal agencies, or courts under certain conditions. Advisers Act section 204(b)(8). 60 Proposing Release, supra footnote 3 at Section II.A.1. 61 C.f., NASAA Letter (‘‘These amendments would provide additional necessary information to the SEC and state regulators, as well as members of the public, far outweighing any regulatory burden the proposal creates.’’). PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 investment advisers for clients. For these reasons, we continue to believe that public disclosure of information about separately managed accounts on Form ADV is appropriate in the public interest as well as for the protection of investors. We have, however, made several modifications to our proposal, discussed below, in response to commenters. Some commenters also expressed broader concerns that public disclosure of separately managed account holdings or borrowings and derivatives information would reveal proprietary investment strategies.62 We do not believe that public disclosure of aggregate information in Schedule D, Sections 5.K.(1) or (2) would lead to the revelation of proprietary investment strategies. This information would be reported for one or two data points per year,63 depending on the amount of regulatory assets under management attributable to separately managed accounts, ninety days after the end of the adviser’s fiscal year,64 and only on an aggregate basis for all the separately managed account clients that an adviser manages. Given the limited number of data points that advisers to separately managed accounts must report on, the fact that the information is reported both in aggregate and in broad categories across an adviser’s separately managed accounts, and the time lag between those data points and any public reporting, we disagree that this reporting could compromise trading 62 See, e.g., ABA Committee Letter (‘‘While individual types of securities would not be disclosed, the percentage of the portfolio in ten different asset categories would be subject to unprecedented public scrutiny, as would be detailed breakdowns of derivatives exposures and borrowings.’’); BlackRock Letter; Dechert Letter; MFA Letter. 63 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and (2). Although two commenters recommended against larger advisers providing both mid-year and end of year separately managed account information, we believe this information is important to understanding advisers to the largest separately managed accounts. LPL Letter; NRS Letter. 64 Advisers are required to update the derivatives and borrowings information annually, when filing their annual updating amendment to Form ADV, which is consistent with the requirement for updating other information in Item 5 of Form ADV. Advisers with at least $10 billion in separately managed account regulatory assets under management would be required to report both midyear and end of year information as part of their annual filing. Many commenters supported the annual reporting and recommended against more frequent reporting. Anonymous Letter; ASG Letter; CFA Letter; Comment Letter of Capital Research and Management Company (Aug. 11, 2015) (‘‘Capital Research Letter’’); MMI Letter; Morningstar Letter; NRS Letter; PCA Letter; Shearman Letter. Form ADV is required to be amended at least annually, within 90 days of the end of the adviser’s fiscal year. See rule 204–1. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations strategies. In addition, as discussed above, we reduced the number of categories of gross notional exposures in Section 5.K.(2), which means advisers will be required to report less granular information.65 We are mindful of commenters’ concerns regarding disclosure of clientspecific information and related competition concerns.66 Accordingly, we revised Item 5.D., which lists the number of advisory clients in categories, to include a ‘‘fewer than 5 clients’’ column.67 We also have modified Section 5.K.(2) to remove reporting of the number of accounts. As proposed, Section 5.K.(2) would have required reporting of the number of accounts that correspond to the accounts’ net asset value and gross notional exposure. As adopted, Section 5.K.(2)(a) and (b) will require reporting solely by ranges of gross notional exposure of accounts.68 We believe that these changes mitigate the risk of any client-specific information being disclosed in Item 5.D. and Sections 5.K.(1) and (2). f. Additional Comments About Reporting of Separately Managed Accounts Additional comments regarding separately managed account reporting in Schedule D included comments about the definition of separately managed account, the treatment of subadvisers, and the reporting requirements when both the registered investment adviser and the separately managed account owner are not United States persons. 65 Supra Section II.A.1.c. e.g., ABA Committee Letter; AIMA Letter; BlackRock Letter (‘‘For a particular adviser, there may be only one or two accounts in a particular category, potentially making this client identifiable and its RAUM with an adviser public information.’’); Dechert Letter; IAA Letter; MFA Letter (‘‘[A] fund manager may need to report data of a single SMA client, which is not suitable for public disclosure.’’); NYSBA Committee Letter (‘‘In addition, if an adviser has a small number of accounts, the disclosure of any of the information would be particularly problematic as others may be in a position to determine the identity of the clients in any such account.’’); Oppenheimer Letter; SIFMA Letter. 67 Several commenters suggested limiting reporting for five or fewer clients, or rounding to the nearest five clients. IAA Letter; NYSBA Committee Letter; Oppenheimer Letter; SIFMA Letter. Other commenters suggested that advisers with a small number of separately managed account clients be excluded from reporting on separately managed accounts. See, e.g., AIMA Letter; SIFMA Letter. However, a small number of accounts could still include a large amount of assets or significant use of borrowings and derivatives. For that reason, reporting will be required on these accounts. We believe that the modifications in Item 5.D. and Schedule D, Section 5.K.(2) will address confidentiality concerns related to those accounts. 68 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2). asabaliauskas on DSK3SPTVN1PROD with RULES 66 See, VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 First, several commenters sought clarification of the definition of the term ‘‘separately managed account’’ as used in Form ADV.69 We do not believe that a formal definition of this term is required because we have included instructions in the text preceding Sections 5.K.(1) and (2) to clarify that any regulatory assets under management reported in Item 5.D.(3)(d) (investment companies), (e) (business development companies), and (f) (other pooled investment vehicles) should not be reported in Schedule D, Sections 5.K.(1) or (2). Thus, regulatory assets under management reported for those types of clients in Item 5.D.(3) should not be considered separately managed account assets and should not be reported in Sections 5.K.(1) or (2). Second, several commenters requested clarification about how to treat subadviser relationships in reporting separately managed account information, including suggestions that only advisers with discretionary authority report information in these sections.70 In response to these concerns, we are clarifying the instructions in the text preceding Section 5.K.(1)(a) to expressly state, as they already do for Section 5.K.(2), that a subadviser to a separately managed account should provide information only about the portion of the account that it subadvises.71 We recognize that these instructions may require both advisers and subadvisers to report on the same regulatory assets under management (i.e., the assets that they both manage in an account) in Sections 5.K.(1) and (2) of their separate Form ADVs, which is consistent with the current reporting structure of regulatory assets under management in Form ADV. Further, in response to suggestions that only advisers with discretionary authority should be required to report information in Sections 5.K.(1) and (2), we note that these sections both require responses based on the regulatory assets under management an adviser reports in Item 5.F. Per the instructions to Item 69 See, e.g., IAA Letter (noting the term has not been defined in the Advisers Act); Financial Engines Letter (seeking the exclusion of assets within defined contribution plans from separately managed accounts); MMI Letter (seeking clarification for sponsors, overlay managers, portfolio managers and model providers). Commenters also sought clarification of the treatment of pooled investment vehicles that are not private funds. See PEGCC Letter. See also IAA Letter. Pooled investment vehicles include, but are not limited to, private funds. 70 Comment Letter of JG Advisory Services LLC (Jul. 22, 2015) (‘‘JGAS Letter’’); LPL Letter; MMI Letter; NYSBA Committee Letter; SIFMA Letter. See also Dechert Letter; IAA Letter. 71 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and (2). PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 60425 5.F., advisers are already required to consider the role of discretionary authority when calculating regulatory assets under management. Those instructions require that the calculation include only assets over which advisers provide continuous and regular supervisory or management service.72 The instructions further state that an adviser ‘‘provide[s] continuous and regular supervisory or management services with respect to an account’’ if: (a) The adviser has discretionary authority over and provides ongoing supervisory or management services with respect to the account; or (b) the adviser does not have discretionary authority over the account, but has ongoing responsibility to select or make recommendations, based upon the needs of the client, as to specific securities or other investments the account may purchase or sell and, if such recommendations are accepted by the client, the adviser is responsible for arranging or effecting the purchase or sale.73 Thus, if an adviser does not provide continuous and regular supervisory or management services with respect to an account, those account’s assets should not be reported as regulatory assets under management in Item 5.F, and would not be reported in Sections 5.K.(1) and (2). A final suggestion from commenters was to exclude from the reporting requirements any separately managed account held by a non-United States person and managed by an investment adviser whose principal office and place of business is outside the United States.74 As proposed, and consistent with the reporting of regulatory assets under management generally, we are requiring each adviser whose principal office and place of business is outside the United States to report information regarding separately managed accounts for all of their clients, including clients who are not United States persons.75 We believe that the consistent reporting of information in Item 5 will be valuable in our and the public’s understanding of the new separately managed account items as they are a subset of the regulatory assets under management 72 See Form ADV, Instructions to Part 1A, Item 5.F. 73 Id. 74 AIMA Letter; PEGCC Letter; Shearman Letter. ‘‘United States person’’ is defined in the Glossary to Form ADV. 75 The Form ADV Instructions to Part 1A, Item 5 that specify how regulatory assets under management must be calculated provides that accounts of clients who are not United States persons are accounts that must be included in the adviser’s securities portfolios. E:\FR\FM\01SER2.SGM 01SER2 60426 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations already being reported by registered investment advisers. Commenters suggested that we not require reporting of accounts beneficially owned by those who are not United States persons and managed by advisers whose principal offices and places of business are outside the United States. These commenters noted Item 7.B. of Form ADV and Form PF generally allow advisers whose principal offices and places of business are outside the United States to exclude reporting on funds that are not United States persons, are not offered in the United States, and are not beneficially owned by any United States persons.76 As noted above, there is not a similar exclusion in Item 5 regarding funds that are not United States persons advised by any advisers, and advisers must include those clients in response to Item 5, including their regulatory assets under management and client types. An exception like the one suggested by commenters would hamper the utility of the data collection in Item 5, which collects aggregate, census-type information regarding the adviser’s total business. We are collecting this information to better inform Commission staff and the public about this segment of the investment adviser industry.77 In the Proposing Release, we requested comment on whether to require advisers to report on securities lending and repurchase agreements in separately managed accounts.78 While some commenters supported collection of this information,79 others noted that advisers may not be aware of or directly involved in securities lending activity in separately managed accounts,80 and several commenters objected to the disclosure.81 In response to the comments we received, we are not requiring disclosure regarding securities lending or repurchase agreements at this time. 2. Additional Information Regarding Investment Advisers In addition to the amendments outlined above regarding separately managed accounts, we are adopting, largely as proposed, several new 76 AIMA Letter; PEGCC Letter; Shearman Letter. infra Section II.A.3 for a discussion of the application of the Advisers Act to non-U.S. advisers. 78 Proposing Release, supra footnote 3 at Section II.A.1. 79 CFA Letter; SRC Letter. 80 JAG Letter; NRS Letter; Comment Letter of The Risk Management Association, Committee on Securities Lending (Aug. 10, 2015) (‘‘RMA Committee Letter’’); Comment Letter of State Street Corporation (Aug. 11, 2015) (‘‘State Street Letter’’). 81 MFA Letter: PCA Letter. See also ASG Letter. questions and amending existing questions on Form ADV regarding identifying information, an adviser’s advisory business, and affiliations. As discussed in the Proposing Release, these items were developed through our staff’s experience in examining and monitoring investment advisers, and are designed to enhance our understanding and oversight of investment advisers and to assist our staff in its risk-based examination program. a. Additional Identifying Information We are adopting several amendments to Item 1 of Part 1A of Form ADV as proposed to improve certain identifying information that we obtain about advisers. Item 1 currently requires an adviser to provide a Central Index Key number (‘‘CIK Number’’) in Item 1.N. only if the adviser is a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934.82 We are removing this question from Item 1.N. and adding a question to Item 1.D. that requires an adviser to provide all of its CIK Numbers if it has one or more such numbers assigned,83 regardless of public reporting company status.84 As we explained in the Proposing Release, requiring registrants to provide all of their assigned CIK Numbers, if any, will improve our staff’s ability to use and coordinate Form ADV information with information from other sources.85 The commenter who weighed in on the reporting of CIK Numbers did not object to this amendment, which we are adopting as proposed. Item 1.I. of Part 1A of Form ADV currently asks whether an adviser has one or more Web sites, and Section 1.I. of Schedule D requests the addresses of each Web site. We are amending Item 1.I. largely as proposed to also ask whether the adviser has one or more accounts on social media platforms, such as Twitter, Facebook or LinkedIn, and requesting the address of each of the adviser’s social media pages in addition to the address of each of the adviser’s Web sites in Section 1.I. of Schedule D.86 As discussed in the Proposing Release, our staff may use this information to help prepare for examinations of investment advisers and compare information that advisers asabaliauskas on DSK3SPTVN1PROD with RULES 77 See VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 82 Form ADV, Part 1A, Item 1.N. SEC assigns CIK Numbers in EDGAR not only to identify entities as public reporting companies, but also when an entity is registered with the SEC in certain other capacities, such as a transfer agent. 84 Amended Form ADV, Part 1A, Item 1.D.(3). 85 Proposing Release, supra footnote 3 at Section II.A.2. 86 Amended Form ADV, Part 1A, Item 1.I. and Section 1.I. of Schedule D. 83 The PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 disseminate across different social media platforms, as well as to identify and monitor new platforms. Current and prospective clients may use this information to learn more about advisers and make more informed decisions regarding the selection of advisers.87 Several commenters were generally supportive of our proposed approach to social media reporting,88 but some commenters were concerned that it would be too burdensome for advisers and not useful to investors.89 Several commenters requested clarification on the types of social media platforms that trigger the reporting requirement,90 and some commenters recommended that we limit required reporting to accounts on social media platforms where the adviser controls the content.91 These commenters pointed out that there may be social media platforms that reference an adviser over which the adviser has no control and of which the adviser may not even be aware.92 We agree, and we have revised Item 1.I. of Part 1A and Section 1.I. of Schedule D to note that the required reporting is limited to accounts on social media platforms where the adviser controls the content.93 Commenters generally agreed with the proposal’s approach of not requiring information about the social media accounts of an adviser’s employees.94 A commenter requested that we limit required reporting to accounts on public-facing social media platforms used to promote the adviser’s business.95 We did not intend to require reporting on information posted on an adviser’s internal social media platform or information not intended to promote the adviser’s business to potential clients (e.g., information posted on a job board intended to attract job applicants). We have revised the text preceding Item 1.I. of Part 1A and Section 1.I. of 87 Proposing Release, supra footnote 3 at Section II.A.2. 88 CFA Letter; IAA Letter; LPL Letter; Morningstar Letter; NASAA Letter. See also BlackRock Letter (understood our rationale for requesting this information). 89 Comment Letter of TMorgan Advisers, LLC (June 28, 2015) (‘‘Morgan Letter’’); NRS Letter; NYSBA Committee Letter; Oppenheimer Letter. 90 ASG Letter; IAA Letter; MMI Letter; SIFMA Letter. 91 ASG Letter; MMI Letter; SIFMA Letter. 92 MMI Letter. See also ASG Letter. 93 An adviser may control its social media content, notwithstanding the fact that a social media platform has a policy to edit or remove content (such as offensive content) across the platform. 94 ASG Letter; MFA Letter; MMI Letter; Morgan Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter. 95 IAA Letter. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Schedule D to clarify that the required reporting is limited to accounts on publicly available social media platforms. Another commenter requested that we limit required reporting to accounts on social media platforms that promote the adviser’s business in the United States or are targeted towards the adviser’s U.S. clients.96 The commenter pointed out that there are circumstances in which an adviser might have additional accounts on social media platforms that are not used to promote the adviser’s business in the United States or are targeted towards the adviser’s non-U.S. clients and that reporting on such accounts would provide little value to the Commission and could be confusing to clients or potential clients seeking information about an adviser.97 We believe that, to the extent an account on a social media platform is used to promote the business of an adviser registered with the Commission, the account should be disclosed in order to better inform our staff about the adviser’s use of social media. However, if an account on a social media platform is used solely to promote the business of an affiliate or affiliates that are not advisers registered with the Commission, the account does not need to be disclosed on Form ADV. A few commenters were concerned that the burden on advisers of updating social media information on Form ADV promptly if the information becomes inaccurate in any way would be great, given the frequency of changes in social media platforms and accounts.98 We believe that, by limiting the social media information required on Form ADV to an adviser’s accounts on publicly available social media platforms where the adviser controls the content, the burden associated with reporting and updating that information should be limited. Because the social media environment is rapidly evolving, we think it will be useful to the Commission and investors to have current information on an adviser’s use of social media on Form ADV. Additionally, this approach to updating social media reporting is consistent with our current approach to updating the other information required in Item 1 of asabaliauskas on DSK3SPTVN1PROD with RULES 96 SIFMA Letter. The commenter also mentioned that a large advisory complex that includes multiple affiliated advisers may maintain an account on a social media platform on behalf of a parent company or another affiliate that is not designed to promote the reporting adviser’s services and/or is targeted towards non-U.S. clients, perhaps in a language other than English. 98 BlackRock Letter; Oppenheimer Letter; SIFMA Letter. 97 Id. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 Part 1A, including information on advisers’ Web sites. Several commenters questioned the utility for investors of social media reporting in Part 1A of Form ADV.99 Commenters stated that investors who are interested in an adviser’s social media presence will most likely look to the adviser’s Web site or conduct an internet search to find the adviser’s accounts on various social media platforms.100 We recognize that this is most likely the case. However, we believe that having current information on an adviser’s social media presence collected in one place on Form ADV may be helpful to investors. Two commenters stated that investors generally do not read Part 1A of Form ADV and recommended that we consider including social media reporting in Part 2A of Form ADV instead.101 We recognize that investors may not look to Form ADV for information on an adviser’s social media presence, but if they do, they will likely look to Item 1.I. of Part 1A and Section 1.I. of Schedule D because those are where we currently collect identifying information about an adviser, including information on an adviser’s Web site or Web sites. In addition, a primary purpose of this item is to provide the Commission and our staff with information that may be used in our examination program and for other regulatory purposes. Accordingly, we believe it will be useful to the Commission to have information on an adviser’s use of social media on Form ADV, and this placement in the form is an efficient and readily identifiable location for such information that appropriately serves our regulatory purposes. We are amending Item 1.F. of Part 1A of Form ADV and Section 1.F. of Schedule D largely as proposed to expand the information provided about an adviser’s offices other than its principal office and place of business. We currently require an adviser to provide contact and other information about its principal office and place of business, and, if an adviser conducts advisory activities from more than one location, about its largest five offices in terms of number of employees.102 In 99 Comment Letter of the Association for Corporate Growth (Aug. 11, 2015) (‘‘ACG Letter’’); ASG Letter; JAG Letter; Morningstar Letter; PCA Letter. 100 ASG Letter; JAG Letter; Morningstar Letter; Oppenheimer Letter; PCA Letter. 101 Morningstar Letter; PCA Letter. See also Comment Letter of Jeff J. Diercks (May 22, 2015) (‘‘Diercks Letter’’). 102 Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 60427 order to help Commission examination staff learn more about an investment adviser’s business and identify locations to conduct examinations, we are now requiring that advisers provide us with the total number of offices at which they conduct investment advisory business and provide information in Schedule D about their 25 largest offices in terms of number of employees.103 As discussed in the Proposing Release, we chose 25 offices as the number to be reported because it will provide a complete listing of offices for the vast majority of investment advisers, and provide valuable information about the main business locations for the few advisers that have a very large number of offices.104 In addition to providing contact information for the 25 largest offices in terms of number of employees, we are amending Section 1.F. of Schedule D as proposed to require advisers to report each office’s CRD branch number (if applicable) and the number of employees who perform advisory functions from each office, identify from a list of securities-related activities the business activities conducted from each office, and describe any other investment-related business conducted from each office. This information will help our staff assess risk, because it provides a better understanding of an investment adviser’s operations and the nature of activities conducted in its top 25 offices. This information also will assist our staff in assessing offices that conduct a combination of activities. Two commenters provided general support for our proposed enhanced reporting of adviser offices.105 However, several commenters expressed concern that our approach would impose a significant burden on advisers with little or no benefit to either the Commission or investors.106 Another commenter noted the substantial burden on advisers required to report additional offices, but acknowledged that burden would ease after the initial reporting period.107 We recognize that the burden on some large advisers might be significant, especially in the initial reporting cycle when they are required to report their additional offices for the 103 Amended Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D. 104 See Proposing Release, supra footnote 3 at Section II.A.2. IAPD Investment Adviser Registered Representative State Data as of May 2, 2016 shows that a majority of SEC-registered advisers (approximately 98%) have 25 or fewer offices, but that many of the remaining two percent have many multiples of 25 offices. 105 LPL Letter; NASAA Letter. 106 ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter. 107 Morningstar Letter. E:\FR\FM\01SER2.SGM 01SER2 asabaliauskas on DSK3SPTVN1PROD with RULES 60428 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations first time. However, we believe that the burden will decrease after the initial filing because in subsequent filings, advisers will only be reporting changes to their previously reported additional office information. Two commenters requested clarification on how often the additional office information should be updated.108 One commenter felt that annual updating of office locations would not be unduly burdensome but more frequent than annual updates would be burdensome.109 We agree and are requiring that Section 1.F. of Schedule D be updated as part of an adviser’s annual updating amendment and not more frequently.110 One commenter expressed concern about our proposal’s impact on smaller advisers and suggested that, as an alternative, we require advisers to (a) continue to provide information about their five largest additional offices, (b) report their total number of additional offices, and (c) report additional information only for their additional offices that meet a certain threshold of regulatory assets under management or that engage in certain enumerated practices of interest to the Commission.111 We currently require advisers to track their additional offices based upon number of employees.112 We understand that many advisers do not currently track their additional offices based upon the amount of regulatory assets under management attributable to each office and we believe that requiring them to do so would place an additional burden on advisers. For this reason, we are not changing our approach to additional office reporting. One commenter requested that we simplify the reporting of information about additional offices for firms that are dually registered as investment advisers with the Commission and as broker-dealers with FINRA by allowing them to cross-reference to information submitted on their Uniform Branch Office Registration Form filed with FINRA.113 We agree and we are updating the IAPD system so that by entering a branch’s CRD number, the address, phone number, and facsimile number of all additional offices will automatically populate on Section 1.F. of Schedule D. Item 1.J. of Form ADV currently requires each adviser to provide the 108 ASG Letter; Morningstar Letter. Letter. 110 Amended Form ADV, General Instruction 4. 111 NRS Letter. 112 Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule D. 113 MMI Letter. 109 ASG VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 name and contact information for the adviser’s chief compliance officer. We proposed amending Item 1.J. to require an adviser to report whether its chief compliance officer is compensated or employed by any person other than the adviser (or a related person of the adviser) for providing chief compliance officer services to the adviser, and if so, to report the name and IRS Employer Identification Number (if any) of that other person. We are adopting the amendments to Item 1.J. largely as proposed, but in addition to related persons of the adviser, as discussed below, advisers will not be required to disclose the identity of the other person compensating or employing the chief compliance officer if that other person is an investment company registered under the Investment Company Act of 1940 advised by the adviser.114 As discussed in the Proposing Release, our examination staff has observed a wide spectrum of both quality and effectiveness of outsourced chief compliance officers and firms.115 Identifying information for these thirdparty service providers, like others on Form ADV,116 will allow us to identify all advisers relying on a particular service provider and could be used to improve our ability to assess potential risks. Two commenters expressed general support for our proposal to identify if chief compliance officers are compensated or employed by other parties for providing chief compliance officer services,117 and others expressed concern that the requirement would be unduly burdensome on advisers or that the information would be of little or no use to the Commission or investors.118 We are not persuaded that this requirement would be unduly burdensome because the adviser should have or be able to easily obtain the necessary information, and we continue to believe that this information will be 114 Amended 115 Proposing Form ADV, Part 1A, Item 1.J. Release, supra footnote 3 at Section II.A.2. 116 For example, advisers provide the names and addresses of independent public accountants that perform audits or surprise examinations and that prepare internal control reports on Form ADV, Part 1A, Schedule D, Section 9.C. 117 CFA Letter; NASAA Letter. 118 ACG Letter; Comment Letter of L.A. Schnase (Jul. 2, 2015) (‘‘Schnase Letter’’) (would be duplicative of already reported information, raises privacy concerns with the chief compliance officer’s other clients, would become inaccurate or out-of-date quickly, and would miss the situation of firms hiring comprehensive external compliance support with an in-house chief compliance officer in name only). See also NRS Letter (adviser may not have access to this information). PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 valuable for the reasons discussed above. One commenter felt that our inquiry should focus not on the chief compliance officer’s other employment and/or compensation, but rather on the details of the compliance program and resources committed to address compliance risk (e.g., the chief compliance officer’s education and professional designations, the number of other compliance employees, the estimated total hours spent on compliance, and the other duties of the chief compliance officer).119 We agree with the commenter’s suggestion that evaluating the overall effectiveness of an adviser’s compliance program relies heavily on the facts and circumstances specific to that adviser.120 However, we are adopting the amendments to Item 1.J. largely as proposed, because we believe that they meet our regulatory objective of identifying all advisers relying on particular service providers and may improve our ability to assess potential risks related to outsourced chief compliance officers and firms. One commenter expressed concern that identifying outsourced chief compliance officers would invite additional scrutiny about an adviser’s judgment in hiring externally versus internally.121 While we understand the commenter’s concerns, we continue to believe that identifying information for these third-party service providers, like others on Form ADV, will allow us to identify all advisers relying on a particular service provider and to address potential risks associated with that service provider. Two commenters agreed with our proposal to specifically exclude situations where the chief compliance officer is paid or employed by a related person of the adviser.122 Two other commenters recommended that we specify that a related person includes a registered investment company advised by the adviser.123 These commenters noted that in many instances an individual may serve as the chief compliance officer of both an adviser and a registered investment company advised by the adviser and receive compensation from both the adviser and the registered investment company.124 These commenters stated that requiring advisers to disclose these arrangements does not further our objective of assessing the use of third party service 119 Morgan Letter. 120 Id. 121 Shearman Letter. Letter; Morningstar Letter. 123 Dechert Letter; IAA Letter. 124 Id. 122 MMI E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations providers.125 We agree and we have updated Item 1.J.(2) to exclude chief compliance officers compensated or employed by an investment company registered under the Investment Company Act of 1940 advised by the adviser. In the Proposing Release, we asked whether we should require information about an adviser’s use of third-party compliance auditors. Two commenters supported such disclosure,126 but several commenters felt the disclosure would either not be useful or lead to incorrect inferences about the decision to use, or not use, external compliance support.127 Several commenters expressed concern that, due to the diversity of services provided by thirdparty compliance auditors, requiring an adviser to state whether or not it uses them would not be useful to the Commission from a risk monitoring perspective.128 Commenters also expressed concern that requiring an adviser to report on its use of third-party compliance auditors could lead to incorrect inferences about the adviser’s compliance program. For example, advisers hiring third-party compliance auditors might be viewed as signaling a compliance issue, whereas advisers not hiring them might be viewed as not sufficiently focused on compliance.129 Two commenters expressed concern about confidentiality issues implicated by third-party compliance auditor reporting.130 We are not requiring advisers to report information on Form ADV regarding third-party compliance auditors at this time. We are amending Item 1.O. as proposed to require advisers with assets of $1 billion or more to report their assets within three ranges: (1) $1 billion to less than $10 billion; (2) $10 billion to less than $50 billion; and (3) $50 billion or more.131 We added Item 1.O. in 2011 in connection with the DoddFrank Act’s 132 requirements concerning certain incentive-based compensation asabaliauskas on DSK3SPTVN1PROD with RULES 125 Id. 126 Comment Letter of Brown & Associates LLC (Aug. 10, 2015) (‘‘Brown Letter’’); NASAA Letter. 127 ASG Letter; IAA Letter; MFA Letter; MMI Letter; NRS Letter; NYSBA Committee Letter; PEGCC Letter. 128 IAA Letter; MFA Letter; NRS Letter; PEGCC Letter. See also ASG Letter (requested that we more clearly define ‘‘auditor’’); JGAS Letter; MMI Letter. 129 IAA Letter; NYSBA Committee Letter; PEGCC Letter. 130 Anonymous Letter; MMI Letter (these relationships are often confidential, such as where law firms are involved). 131 Amended Form ADV, Part 1A, Item 1.O. 132 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 arrangements.133 Advisers are currently required to check a box to indicate if they have assets of $1 billion or more. Requiring advisers to report their assets within one of the three specified ranges will provide more precise data for use in Commission rulemaking arising from ongoing Dodd-Frank Act implementation.134 Two commenters expressed general support for our proposal to require advisers to report their own assets within specified ranges.135 Two commenters did not believe that the information would be useful.136 However, we continue to believe that requiring advisers to report their assets as described above will provide more accurate data for use in Commission rulemaking arising from ongoing DoddFrank Act implementation. Another commenter felt our proposal raised privacy issues for investors in an adviser where the adviser is privately held.137 While we are sensitive to privacy concerns, we believe that we have narrowly tailored our proposal to address these concerns. We are only requiring that advisers with significant assets (at least $1 billion) report them and even then only within one of the three specified ranges. One commenter asked for clarification on the timing of the calculation of assets.138 The item, as proposed and adopted today, specifies that an adviser should use the total assets shown on the adviser’s balance sheet for the most recent fiscal year end.139 We did not receive comments on the specific asset ranges. b. Additional Information About Advisory Business In addition to the amendments to Item 5 regarding separately managed 133 See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Act Release No. 3221 (June 22, 2011) [76 FR 42950 (Jul. 19, 2011)] (‘‘Implementing Release’’) at Section II.C.6; section 956 of the Dodd-Frank Act. We are also moving the instruction for how to report ‘‘assets’’ for the purpose of Item 1.O. from the Instructions for Part 1A to Form ADV to Item 1.O. in order to emphasize this instruction. 134 See, e.g., section 165(i) of the Dodd-Frank Act (requires the Commission and other financial regulators to establish methodologies for the conduct of stress tests by financial companies with consolidated assets of over $10 billion); Incentivebased Compensation Arrangements, Exchange Act Release No. 34–77776 (May 6, 2016) (identifies three categories of covered institutions based on average total consolidated assets, ranging from $1 billion to $250 billion) (re-proposal of Exchange Act Release No. 34–64140); Incentive-Based Compensation Arrangements, Exchange Act Release No. 34–64140 (Mar. 29, 2011) [76 FR 21170 (Apr. 14, 2011)]. 135 CFA Letter; PCA Letter. 136 NRS Letter; NYSBA Committee Letter. 137 Anonymous Letter. 138 PEGCC Letter. 139 Amended Form ADV, Part 1A, Item 1.O. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 60429 accounts discussed above, we are adopting a number of other amendments to Item 5. Item 5 currently requires an adviser to provide approximate ranges for three data points concerning the adviser’s business—the number of advisory clients, the types of advisory clients, and regulatory assets under management attributable to client types.140 As proposed, we are amending these items to require an adviser to report the number of clients 141 and amount of regulatory assets under management attributable to each category of clients as of the date the adviser determines its regulatory assets under management.142 As we discussed in the Proposing Release, replacing ranges with more precise information will provide more accurate information about investment advisers and will significantly enhance our ability to analyze data across investment advisers because providing actual numbers of clients and regulatory assets under management will allow us to see the scale and concentration of assets by client type.143 It will also allow us to determine the regulatory assets under management attributable to separately managed accounts. We believe that the information needed for providing the number of clients and amount of regulatory assets under management by client type should be readily available to advisers because advisers are producing this data to answer the current iterations of these questions on Form ADV and advisers typically base their advisory fees on client assets under management. We also are adding to Item 5 as proposed a requirement for advisers to report the number of clients for whom they provided advisory services but do not have regulatory assets under management in order to obtain a more complete understanding of each 140 Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)– (2). 141 Amended Form ADV, Part 1A, Item 5.D.(1)– (2). Advisers with fewer than five clients in a particular category (other than investment companies, business development companies and other pooled investment vehicles) may check Item 5.D.(2) indicating that fact rather than report the actual number of clients in the particular category in Item 5.D.(1). 142 Amended Form ADV, Part 1A, Item 5.D.(3). The categories of clients are the same as those in Item 5.D. of the current Form ADV, except that we are adding ‘‘sovereign wealth funds and foreign official institutions’’ as a client category, and specifying that state or municipal government entities include government pension plans, and that government pension plans should not be counted as pension and profit sharing plans. 143 Proposing Release, supra footnote 3 at Section II.A.2. E:\FR\FM\01SER2.SGM 01SER2 60430 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES adviser’s advisory business.144 As we explained in the Proposing Release, this information will assist in our risk assessment process and increase the effectiveness of our examinations.145 Some commenters were generally supportive of our proposal to replace ranges with more precise information.146 Several commenters stated that advisers would need to update computer systems to obtain this data, and raised concerns about the increased burden that our proposal would place on advisers.147 One commenter felt that removing an adviser’s ability to rely on estimates of the amount of regulatory assets under management would increase the time required to prepare Item 5.D.148 We are not convinced that the burden placed on advisers by the requirement to report precise information will be significant. We continue to believe that the required information should be readily available to advisers because advisers are producing this data to answer the current iterations of these questions on Form ADV and advisers typically base their advisory fees on client assets under management. Some commenters suggested that our proposal to replace ranges with more precise information would heighten the risk of inaccurate reporting on Form ADV.149 Commenters suggested that instead of requiring more precise information, we require advisers to report only an approximate number of clients and regulatory assets under management so as not to penalize advisers for ‘‘minor or inadvertent inaccuracies’’ 150 and one commenter suggested using narrower ranges.151 Our goal in collecting more precise information is not to penalize advisers for minor inaccuracies but to enhance our ability to analyze data across investment advisers and allow us to see the scale and concentration of assets by client type. We collect numerical data throughout Form ADV, and we believe that advisers have access to the 144 Amended Form ADV, Part 1A, Item 5.C.(1). An example of a situation where an adviser provides investment advice but does not have regulatory assets under management is a nondiscretionary account or a one-time financial plan, depending on the facts and circumstances. 145 Proposing Release, supra footnote 3 at Section II.A.2. 146 NRS Letter; PCA Letter; CFA Letter (generally supportive but questions the usefulness of actual numbers rather than ranges); NASAA Letter (supports reporting the number of clients for whom an adviser provides advisory services but does not have regulatory assets under management). 147 ASG Letter; MMI Letter. See LPL Letter. 148 ASG Letter. 149 ASG Letter; LPL Letter; MMI Letter. 150 LPL Letter. See also IAA Letter. 151 MMI Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 information required to accurately complete Item 5. One commenter expressed skepticism that the amendments would provide new, meaningful information to investors.152 However, we believe that investors potentially will benefit from having a more complete understanding of an investment adviser’s business. In addition, we believe that investors will indirectly benefit from our enhanced ability to analyze data across investment advisers, including the scale and concentration of assets by client type. One commenter expressed concern that the reporting of precise numbers might reveal confidential client relationships or the amount of regulatory assets under management attributable to specific clients.153 We are sensitive to these privacy concerns, and, as noted above, we are revising Form ADV, Part 1A, Item 5.D. to allow advisers with fewer than five clients in a particular category (other than investment companies, business development companies and other pooled investment vehicles) to check Item 5.D.(2) indicating that fact rather than report the actual number of clients in the particular category in Item 5.D.(1).154 Several commenters requested clarification in situations where a client fits into more than one client category.155 Specifically, two commenters requested that the Commission clarify whether an adviser that has contracts with other advisers to sub-advise registered investment companies, business development companies or pooled investment vehicles should categorize those clients as either (1) ‘‘other investment advisers’’ because other investment advisers hold the contracts, or as (2) ‘‘investment companies,’’ ‘‘business development companies,’’ or ‘‘pooled investment vehicles,’’ as applicable, because those entities hold the regulatory assets under management.156 We are updating the instructions to Item 5.D. to state that, to the extent that the adviser advises a registered investment company, business development company, or pooled investment vehicle, the adviser should report those sub-advised assets in categories (d), (e), or (f) as applicable.157 We also are amending the instructions in the text preceding Item 5.D., in response to a comment that we 152 ACG Letter. 153 Anonymous 154 Amended Letter. Form ADV, Part 1A, Item 5.D.(1)– (2). 155 Anonymous Letter; ASG Letter; IAA Letter; SIFMA Letter. 156 ASG Letter; IAA Letter. 157 Amended Form ADV, Part 1A, Item 5.D. PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 received,158 to state that if a client fits into more than one category, then the adviser should select the category that most accurately represents the client in order to avoid double counting clients and assets.159 Some commenters requested more specific definitions for the categories of clients.160 However, most of the categories have not changed from current Form ADV and, based upon our experience with Form ADV, we believe that they are sufficiently clear. At the suggestion of two commenters,161 we are moving the category labeled ‘‘Corporations or other businesses not listed above’’ down in the table so that it appears just above the category labeled ‘‘Other.’’ 162 We are adopting, largely as proposed, several targeted additions to Item 5 and Section 5 of Schedule D to inform our risk-based exam program and other risk monitoring initiatives. An adviser that elects to report client assets in Part 2A of Form ADV differently from the regulatory assets under management it reports in Part 1A of Form ADV is now required to check a box noting that election.163 As discussed in the Proposing Release, this information will allow our examination staff to review across advisers the extent to which advisers report assets under management in Part 2A that differ from the regulatory assets under management reported in Part 1A of Form ADV.164 Having this information will allow our staff to better understand the situations 158 SIFMA Letter. Form ADV, Part 1A, Item 5.D. 160 IAA Letter (Commission should clarify whether a ‘‘sovereign wealth fund and foreign official institution’’ includes the account of any government or quasi-government entity). Morningstar Letter (Commission should add definitions for categories, including ‘‘other,’’ and provide a list of common custodian account types and how they map to the client categories). 161 IAA Letter; SIFMA Letter. 162 Amended Form ADV, Part 1A, Item 5.D. 163 Amended Form ADV, Part 1A, Item 5.J.(2). Form ADV, Part 2A, Item 4.E. requires an investment adviser to disclose the amount of client assets it manages on a discretionary basis and on a non-discretionary basis. The method used by an adviser to compute the amount of client assets it manages can be different from the method used to compute regulatory assets under management required for Item 5.F. in Part 1A. As discussed in the proposing release for Part 2, the regulatory assets under management calculation for Part 1A is designed for a particular purpose (i.e., for making a bright line determination about whether an adviser should register with the Commission or with the states) and permitting a different calculation for Part 2 disclosure may be appropriate to enable advisers to make disclosure that is more indicative to clients about the nature of their business. See Amendments to Form ADV, Investment Advisers Act Release No. 2711 (Mar. 3, 2008) [73 FR 13958 (Mar. 14, 2008)]. 164 Proposing Release, supra footnote 3 at Section II.A.2. 159 Amended E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations in which the calculations differ, and assist us in analyzing whether those differences require a regulatory response. One commenter asserted that this information would not be meaningful to investors.165 Another commenter noted that advisers may report additional assets in Part 2A of Form ADV, rather than calculate regulatory assets under management differently than they do in Part 1A of Form ADV.166 We continue to believe that Item 5.J.(2) will provide the staff with helpful information regarding these calculations. In addition, largely as proposed, we are adding a question asking the approximate amount of an adviser’s total regulatory assets under management that is attributable to clients that are non-United States persons 167 to complement the current requirement that each adviser report the percentage of its clients that are nonUnited States persons, which, based on our experience, is not always a reliable indicator of an adviser’s relationships with non-U.S. clients.168 As noted in the Proposing Release, our examination staff can use this information to better understand the extent of investment advice provided to non-U.S. clients which will assist in our risk assessment process.169 In our proposal, we used the term ‘‘non-U.S. client’’ and commenters sought clarification of the definition of ‘‘non-U.S. client.’’ 170 In response, the amendments that we are adopting today use the term ‘‘non-United States person’’ in Item 5.F.(3). The Glossary to Form ADV provides that ‘‘United States person’’ has the same meaning as in rule 203(m)–1 under the Advisers Act, which includes any natural person that is resident in the United States. Section 5.G.(3) of Schedule D currently requires advisers to report the SEC File Number for registered investment companies and business development companies that they advise. Largely as proposed, we are adding to Section 5.G.(3) a requirement 165 ACG Letter. Letter (stating that when advisers report different client assets in Part 2A than regulatory assets under management in Part 1A of Form ADV, it is frequently due to additional assets being included in the Part 2A calculation, such as nondiscretionary assets that are under ‘‘advisement,’’ rather than a different method of calculating assets under management). 167 Amended Form ADV, Part 1A, Item 5.F.(3). 168 Form ADV, Part 1A, Item 5.C.(2). For example, an adviser may report a significant percentage of clients that are non-United States persons, but the regulatory assets under management attributable to those clients is a small percentage of the adviser’s regulatory assets under management. 169 Proposing Release, supra footnote 3 at Section II.A.2. 170 Oppenheimer Letter; SIFMA Letter. asabaliauskas on DSK3SPTVN1PROD with RULES 166 PCA VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 that advisers report the regulatory assets under management of all parallel managed accounts related to a registered investment company (or series thereof) or business development company that they advise.171 As described in the Proposing Release, this information will permit our staff to assess the accounts and consider how an adviser manages conflicts of interest between parallel managed accounts and registered investment companies or business development companies advised by the adviser.172 This information also will show the extent of any shift in assets between parallel managed accounts and registered investment companies or business development companies. Some commenters questioned the usefulness of collecting information on parallel managed accounts 173 or thought that disclosures about parallel managed accounts would not produce meaningful results or could be misleading.174 We recognize that there may be different reasons for assets to shift between parallel managed accounts and registered investment companies or business development companies, but that does not make the additional information less useful to the staff in considering how advisers manage conflicts of interest and assessing the extent of any shift in assets for risk monitoring purposes. Some commenters noted that registered investment companies often have multiple series, each with its own 171 Amended Form ADV, Part 1A, Section 5.G.(3) of Schedule D. The Glossary to Amended Form ADV includes ‘‘parallel managed account,’’ which is defined as: ‘‘With respect to any registered investment company or series thereof or business development company, a parallel managed account is any managed account or other pool of assets that you advise and that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as the identified investment company or series thereof or business development company that you advise.’’ 172 Proposing Release, supra footnote 3 at Section II.A.2. 173 BlackRock Letter (suggesting that asking during examinations for an adviser’s policies related to fair treatment of all accounts, and testing of compliance with those policies, would better achieve the objective); IAA Letter; Comment Letter of Small Business Investor Alliance (Aug. 11, 2015) (‘‘SBIA Letter’’) (opining that the proposal adds unnecessary reporting for advisers of business development companies and is duplicative of Form N–2). We believe the information to be collected in Section 5.G.(3) is different from the information collected on Form N–2 regarding closed-end funds and business development companies because the information collected on Form N–2 regarding management of other accounts focuses on individual portfolio managers, while the information collected on Form ADV is reported at the adviser level. 174 Anonymous Letter (stating there are many reasons assets could shift between parallel managed accounts and registered investment companies or business development companies); BlackRock Letter. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 60431 portfolio manager, investment strategy, and holdings; and that the concept of a parallel managed account could only be applied in the registered investment company context on a series-by-series basis.175 In response, we have updated Section 5.G.(3) to clarify that parallel managed accounts related to a registered investment company (or a series thereof) should be reported. One commenter felt that advisers would have difficulty interpreting the requirement that a parallel managed account pursue ‘‘substantially the same investment objective and strategy’’ as the relevant investment company or business development company.176 Advisers should use their best judgment and make a good faith determination as to whether the investment objectives and strategies in question are ‘‘substantially the same.’’ We note that many private fund advisers already make this determination when filling out Form PF.177 One commenter asked for confirmation that the value of derivatives held in a parallel managed account should be calculated using the market value of the derivatives rather than the gross notional value, if that is how the value of the account is reported to the account holder.178 We agree that market value should be used in such a case.179 Finally, we are amending Item 5, largely as proposed, to obtain additional information concerning wrap fee programs.180 Item 5.I. of Part 1A currently requires an adviser to indicate whether it serves as a sponsor of or portfolio manager for a wrap fee 175 IAA Letter; Oppenheimer Letter; SIFMA Letter. 176 PCA Letter. 177 The definition of ‘‘parallel managed account,’’ supra footnote 171, is consistent with the Form PF definition of ‘‘parallel managed account.’’ Form PF, Glossary of Terms. 178 IAA Letter. 179 This approach is consistent with the staff’s view on how the value of a parallel managed account should be calculated on Form PF. See Form PF, Frequently Asked Questions. The staff’s response to Question 11 on reporting value states that ‘‘When calculating the value of a parallel managed account for purposes of either determining whether it is a dependent parallel managed account that is aggregated with the reporting fund or reporting its value in Question 11, you should use the market value of the derivatives held in the parallel managed account, instead of the gross notional value, if that is how the value of the account is reported to the account holder.’’ 180 The Glossary to Form ADV defines a wrap fee program as ‘‘[a]ny advisory program under which a specified fee or fees not based directly upon transactions in a client’s account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions.’’ We are not amending this definition. E:\FR\FM\01SER2.SGM 01SER2 60432 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations program. We are amending Item 5.I. to ask whether the adviser participates in a wrap fee program, and if so, the total amount of regulatory assets under management attributable to acting as a sponsor to or portfolio manager for a wrap fee program.181 One commenter noted that many advisers act as both the sponsor of and a portfolio manager for the same wrap fee program and that this could cause those advisers to double count their regulatory assets under management attributable to wrap fee programs in Item 5.I.182 We agree and have added a question to Item 5.I. that asks for the total amount of regulatory assets under management attributable to the adviser acting as both sponsor to and portfolio manager for the same wrap fee program. To prevent advisers from double-counting assets, we added an instruction that assets reported in this new category should not be reported elsewhere in Item 5.I.(2). Section 5.I.(2) of Schedule D currently requires an adviser to list the name and sponsor of each wrap fee program for which the adviser serves as portfolio manager. We are amending Section 5.I.(2), as proposed, to add questions that require an adviser to provide any SEC File Number and CRD Number for sponsors to those wrap fee programs.183 As discussed in the Proposing Release, this information will help us better understand a particular adviser’s business and assist in our risk assessment and examination process by making it easier for our staff to identify the extent to which the firm acts as sponsor or portfolio manager of wrap fee programs and collect information across investment advisers involved in a particular wrap fee program.184 One commenter was generally supportive of our proposed reporting on wrap fee programs, but questioned its usefulness to investors and market participants.185 As discussed above, our enhanced wrap fee reporting is designed to assist our staff in its risk assessment and examination process. Three commenters requested further clarification regarding the existing definition of a wrap fee program.186 We 181 Amended Form ADV, Part 1A, Item 5.I. Letter. 183 Amended Form ADV, Part 1A, Section 5.I.(2) of Schedule D. 184 Proposing Release, supra footnote 3 at Section II.A.2. 185 CFA Letter. 186 ASG Letter (asking whether an adviser will be deemed to participate in a wrap fee program if the adviser negotiates an asset-based fee with a broker and pays that fee rather than having the client pay that fee); PCA Letter (asking whether an adviser will be deemed to ‘‘participate’’ in a wrap fee program as a result of placing client funds (or recommending that clients place non-discretionary funds) in one or asabaliauskas on DSK3SPTVN1PROD with RULES 182 MMI VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 are not changing or clarifying the existing definition of a ‘‘wrap fee program’’ that is included in Form ADV because, based on our experience with the Form, we believe it has been sufficiently clear. c. Additional Information About Financial Industry Affiliations and Private Fund Reporting Part 1A, Section 7.A. of Schedule D requires information on an adviser’s financial industry affiliations and Section 7.B.(1) of Schedule D requires information on private funds managed by the adviser. We are adopting as proposed amendments to Sections 7.A. and 7.B.(1) of Schedule D that require an adviser to provide identifying numbers (i.e., Public Company Accounting Oversight Board (‘‘PCAOB’’)-assigned numbers 187 and CIK Numbers 188) in response to two questions to allow us to better compare information across data sets and understand the relationships of advisers to other financial service providers. Two commenters were concerned that, by requiring an adviser to report the PCAOB-assigned number of its auditing firm (if applicable), we are suggesting that using a PCAOBregistered auditing firm is required by the Commission.189 This is not our intent. An auditing firm performing a surprise examination is not required to be registered with the PCAOB unless the adviser or its related person is serving as qualified custodian.190 In addition, we are adding a question to Section 7.B.(1) of Schedule D to require an adviser to a private fund that qualifies for the exclusion from the definition of investment company under section 3(c)(1) of the Investment Company Act of 1940 (a ‘‘3(c)(1) fund’’) to report whether it limits sales of the fund to qualified clients, as defined in rule 205–3 under the Advisers Act.191 As proposed, the question would have required an adviser to report, for every private fund that it advises (including more programs sponsored by unaffiliated third parties, but in which the adviser does not serve as the sponsor or a portfolio manager). See also NRS Letter (suggesting that we require wrap fee program sponsors to report the combined regulatory assets under management for themselves and any independent portfolio managers in their program). 187 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23(e). 188 Amended Form ADV, Part 1A, Section 7.A of Schedule D, Question 4(b). 189 Shearman Letter. See Comment Letter of American Institute of Certified Public Accountants, Financial Reporting Executive Committee (Aug. 17, 2015) (‘‘AICPA Letter’’). 190 Rules 206(4)–2(a)(4) and 206(4)–2(a)(6)(i). 191 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 15(b). Current Question 15 will become Question 15(a). PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 any private fund that qualifies for the exclusion from the definition of ‘‘investment company’’ under section 3(c)(7) of the Investment Company Act of 1940 (‘‘3(c)(7) fund’’), the approximate percentage of the private fund beneficially owned (in the aggregate) by qualified clients.192 One commenter supported the rationale for our proposal; 193 however other commenters questioned the value of the question and were concerned about situations where the qualified client status of an investor is not known, or does not need to be determined.194 We continue to believe that this information will give us a better sense of the financial sophistication and nature of investors in private funds, but in response to comments, we are making two changes from our proposal. First, we are limiting the question to 3(c)(1) funds because each investor in a 3(c)(7) fund is required to meet the higher ‘‘qualified purchaser’’ standard.195 Second, we are revising the question to require a simple yes or no response as to whether the adviser limits sales of a fund to qualified clients instead of requiring advisers to report the percentage of ownership of the fund by qualified clients. Commenters noted that many advisers that are not registered with the Commission (e.g., exempt reporting advisers 196) are not required to determine whether the fund’s investors are qualified clients.197 These advisers may simply respond ‘‘No’’ to the revised question. Other commenters asked us to clarify whether advisers must re-certify the qualified client status of their investors annually.198 As long as an investor met 192 Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 15(b). 193 CFA Letter. 194 ACG Letter; Anonymous Letter; SBIA Letter. 195 ‘‘Qualified purchaser’’ is defined in Section 2(a)(51) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(51)). 196 An exempt reporting adviser is an investment adviser that qualifies for the exemption from registration under section 203(l) of the Advisers Act because it is an adviser solely to one or more venture capital funds, or under rule 203(m)–1 under the Advisers Act because it is an adviser solely to private funds and has assets under management in the United States of less than $150 million. See Form ADV, Glossary. 197 ACG Letter; SBIA Letter. See also Anonymous Letter. Section 205(a) of the Advisers Act only applies to advisers who are registered or required to be registered with the Commission and generally restricts advisers from entering into, extending, renewing, or performing any advisory contract that provides for performance-based compensation. Rule 205–3 permits advisers to charge performancebased compensation to ‘‘qualified clients,’’ as defined in the rule. Advisers who are registered or required to be registered with the Commission are otherwise prohibited from charging performancebased compensation. 198 JGAS Letter; SBIA Letter. See also PCA Letter. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations the definition of a ‘‘qualified client’’ when it entered into the advisory contract with the adviser, then the investor is considered a ‘‘qualified client’’ even if it no longer meets the dollar amount thresholds of the rule. This is consistent with our existing approach to the definition of qualified client.199 asabaliauskas on DSK3SPTVN1PROD with RULES 3. Umbrella Registration We are adopting, as proposed, amendments to Form ADV that codify umbrella registration for certain advisers to private funds. We are adopting the amendments today because we believe that umbrella registration should be made available to those private fund advisers that are registered with us and operate a single advisory business through multiple legal entities. Umbrella registration is not mandatory, but we believe it will simplify the registration process for these advisers, and provide additional and more consistent data about, and create a clearer picture of, groups of private fund advisers that operate a single advisory business through multiple legal entities. The amendments also will allow for greater comparability across private fund advisers. As we discussed in the Proposing Release, the Dodd-Frank Act repealed the private adviser exemption that used to be in section 203(b)(3) of the Advisers Act.200 As a result, many previously unregistered advisers to private funds,201 including hedge funds and private equity funds, were required to register under the Advisers Act. Today, about 4,469 registered investment advisers provide advice on approximately $10.5 trillion in assets to approximately 30,896 private funds clients.202 For a variety of tax, legal and regulatory reasons, advisers to private funds may be organized as a group of related advisers that are separate legal entities but effectively operate as—and 199 See Investment Adviser Performance Compensation, Investment Advisers Act Release No. 3372 (Feb. 15, 2012) [77 FR 10358 (Feb. 22, 2012)]. 200 Section 403 of the Dodd-Frank Act. Section 203(b)(3) of the Advisers Act (the ‘‘private adviser exemption’’) previously exempted any investment adviser from registration if the investment adviser (i) had fewer than 15 clients in the preceding 12 months, (ii) did not hold itself out to the public as an investment adviser and (iii) did not act as an investment adviser to a registered investment company or a company that elected to be a business development company. 201 Section 202(a)(29) of the Advisers Act defines the term ‘‘private fund’’ as ‘‘an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), but for section 3(c)(1) or 3(c)(7) of that Act.’’ 202 Based on IARD system data as of May 16, 2016. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 appear to investors and regulators to be—a single advisory business. Although these separate legal entities effectively operate as a single advisory business,203 Form ADV was designed to accommodate the registration request of an adviser structured as a single legal entity. As a result, private fund advisers that operated as a single advisory business but were organized as separate legal entities may have had to file multiple registration forms, even though the registration effectively was for the same 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 designed to address concerns raised by advisers.204 The guidance provided conditions under which the staff believed one adviser (the ‘‘filing adviser’’) could file a single Form ADV on behalf of itself and other advisers that were controlled by or under common control with the filing adviser (each, a ‘‘relying adviser’’), provided that they conducted a single advisory business (collectively an ‘‘umbrella registration’’). We believe that most advisers that can rely on umbrella registration are doing so, with approximately 743 filing advisers and approximately 2,587 relying advisers filing umbrella registrations.205 However, the method outlined in the staff guidance for filing an umbrella registration was limited by the fact that the form was designed for 203 We treat as a single adviser two or more affiliated advisers that are separate legal entities but are operationally integrated, which could result in a requirement for one or both advisers to register. See Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers Act Release No. 3222 (June 22, 2011) [76 FR 39646 (Jul. 6, 2011)] (‘‘Exemptions Release’’). See also In the Matter of TL Ventures Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) (settled action). 204 See 2012 ABA Letter, supra footnote 5. The Division of Investment Management previously provided no-action relief to enable a special purpose vehicle (‘‘SPV’’) that acts as a private fund’s general partner or managing member to essentially rely upon its parent adviser’s registration with the Commission rather than separately register. See American Bar Association Subcommittee on Private Investment Entities, SEC Staff Letter (Dec. 8, 2005), available at https:// www.sec.gov/divisions/investment/noaction/ aba120805.htm (‘‘2005 ABA Letter’’) at Question G1. 205 Based on IARD system data as of May 16, 2016. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 60433 a single legal entity. This created confusion for filers and the public. It also complicated our staff’s data collection and analysis on umbrella registrants.206 Today’s amendments are designed to ameliorate these issues. We are adopting, as proposed, amendments to Form ADV’s General Instructions that establish conditions for an adviser to assess whether umbrella registration is available. The conditions we are adopting today are the same as the conditions set forth in the staff’s guidance that many investment advisers have relied on since 2012 (except that the staff’s guidance also included disclosure conditions for Form ADV, the substance of which is covered elsewhere in this Release).207 The conditions are as follows: 1. The filing adviser and each relying adviser advise only private funds and clients in separately managed accounts that are qualified clients (as defined in rule 205–3 under the Advisers Act) and are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds; 2. The filing adviser has its principal office and place of business in the United States and, therefore, all of the substantive provisions of the Advisers Act and the rules thereunder apply to the filing adviser’s and each relying adviser’s dealings with each of its clients, regardless of whether any client or the filing adviser or relying adviser providing the advice is a United States person; 208 3. Each relying adviser, its employees and the persons acting on its behalf are subject to the filing adviser’s supervision and control and, therefore, each relying adviser, its employees and 206 Under the guidance provided by the staff, for example, umbrella registration was appropriate where a relying adviser was not prohibited from registering with the Commission by section 203A of the Advisers Act. See 2012 ABA Letter, supra footnote 5. However, a relying adviser did not have a way to answer Item 2 regarding the basis on which it was eligible for SEC registration. In addition, relying advisers often had to list owners and executive officers in a confusing manner in Schedules A and B which were not designed to accommodate multiple advisers and did not always provide the Commission staff with useful information on the owners of each relying adviser. Also, the filing adviser disclosed its reliance on the 2012 ABA Letter in the Miscellaneous Section of Schedule D. 207 See 2012 ABA Letter, supra footnote 5 at Question 4. 208 The Glossary to Form ADV provides that ‘‘United States person’’ has the same meaning as in rule 203(m)–1 under the Advisers Act, which includes any natural person that is resident in the United States. E:\FR\FM\01SER2.SGM 01SER2 asabaliauskas on DSK3SPTVN1PROD with RULES 60434 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations the persons acting on its behalf are ‘‘persons associated with’’ the filing adviser (as defined in section 202(a)(17) of the Advisers Act); 4. The advisory activities of each relying adviser are subject to the Advisers Act and the rules thereunder, and each relying adviser is subject to examination by the Commission; and 5. The filing adviser and each relying adviser operate under a single code of ethics adopted in accordance with rule 204A–1 under the Advisers Act and a single set of written policies and procedures adopted and implemented in accordance with rule 206(4)–(7) under the Advisers Act and administered by a single chief compliance officer in accordance with that rule.209 The conditions are designed to limit eligibility for umbrella registration to groups of private fund advisers that operate as a single advisory business. For purposes of umbrella registration, we consider the following factors as indicia of a single advisory business: Commonality of advisory services and clients; a consistent application of the Advisers Act and the rules thereunder to all advisers in the business; and a unified compliance program. The conditions that we are adopting today are designed to demonstrate these factors. Condition 1 limits eligibility for umbrella registration to private fund advisers with a commonality of advisory services and clients. Conditions 2 and 4 are designed to provide assurance that our staff has access to and can readily examine the filing and relying advisers and that the Advisers Act and the rules thereunder fully apply to all advisers under the umbrella registration and clients of those advisers. Conditions 3 and 5 are designed to provide assurance that the filing and relying advisers are subject to a unified compliance program. Based on our experience, we believe that the conditions, when taken together, are a strong indication of the existence of a single private fund advisory business operating through the use of multiple legal entities. In addition, we are amending the General Instructions as proposed to provide advisers using umbrella registration directions on completing Form ADV for the filing adviser and each relying adviser, including details for filing umbrella registration requests 209 The code of ethics and written policies and procedures must be administered as if the filing adviser and each relying adviser are part of a single entity, although they may take into account, for example, that a relying adviser operating in a different jurisdiction may have obligations that differ from the filing adviser or another relying adviser. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 and the timing of filings and amendments in connection with an umbrella registration.210 To satisfy the requirements of Form ADV while using umbrella registration, the filing adviser is required to file, and update as required, a single Form ADV (Parts 1 and 2) that relates to, and includes all information concerning, the filing adviser and each relying adviser, and must include this same information in any other reports or filings it must make under the Advisers Act or the rules thereunder (e.g., Form PF). The revisions to the form’s Instructions and Form ADV further specify those questions that should be answered solely with respect to the filing adviser and those that require the filing adviser to answer on behalf of itself and its relying adviser(s).211 Additionally, we are amending the Glossary as proposed to add the following three terms: (i) ‘‘filing adviser;’’ 212 (ii) ‘‘relying adviser;’’ 213 and (iii) ‘‘umbrella registration.’’ 214 We also are adopting as proposed a new schedule to Part 1A—Schedule R— that must be filed for each relying adviser.215 Schedule R requires identifying information, basis for SEC registration, and ownership information about each relying adviser, some of which was already filed by an adviser relying on the staff guidance.216 This new schedule consolidates in one location information for each relying adviser and addresses the problem the staff faced in its guidance that resulted in information regarding relying advisers being submitted in response to 210 See Form ADV, General Instruction 5. e.g., statements added to Form ADV, Instructions and Part 1A, Items 1, 2, 3, 7, 10 and 11. 212 ‘‘Filing Adviser’’ means: ‘‘An investment adviser eligible to register with the SEC that files (and amends) a single umbrella registration on behalf of itself and each of its relying advisers.’’ See Form ADV, Glossary. 213 ‘‘Relying Adviser’’ means: ‘‘An investment adviser eligible to register with the SEC that relies on a filing adviser to file (and amend) a single umbrella registration on its behalf.’’ See Form ADV, Glossary. 214 ‘‘Umbrella Registration’’ means: ‘‘A single registration by a filing adviser and one or more relying advisers who collectively conduct a single advisory business and that meet the conditions set forth in General Instruction 5.’’ See Form ADV, Glossary. 215 Advisers that choose to file an umbrella registration are directed by Item 1.B. to complete a new Schedule R for each relying adviser. Form ADV, Part 1A, Item 1.B.(2). 216 Schedule R requires the following information for each relying adviser: Identifying information (Section 1); basis for SEC registration (Section 2); form of organization (Section 3) and control persons (Section 4). For basis for SEC registration (Section 2), we did not include categories that would make the relying adviser ineligible for umbrella registration, such as serving as an adviser to a registered investment company. 211 See, PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 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.217 We believe that certain information that we are requiring (such as mailing address and basis for registration) is the same for nearly all relying advisers, and the filing adviser can check a box indicating that the mailing address of the relying advisers is the same as that of the filing adviser. Finally, we are adding, as proposed, a new question to Schedule D that requires advisers to identify the filing advisers and relying advisers that manage or sponsor private funds reported on Form ADV.218 This information will allow us to identify the specific adviser managing the private fund reported on Form ADV if it is part of an umbrella registration. We believe that this information will help us better understand the management of private funds, will provide information to contact relying advisers, and will help us better understand the relationship between relying advisers and filing advisers. We received multiple comment letters regarding our proposal to codify umbrella registration, the vast majority of which expressed support for umbrella registration.219 Several commenters also agreed that umbrella registration should not be mandatory.220 However, several commenters urged the Commission to expand the eligibility for umbrella registration to additional advisers including non-U.S. filing advisers, exempt reporting advisers, advisers to other types of clients, and advisers not independently eligible to register with the Commission.221 Many commenters encouraged us to permit umbrella registration for non217 Under the staff’s guidance in the 2012 ABA Letter, an adviser reported in its Form ADV (Miscellaneous Section of Schedule D) that it and its relying advisers were together filing a single Form ADV in reliance on the position expressed in the letter and identified each relying adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and identified it as such by including the notation ‘‘(relying adviser).’’ See 2012 ABA Letter, supra footnote 5 at Question 4. 218 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 3(b). 219 See, e.g., ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; BlackRock Letter; CFA Letter; Dechert Letter; MFA Letter; NASAA Letter; NRS Letter; NYSBA Committee Letter; PCA Letter; PEGCC Letter; SBIA Letter; Schulte Letter; Shearman Letter; SIFMA Letter. 220 ABA Committee Letter; ASG Letter; BlackRock Letter; Dechert Letter. 221 One commenter suggested that advisers that can, but do not elect to, file an umbrella registration be required to note that on Form ADV. CFA Letter. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES U.S. filing advisers.222 However, as we previously have expressed, we remain concerned that, absent Condition 2 (which requires that the filing adviser have its principal place of business in the United States), a group of related advisers based inside and outside of the United States could designate a nonU.S. adviser as a filing adviser, and could assert, based on the theory of operating a single advisory business, that the Advisers Act’s substantive provisions generally would not apply to the U.S.-based relying advisers’ dealings with their non-U.S. clients.223 Many commenters acknowledged this concern.224 Some commenters suggested that we address the concern by requiring that advisers indicate on their umbrella registration that they will follow applicable law.225 We believe that Condition 2 eliminates the difficult determinations of the Advisers Act’s application to these advisory relationships. The amendments we are adopting today do not change the Commission’s statements with respect to the cross-border application of the Advisers Act.226 Two commenters suggested permitting umbrella registration for an organization where all of the advisers have their principal office and place of business outside of the United States.227 However, umbrella registration is intended to apply only where our staff has access to and can readily examine the filing and relying advisers and where the Advisers Act and the rules thereunder fully apply to all advisers (and clients) under the umbrella 222 ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA Committee Letter; Schulte Letter. See also Shearman Letter. 223 2012 ABA Letter, supra footnote 5 at n.9; See Exemptions Release, supra footnote 203 at Section II.D. 224 ABA Committee Letter; AIMA Letter; NYSBA Committee Letter; Schulte Letter; Shearman Letter. 225 AIMA Letter; NYSBA Committee Letter. See also Dechert Letter; ABA Committee Letter (suggesting that we state on Form ADV that the Advisers Act applies with respect to all U.S. clients of every registered investment adviser, and with respect to all of the activities of registered investment advisers that have their principal place of business in the United States). 226 Certain commenters discussed our crossborder application of the Advisers Act. ABA Committee Letter; Dechert Letter; Schulte Letter. Most of the substantive provisions of the Advisers Act are not applied to the non-U.S. clients of a nonU.S. adviser registered with the Commission but non-U.S. advisers registered with the Commission must comply with the Advisers Act and the Commission’s rules thereunder with respect to any U.S. clients (and any prospective U.S. clients) they may have. See Proposing Release, supra footnote 3 at n.57 and Exemptions Release, supra footnote 203 at Section II.D. 227 Schulte Letter; Shearman Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 registration.228 This would not be the case for a group of non-U.S. advisers. Several commenters229 argued that we should expand the concept of umbrella registration by registered advisers to include ‘‘umbrella reporting’’ by exempt reporting advisers. Many of these commenters stated, and we acknowledge, that allowing exempt reporting advisers that operate a single advisory business through multiple legal entities to file an ‘‘umbrella report’’ would provide many of the same benefits as umbrella registration.230 However, we are not expanding the concept of umbrella registration to include ‘‘umbrella reporting’’ by exempt reporting advisers at this time. Some of the conditions required for umbrella registration reflect certain requirements that apply only to registered advisers.231 Different conditions might be more appropriate for ensuring that a group of exempt reporting advisers is operating a single advisory business and therefore should be able to take advantage of ‘‘umbrella reporting.’’ Certain commenters questioned the status of a set of Frequently Asked Questions 232 that permits certain exempt reporting advisers to file a single Form ADV on behalf of multiple special purpose entities.233 The views of the staff as expressed in these Frequently Asked Questions are not withdrawn as a result of today’s amendments to Form ADV. Two commenters disagreed with Condition 5’s requirement that the filing adviser and each relying adviser operate under a single code of ethics adopted in accordance with rule 204A–1 under the Advisers Act and a single set of written policies and procedures adopted and implemented in accordance with rule 206(4)–(7) under the Advisers Act and administered by a single chief compliance officer in accordance with that rule.234 One commenter argued that 228 Proposing Release, supra footnote 3 at Section II.A.3. 229 ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; MFA Letter; NYSBA Committee Letter; SBIA Letter; Schulte Letter; Shearman Letter. 230 ABA Committee Letter; AIMA Letter; MFA Letter; SBIA Letter; Schulte Letter. See also ACG Letter. 231 Specifically, exempt reporting advisers are not subject to the requirement for compliance policies and procedures pursuant to rule 206(4)–7 under the Advisers Act or for a code of ethics pursuant to rule 204A–1 under the Advisers Act. See ACG Letter. 232 Frequently Asked Questions on Form ADV and IARD, Reporting to the SEC as an Exempt Reporting Adviser (Mar. 2012), available at https:// www.sec.gov/divisions/investment/iard/ iardfaq.shtml#exemptreportingadviser. 233 ABA Committee Letter; AIMA Letter; NYSBA Committee Letter. 234 Capital Research Letter. See ACG Letter (stating that Condition 5 would have the practical PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 60435 Condition 5 was too restrictive and suggested that we allow groups of related advisers with ‘‘substantially similar’’ codes of ethics and sets of policies and procedures administered by several chief compliance officers operating under a ‘‘common compliance regime’’ to file an umbrella registration.235 Based on our experience with private fund advisers that operate a single private fund advisory business through multiple legal entities, we believe that they commonly have a unified compliance program which is characterized by a single code of ethics and a single set of compliance policies and procedures administered by a single chief compliance officer. Because we believe that the existence of a unified compliance program that meets the requirements of Condition 5 is a meaningful indicia of a single private fund advisory business, we are not modifying Condition 5 at this time. Several commenters disagreed with limiting umbrella registration eligibility to advisers operating a single private fund advisory business as described in Condition 1.236 Some commenters urged the Commission to make umbrella registration available where the advisers operate a single advisory business for types of clients other than those described in Condition 1, including registered investment companies and business development companies.237 Another commenter disagreed with limiting eligibility to a single advisory business of any kind and suggested that umbrella registration apply to all related persons of a filing adviser.238 However, as we stated in the Proposing Release, we do not believe umbrella registration is appropriate for advisers that are related but that operate separate advisory businesses as it would compromise data quality and complicate analyses that rely on data from Form ADV.239 We believe that by adopting umbrella registration as proposed, we are best able to accommodate the unique needs of effect of excluding exempt reporting advisers from eligibility for umbrella registration because exempt reporting advisers are not required by Advisers Act rule 204A–1 to adopt a code of ethics, nor are they required by Advisers Act rule 206(4)–7 to adopt compliance policies and procedures). 235 Capital Research Letter. 236 ASG Letter; BlackRock Letter; Capital Research Letter; Dechert Letter; Comment Letter of Tannenbaum Helpern Syracuse & Hirschtritt LLP (Aug. 5, 2016) (‘‘Tannenbaum Letter’’) (disagreed with ‘‘substantially similar or otherwise related’’ language, because advisers may operate a single business with different investment strategies). 237 ASG Letter; Dechert Letter. See also BlackRock Letter. 238 Capital Research Letter. 239 Proposing Release, supra footnote 3 at Section II.A.3. E:\FR\FM\01SER2.SGM 01SER2 60436 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES private fund advisers that operate a single advisory business through multiple legal entities without compromising the data quality or analyses that rely on data from Form ADV. Several commenters took issue with the proposal’s requirement to determine asset-based eligibility for umbrella registration on an entity-by-entity, rather than consolidated, basis.240 These commenters suggested that the goals of providing a clearer picture of groups of related advisers that operate as a single business and establishing a more efficient method for registration for separate legal entities that collectively conduct a single advisory business would be better served by allowing the group to determine asset-based eligibility for umbrella registration on a consolidated basis.241 Umbrella registration was intended to consolidate the multiple registration forms that may otherwise have been required by a single advisory business. It was not intended to alter or modify the eligibility for registration with the Commission.242 Some commenters disagreed with the requirement contained in Condition 1 that separately managed accounts be owned by qualified clients.243 One commenter stated that the qualified client requirement for separately managed accounts is not related to the single business requirement.244 Condition 1 also requires that the qualified clients be otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and that their accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds. Condition 1, including the qualified client requirement, is intended to ensure the commonality of clients that we believe is an important indicia of a single private fund advisory business. For example, if a group of advisers advised private funds as well as separately managed accounts held by non-qualified clients or separately managed accounts 240 Dechert Letter; Morgan Letter; NRS Letter; NYSBA Committee Letter. See MFA Letter (arguing that a registered private fund adviser that serves as a filing adviser should be able to add a relying adviser that is an exempt reporting adviser to its umbrella registration). 241 Id. 242 See Proposing Release, supra footnote 3 at Section II.A.3. To the extent there is concern about the eligibility of SEC registration for newly-formed relying advisers, rule 203A–2(c) provides an exemption for advisers that expect to be eligible for Commission registration within 120 days. 243 Morgan Letter; NYSBA Committee Letter; Tannenbaum Letter. See also PCA Letter. 244 NYSBA Committee Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 that pursue investment objectives or strategies that differ from the private funds they advise, we do not believe they would be operating a single private fund advisory business. The offering of separately managed accounts to clients other than qualified clients (such as retail clients) or separately managed accounts that pursue investment objectives or strategies that differ from the private funds they advise indicate that the group of advisers is engaged in lines of business that differ from a single private fund advisory business that we intend to cover with umbrella registration. Accordingly, at this time, we continue to believe that a group of advisers’ ability to comply with Condition 1, including the qualified client requirement for separately managed accounts, is a meaningful indicia of a single private fund advisory business, and we are therefore adopting Condition 1 as proposed. We also received several comments on the new amendments to Form ADV to accommodate umbrella registration. Two commenters generally supported the benefits of new Schedule R, which requires separate reporting of indirect and direct ownership for relying advisers (similar to current Schedules A and B of Form ADV).245 One commenter was concerned that relying advisers, which may act as special purpose general partners or similar entities and may be owned by employees sharing in the performance-based compensation paid by the fund, would in effect be forced to share the details of employee compensation on a public filing.246 The ownership information required of relying advisers is consistent with the ownership information required of filing advisers. We believe this information will more accurately reflect the full nature and scope of the single advisory business conducted by the group of related advisers and will be more informative for advisory clients and private fund investors as well as the Commission.247 4. Clarifying, Technical and Other Amendments to Form ADV We are adopting, largely as proposed, several amendments to Form ADV that are designed to clarify the form and its instructions. As noted in the Proposing Release, we believe these amendments to Form ADV will make the filing process clearer and more efficient for advisers and increase the reliability and the consistency of information provided 245 ASG Letter; PEGCC Letter. Letter. 247 See Proposing Release, supra footnote 3 at Section II.A.3. 246 Shearman PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 by investment advisers. More reliable and consistent information will improve our staff’s ability to interpret, understand, and place in context the information provided by advisers, allow our staff to make comparisons across investment advisers and improve the risk assessment and examination program. Many of these amendments are derived from questions frequently received by our staff. Except where noted, we did not receive comments on these amendments. a. Amendments to Item 2 Item 2.A. of Part 1A of Form ADV requires an adviser to select the basis upon which it is eligible to register with the Commission, and Item 2.A.(9) includes as a basis that the adviser is eligible for registration because it is a ‘‘newly formed adviser’’ relying on rule 203A–2(c) because it expects to be eligible for SEC registration within 120 days.248 Section 2.A.(9) of Schedule D is entitled ‘‘Newly Formed Adviser’’ and requests the adviser to make certain representations. As noted in the Proposing Release, our staff has received questions about whether the exemption from the prohibition on Commission registration contained in rule 203A–2(c) under the Advisers Act applies only to entities that have been ‘‘newly formed,’’ i.e., newly created as corporate or other legal entities. It does not only apply to newly created entities and therefore, as proposed, we are deleting the phrase ‘‘newly formed adviser’’ from Item 2.A.(9) and Section 2.A.(9) of Schedule D. Section 2.A.(9) will be renamed ‘‘Investment Adviser Expecting to be Eligible for Commission Registration within 120 Days.’’ 249 b. Amendments to Item 4 Item 4 of Part 1A of Form ADV addresses successions of investment advisers, and the Instructions to Item 4 provide that a new organization has been created under certain circumstances, including if the adviser has changed its structure or legal status (e.g., form of organization or state of incorporation). As noted in the Proposing Release, our staff frequently receives questions from investment advisers regarding this item and, as proposed, we are adding to Item 4 and Section 4 of Schedule D text that is currently contained in the Instructions to Item 4 that succeeding to the business of a registered investment adviser includes, for example, a change of 248 Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of Schedule D. 249 Amended Form ADV, Part 1A, Item 2.A.(9); see rule 203A–2(c) under the Advisers Act. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations structure or legal status (e.g., form of organization or state of incorporation).250 c. Amendments to Item 7 asabaliauskas on DSK3SPTVN1PROD with RULES Item 7 of Part 1A of Form ADV and corresponding sections of Schedule D require advisers to report information about their financial industry affiliations and the private funds they advise. We are adopting several technical amendments to Item 7. As proposed, we are revising Item 7.A., which requires advisers to check whether their related persons are within certain categories of the financial industry, to clarify that advisers should not disclose in response to this item that some of their employees perform investment advisory functions or are registered representatives of a brokerdealer, because this information is required to be reported on Items 5.B.(1) and 5.B.(2) of Part 1A, respectively. Items 5.B.(1) and 5.B.(2) request information about an adviser’s employees. Adding this text to Form ADV should assist filers in filling out the form as well as provide more accurate data to us and the general public.251 Item 7.B. of Part 1A of Form ADV asks whether the adviser serves as adviser to any private fund. Section 7.B.(1) of Schedule D requires advisers to provide information about the private funds they manage. We are adding text to Item 7.B. clarifying that Section 7.B.(1) of Schedule D should not be completed if another SEC-registered adviser or SEC exempt reporting adviser reports the information required by Section 7.B.(1) of Schedule D. Currently the instructions only refer to another adviser. We are also adopting, as proposed, several amendments to Section 7.B.(1) of Schedule D. Question 8 of Section 7.B.(1) currently asks whether the private fund is a ‘‘fund of funds,’’ and if it is, whether the private fund invests in funds managed by the adviser or a related person of the adviser. Below those two questions there is a note informing advisers when they should answer yes to the first question regarding whether the private fund is a ‘‘fund of funds.’’ We are moving the note to directly after Question 8.(a).252 We believe this 250 Amended Form ADV, Part 1A, Item 4.A. and Section 4 of Schedule D. 251 Amended Form ADV, Part 1A, Item 7. The staff has provided this clarification and it is currently available online at our staff’s Frequently Asked Questions on Form ADV and IARD, available at https://www.sec.gov/divisions/investment/iard/ iardfaq.shtml. 252 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Questions 8.(a)–(b). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 change will assist filers in answering Question 8. Question 10 of Section 7.B.(1) of Schedule D asks the adviser to identify the category of the private fund. As proposed, we are deleting text in Question 10 that directs advisers to refer to the underlying funds of a fund of funds when selecting the type of fund, in order to reconcile differences with Form PF, which permits advisers to disregard any private fund’s equity investments in other private funds.253 Question 19 of Section 7.B.(1) of Schedule D asks whether the adviser’s clients are solicited to invest in the private fund. We are adding text to Question 19, as proposed, to make clear that the adviser should not consider feeder funds as clients of the adviser to a private fund when answering whether the adviser’s clients are solicited to invest in the private fund.254 As noted in the Proposing Release, this is a common question that our staff receives and the intent of Question 19 is not to capture affiliated feeder funds. Question 21 of Section 7.B.(1) of Schedule D asks whether the private fund relies on an exemption from registration of its securities under Regulation D of the Securities Act of 1933 and Question 22 asks for the private fund’s Form D file number. We are adopting a clarifying revision to Question 21 as proposed to ask if the private fund has ever relied on an exemption from registration of its securities under Regulation D, in order to better reflect the intention of the Question.255 The current Question 21, if answered in the negative, would not require the adviser to provide the private fund’s Form D file number in Question 22, meaning we would not receive Form D file numbers in the event there was past reliance on Regulation D.256 We are adopting revisions to Question 23.(a)(2) as proposed. Currently, this question requires an adviser to check a box to indicate whether the private fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’).257 We are adding text instructing advisers that they are required to answer Question 23.(a)(2) only if they answer ‘‘yes’’ to Question 253 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 10. See Form PF, General Instruction 7. 254 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 19. 255 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 256 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 21. 257 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(a)(2). PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 60437 23.(a)(1), which asks whether the private fund’s financial statements are subject to an annual audit.258 This revision will clarify when an adviser is actually required to answer Question 23.(a)(2). We are also revising Question 23.(g) as proposed. The question currently asks whether the private fund’s audited financial statements are distributed to the private fund’s investors. We are adding ‘‘for the most recently completed fiscal year’’ to clarify the question. In addition, we are revising Question 23.(h) as proposed. This question currently asks whether the report prepared by the auditing firm contains an unqualified opinion.259 As noted in the Proposing Release, this question has prompted questions from advisers regarding which report and what timeframe the question refers to. To clarify, we are revising the question, as proposed, to ask whether all of the reports prepared by the auditing firm since the date of the adviser’s last annual updating amendment contain unqualified opinions.260 Finally, as proposed, we are adding Question 25.(g), which requests the legal entity identifier, if any, for a private fund custodian that is not a broker-dealer, or that is a broker-dealer but does not have an SEC registration number. The legal entity identifier is a unique identifier associated with a single entity and is intended to provide a uniform international standard for identifying parties to financial transactions. Furthermore, the reporting of legal entity identifier information on Form ADV facilitates the ability of investors and the Commission to link the data reported with data from other filings or sources that is reported elsewhere as legal entity identifiers become more widely used by regulators and the financial industry. This information will help our examination staff more readily identify the use of particular custodians by private funds. d. Amendments to Item 8 Based on inquiries from filers, we are adopting the proposed amendments to Item 8 with a modification to clarify that newly-formed advisers should answer questions in the item based on the types of participation and interest they expect to engage in during the next year. In the Proposing Release, we did not specify that the instruction was for newlyformed advisers, and commenters expressed concern that the proposal 258 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(a)(2). 259 Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(h). 260 Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 23.(h). E:\FR\FM\01SER2.SGM 01SER2 asabaliauskas on DSK3SPTVN1PROD with RULES 60438 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations would make Item 8 the only section in Part 1A requesting forward-looking information, and were concerned about the difficulty around gauging the likelihood of future events and the possibility for ‘‘false positives.’’ 261 We agree and, as adopted here, we have updated the Item to address commenters’ concerns. Item 8.B.(2) of Part 1A of Form ADV currently asks whether the adviser or any related person of the adviser recommends the purchase of securities to advisory clients for which the adviser or any related person of the adviser serves as underwriter, general or managing partner, or purchaser representative.262 The current wording has caused confusion regarding the treatment of purchaser representatives. As proposed, we are rewording the question to ask whether the adviser or any related person of the adviser recommends to advisory clients or acts as a purchaser representative for advisory clients with respect to the purchase of securities for which the adviser or any related person of the adviser serves as underwriter or general or managing partner. As noted in the Proposing Release, this edit is designed to clarify that the question applies to any related person who recommends to advisory clients or acts as a purchaser representative for advisory clients with respect to the purchase of securities for which the adviser or any related person of the adviser serves as underwriter or general or managing partner.263 Item 8.H. of Part 1A of Form ADV asks whether the adviser or any related person of the adviser, directly or indirectly, compensates any person for client referrals. We are revising Item 8.H. as proposed to break the question into two parts to increase our understanding of compensation for client referrals. Revised Item 8.H.(1) will cover compensation to persons other than employees for client referrals.264 Revised Item 8.H.(2) will cover compensation to employees, in addition to employees’ regular salaries, for obtaining clients for the firm.265 Item 8.I. asks whether the adviser or any related person of the adviser directly or indirectly receives compensation from any person other than the adviser or related person of the adviser for client referrals. We are also adding text to Item 8.I., as proposed, to clarify that advisers should not include the regular salary 261 See IAA Letter; Oppenheimer Letter; SIFMA Letter. 262 Form ADV, Part 1A, Item 8.B.(2). 263 Amended Form ADV, Part 1A, Item 8.B.(2). 264 Amended Form ADV, Part 1A, Item 8.H.(1). 265 Amended Form ADV, Part 1A, Item 8.H.(2). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 that the adviser pays to an employee in responding to this item.266 Two commenters thought that the proposed amendment to Item 8.H was highly subjective and needed additional guidance.267 In addition, one commenter suggested that Part 2B of Form ADV provided adequate disclosure of employee compensation.268 While we appreciate these comments, we are adopting these amendments as proposed. We continue to believe Item 8.H and the accompanying instructions are sufficiently clear and are appropriate to accommodate responses from and provide flexibility to varying types of advisory businesses and compensation arrangements. As noted in the Proposing Release, we are adopting these amendments to Item 8.H to better understand how advisers compensate both their staff and third parties for client referrals. The revisions to this item do not change the scope of the information collected, but instead provide more precise information about compensation for client referrals. e. Amendments to Section 9.C. of Schedule D Section 9.C. of Schedule D requests information about independent public accountants that perform surprise examinations in connection with the Advisers Act custody rule, rule 206(4)– 2. We are adopting two changes to Section 9.C. of Schedule D as proposed. First, we are adding text requiring an adviser to provide the PCAOB-assigned number of the adviser’s independent public accountant. This will improve our staff’s ability to cross-reference information submitted through other systems and evaluate compliance with the custody rule.269 Section 9.C.(6) currently requires advisers to report whether any report prepared by an independent public accountant that audited a pooled investment vehicle or examined internal controls contained an unqualified opinion. We are amending Section 9.C.(6) in a manner similar to Section 7.B.(1) of Schedule D, Question 23.(h) as described above to provide clarity to filers. Accordingly, the question will now ask whether all of the reports prepared by the independent public accountant since the date of the 266 Amended Form ADV, Part 1A, Item 8.I. MMI Letter (Item 8.H.(2) should be modified to conform with Item 5 of Part 2B, where economic benefits for providing advisory services are disclosed, but not regular salaries or bonuses). See also PCA Letter. 268 JAG Letter. 269 Amended Form ADV, Part 1A, Section 9.C.(3) of Schedule D. 267 See PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 last annual updating amendment have contained unqualified opinions.270 We received requests from multiple commenters to amend Item 9 of Part 1A and Section 9.C. of Schedule D related to custody.271 We appreciate commenters’ suggestions, but these suggested amendments to Item 9 or Section 9.C. are outside the scope of this rulemaking and we are not amending them at this time. f. Amendments to Disclosure Reporting Pages Item 11 of Part 1A of Form ADV requires registered advisers and exempt reporting advisers to provide information about their disciplinary history and the disciplinary history of their advisory affiliates. Those advisers who report an event for purposes of Item 11 are directed to complete a Disclosure Reporting Page (‘‘DRP’’) to provide the details of the event. DRPs can be removed from Form ADV under certain circumstances, including when ‘‘the adviser is registered or applying for registration with the SEC and the event was resolved in the adviser’s or advisory affiliate’s favor.’’ 272 As proposed, we are amending this text in each DRP to add ‘‘or reporting as an exempt reporting adviser with the SEC’’ after ‘‘applying for registration with the SEC’’ to clarify that both registered and exempt reporting advisers may remove a DRP from their Form ADV record if a criminal, regulatory or civil judicial action was resolved in the adviser’s (or advisory affiliate’s) favor.273 As discussed in the Proposing Release, these amendments will make disciplinary reporting uniform across registered and exempt reporting advisers, consistent with requiring exempt reporting advisers to report disciplinary events on Form ADV. g. Amendments to Instructions and Glossary Together with the amendments to Part 1A, we are also adopting, as proposed, conforming amendments to the General Instructions and the Glossary for Form ADV. As discussed above, we are amending the General Instructions to include instructions regarding umbrella registration. As proposed, we are also removing outdated references to 270 Amended Form ADV, Part 1A, Section 9.C.(6) of Schedule D. 271 See ASG Letter; Comment Letter of Pat Hyman (June 11, 2015) (‘‘Hyman Letter’’); IAA Letter; PCA Letter and Schwab & Co. Letter. 272 Form ADV, Part 1A, Criminal, Regulatory Action and Civil Judicial Action Disclosure Reporting Pages. 273 Amended Form ADV, Part 1A, Criminal, Regulatory Action and Civil Judicial Action Disclosure Reporting Pages. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES ‘‘Special One-Time Dodd-Frank Transition Filing for SEC Registered Advisers’’ and ‘‘recent’’ amendments to Form ADV Part 2 that are no longer needed. We retained one sentence from those instructions that specifies that every application for registration must include a narrative brochure prepared in accordance with the requirements of Part 2A of Form ADV.274 We also added clarifying language that exempt reporting advisers submitting other than annual amendments should update corresponding sections of Schedules A, B, C and D,275 and provided updated mailing instructions for FINRA.276 In the glossary, we are updating the definition of ‘‘Legal Entity Identifier’’ to reflect recent advancements in this protocol.277 Where applicable, we are making technical revisions, as proposed, to specify that an adviser must ‘‘apply for registration’’ (rather than simply ‘‘register’’) to more accurately reflect the rule text. As proposed, we are also deleting text in the instructions related to Item 1.O. because this text is going to appear directly in the corresponding section of Part 1 of Form ADV. We are adding text clarifying that a change in information related to Item 1.O. does not necessitate a prompt other-thanannual amendment (as changes to Item 1 otherwise do). We have also received numerous comment letters recommending additional amendments to clarify other sections of Form ADV.278 While we appreciate commenters raising their concerns with us, these suggested recommendations are outside the scope of this rulemaking and we decline to take action to further modify Form ADV based on these comments. 274 Amended Form ADV, General Instructions, Instruction 3. 275 Amended Form ADV, General Instructions, Instruction 4. 276 Amended Form ADV, General Instructions, Instruction 9. 277 The definition of Legal Entity Identifier is: A ‘‘legal entity identifier’’ assigned by a utility endorsed by the Global LEI Regulatory Oversight Committee (ROC) or accredited by the Global LEI Foundation (GLEIF). See Amended Form ADV, Glossary. In Item 1.P., we are removing outdated text referring to the ‘‘legal entity identifier’’ as being ‘‘in development’’ in the first half of 2011. 278 See, e.g., ASG Letter (Items 6 and 7); JGAS Letter; PCA Letter (Item 8); NYSBA Committee Letter (Items 5 and 8 and Schedule D); PCA Letter (Items 5 and 8); T. Rowe Price Letter (definition of ‘‘regulatory assets under management’’ in subadvisory arrangements). BlackRock also recommended we use XML format for Form ADV filings. See BlackRock Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 B. Amendments to Investment Advisers Act Rules 1. Amendments to Books and Records Rule We are adopting two amendments to the Advisers Act books and records rule, rule 204–2, largely as proposed, that will require advisers to maintain additional materials related to the calculation and distribution of performance information. Rule 204–2(a)(16) currently requires advisers that are registered or required to be registered with us to maintain records supporting performance claims in communications that are distributed or circulated to ten or more persons.279 Consistent with the proposal, we are amending rule 204–2(a)(16) by removing the ten or more persons condition and replacing it with ‘‘any person.’’ Accordingly, under the amended rule, advisers will be required to maintain the materials listed in rule 204–2(a)(16) that demonstrate the calculation of the performance or rate of return in any communication that the adviser circulates or distributes, directly or indirectly, to any person. We are also adopting amendments to rule 204–2(a)(7). Rule 204–2(a)(7) currently requires advisers that are registered or required to be registered with us to maintain certain categories of written communications received and copies of written communications sent by such advisers.280 Consistent with the proposal, we are amending rule 204– 2(a)(7) to require advisers to also maintain originals of all written communications received and copies of written communications sent by an investment adviser relating to the 279 Rule 204–2(a)(16) requires advisers to make and keep ‘‘All accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with such investment adviser); provided, however, that, with respect to the performance of managed accounts, ‘‘the retention of all account statements, if they reflect all debits, credits, and other transactions in a client’s account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of this paragraph.’’ 280 Rule 204–2(a)(7) requires advisers to make and keep: ‘‘Originals of all written communications received and copies of all written communications sent by such investment adviser relating to (i) any recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, or (iii) the placing or execution of any order to purchase or sell any security.’’ PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 60439 performance or rate of return of any or all managed accounts or securities recommendations. Several commenters expressed general support for the proposed amendments to the books and records rule,281 while other commenters felt the proposed amendments would be unnecessary and a significant burden on advisers.282 Several commenters also suggested the proposed amendments be modified to exclude one-on-one communications that are customized responses from investors or communications with sophisticated investors or clients.283 In addition, two commenters raised concerns about the applicability of the amendments to rule 204–2 to performance information that predated the effective date of the amendments.284 Based on a comment we received,285 we are making one non-substantive modification to the proposed amendments. To clarify and avoid confusion, we are adding the new subsection (iv) of rule 204–2(a)(7) immediately following subsection (iii) of the rule and preceding the proviso regarding unsolicited market letters and 281 See, e.g., ABA Committee Letter; CFA Letter; LPL Letter (supporting the proposed amendments to rule 204–2(a)(7) but suggesting an exception to rule 204–2(a)(16) for communications addressed to a single client regarding that client’s particular account or security in the account); NASAA Letter; PCA Letter (finding the proposed rule change sufficient but expressing concern with the Commission linking the requirement to maintain records pertaining to calculation of individual client account performance history, which are communications and not advertising, to the enforcement of rule 206(4)–1); Comment Letter of Wells Fargo Funds Management, LLC (Aug. 11, 2015) (‘‘Wells Fargo Letter’’). 282 See, e.g., ACG Letter; Anonymous Letter (citing specific costs of increased training needed to implement and possible software updates); ASG Letter (asserting the amended requirement is burdensome because advisers do not always maintain copies of individual performance provided on an ad hoc basis); PEGCC Letter (stating the Commission significantly understates the burden of complying with the proposed amendments); SBIA Letter (noting that while the amendments themselves are not burdensome, when they are aggregated with other recordkeeping obligations, they could lead to overall compliance burdens for smaller advisers); Schnase Letter (advisers may find it difficult to discern whether particular materials are subject to the rule). One commenter suggested that the amendments to rule 204–2(a)(7) are not necessary because other recordkeeping provisions already require advisers to maintain those records. See IAA Letter. 283 PEGCC Letter. See also Comment Letter of Michael D. Berlin (June 8, 2015) (‘‘Berlin Letter’’); LPL Letter. 284 See Comment Letter of Arnstein & Lehr LLP (Dec. 3, 2015); NRS Letter. 285 See IAA Letter (noting that the new subsection (iv) of rule 204–2(a)(7), as it currently appears, is unclear on whether an adviser would be required to maintain records relating to unsolicited market letters or other communications discussing the performance of securities that the adviser recommended to its clients). E:\FR\FM\01SER2.SGM 01SER2 60440 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES records of names and addresses of persons to whom an adviser sent particular items. A commenter noted that this placement of the new subsection raised questions about whether the proviso also applied to new subsection (iv). The proviso does apply to new subsection (iv) and we believe that, by moving subsection (iv) to immediately after subsection (iii) and before the proviso, we have addressed the commenter’s concern. We are adopting the rest of the amendments to rule 204–2 as proposed. While we appreciate the concerns raised by commenters, we continue to believe the veracity of performance information is important regardless of whether it is a personalized client communication or in an advertisement sent to ten or more persons. As noted in the Proposing Release, a recent enforcement action demonstrated to us the disadvantages of not requiring investment advisers to maintain records forming the basis of performance calculations or performance communications sent to individuals.286 Moreover, it has been our staff’s experience that investment advisers routinely make and preserve communications containing performance information and records to support the performance claims. Based on our staff’s experience and the confirmation of several commenters, we believe that most advisers already maintain this information.287 We believe these records will be useful in examining and evaluating adviser performance claims. Investors will benefit to the extent that the amendments reduce the incidence of misleading or fraudulent advertising and communications. For these reasons, we are adopting the amendments to the Adviser Act books and records rule, rule 204–2, as proposed. These amendments will apply to communications circulated or distributed after the compliance date of amended rule 204–2. Advisers that circulate or distribute communications after the compliance date that include performance information, including information on performance that predates the effective date of these amendments, will be required to 286 In the Matter of Michael R. Pelosi, Investment Advisers Act Release No. 3141 (Jan. 14, 2011); Initial Decision Release No. 448 (Jan. 5, 2012); Investment Advisers Act Release No. 3805 (Mar. 27, 2014) (Commission opinion dismissing proceeding against associated person of registered investment adviser charged with providing false and misleading performance information because the record lacked an evidentiary basis from which to determine that the performance information was materially false or misleading). 287 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. See also IAA Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 maintain materials listed in rule 204– 2(a)(16) that demonstrate the calculation of the performance.288 for by it expired on December 31, 2013, and subparagraph (2) expired on March 30, 2012. 2. Technical Amendments to Advisers Act Rules We are adopting the proposed technical amendments to several rules under the Advisers Act and withdrawing transition rule 203A–5 under the Advisers Act. Consistent with the proposal, we are removing transition provisions from rules where the transition process is complete. Three of the provisions were added as part of the implementation of the Dodd-Frank Act. Two of the provisions were added when we amended Form ADV and several Advisers Act rules to require advisers to electronically file their brochures with the Commission. One commenter specifically supported removal of the transition provisions.289 c. Rule 203–1(e) a. Rule 203A–5 The Dodd-Frank Act amended section 203A of the Advisers Act to prohibit from SEC registration ‘‘mid-sized’’ advisers that generally have assets under management of between $25 million and $100 million.290 Rule 203A–5 provided a temporary exemption from the prohibition on registration for mid-sized advisers to facilitate their transition to state registration.291 As proposed, we are withdrawing rule 203A–5 because the transition of mid-sized advisers from SEC to state registration was completed in June 2012. b. Rule 202(a)(11)(G)–1(e) Section 409 of the Dodd-Frank Act created a new exclusion from the definition of ‘‘investment adviser’’ in section 202(a)(11)(G) of the Advisers Act for family offices. The Commission adopted rule 202(a)(11)(G)–1 292 defining a family office and provided two extended transition periods for family offices with certain charitable organization clients and family offices relying on the rescinded ‘‘private adviser’’ exemption.293 As proposed, we are removing paragraph (e) of rule 202(a)(11)(G)–1 because subparagraph (1) of the transition provisions provided 288 We note that to the extent this information was previously or is currently included in an advertisement, the adviser is already required to maintain the information under rule 204–2(a)(16). 289 See NRS Letter. 290 See Section 410 of the Dodd-Frank Act. 291 See Implementing Release, supra footnote 133. 292 Family Offices, Investment Advisers Act Release No. 3220 (June 22, 2011) [76 FR 37983 (June 29, 2011)]. 293 Section 203(b)(3) of the Advisers Act as in effect before Jul. 21, 2011, repealed by section 403 of the Dodd-Frank Act. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 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 294 to remain exempt from registration until March 30, 2012 under certain conditions.295 As proposed, we are removing paragraph (e) from Rule 203–1 because the transition for private advisers is now complete. d. Rule 203–1(b), Rule 204–1(c) and Rule 204–3(g) Rule 203–1 and Rule 204–1 were amended in 2010 to provide transition periods for advisers to file narrative brochures required by Part 2A of Form ADV electronically with the Investment Adviser Registration Depository (‘‘IARD’’).296 Rule 203–1(b), entitled ‘‘transition to electronic filing,’’ requires investment advisers applying for registration after January 1, 2011 to file their brochures electronically unless they receive a continuing hardship exemption.297 Rule 204–1(c) requires investment advisers that are required to file a brochure and had a fiscal year that ended on or after December 31, 2010 to electronically file a Part 2A brochure as part of their next annual updating amendment. As proposed, we are removing paragraph (b) from rule 203– 1 and paragraph (c) from rule 204–1 because the transition to electronic filing is now complete.298 We also are making a technical, conforming additional change by removing rule 204–3(g) because it refers to the transition provision in rule 204–1(c).299 294 Id. 295 See Implementing Release, supra footnote 133. The rule 203–1(e) exemption from registration requires not only reliance on the former private adviser exemption but also that an adviser have fifteen or fewer clients in the preceding twelve months and neither hold itself out to the public as an investment adviser nor act as an investment adviser to a registered investment company or business development company. 296 Amendments to Form ADV, Investment Advisers Act Release No. 3060 (Jul. 28, 2010) [75 FR 49233 (Aug. 12, 2010)]. 297 The continuing hardship exemption under rule 203–3 will not be withdrawn by these technical amendments. 298 Current paragraphs (c) and (d) of Rule 203–1 are redesignated as (b) and (c) and current paragraphs (d) and (e) of Rule 204–1 are redesignated as (c) and (d). 299 Current paragraph (h) of Rule 204–3 is redesignated as (g). E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations III. Effective and Compliance Dates A. Effective Date The effective date of the amendments to rules 204–2, 202(a)(11)(G)–1, 203–1, 204–1 and 204–3, and the amendments to Form ADV is October 31, 2016. Rule 203A–5 is removed effective October 31, 2016. B. Compliance Dates 1. Amendments to Form ADV Several commenters requested a compliance date of at least one year after adoption.300 Any adviser filing an initial Form ADV or an amendment to an existing Form ADV on or after October 1, 2017 will be required to provide responses to the form revisions we are adopting today. Our staff is working closely with FINRA to reprogram IARD and we understand that the system is expected to be able to accept filings of revised Form ADV by October 1, 2017. This date is over one year from adoption. In addition, most advisers will not be filing their annual updating amendment until the first quarter of 2018, and therefore we believe this compliance period is appropriate. 2. Amendments to Investment Advisers Act Rules Our amendments to the books and records rule, 275.204–2, will apply to communications circulated or distributed after October 1, 2017. As discussed in Section II.B.(1), advisers that circulate or distribute communications after October 1, 2017 that include performance information, including information on performance that predates that date, will be required to maintain the materials listed in 275.204–2(a)(16) that demonstrate the calculation of the performance. asabaliauskas on DSK3SPTVN1PROD with RULES IV. Economic Analysis A. Introduction We are sensitive to the benefits and costs imposed by our rules and understand that there will be costs associated with complying with the amendments. The following economic analysis identifies and considers the benefits and costs—including the effects on efficiency, competition, and capital formation—that will result from the amendments to Form ADV and the amendments to and rescission of certain rules under the Investment Advisers Act. The economic effects considered in adopting the amendments are discussed below. 300 See Anonymous Letter; Capital Research Letter; Dechert Letter; IAA Letter; MMI Letter; SIFMA Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 We are adopting amendments to Form ADV and the Advisers Act books and records rule 204–2, and technical amendments to several other rules under the Advisers Act. In summary, and as discussed in greater detail in Section II. above, we are adopting the following amendments to Form ADV and Advisers Act rules: • Amendments to Form ADV designed to fill certain data gaps and enhance current reporting provided by investment advisers in order to improve the depth and quality of the information we collect on investment advisers and to facilitate our risk monitoring objectives; • Amendments to Form ADV to incorporate ‘‘umbrella registration’’ for private fund advisers; • Clarifying, technical and other amendments to Part 1A of Form ADV; • Amendments to the Advisers Act books and records rule to require advisers to make and keep supporting documentation that demonstrates performance calculations or rates of return in any written communications that the investment adviser circulates or distributes; and • Technical amendments to several rules under the Advisers Act to remove transition provisions that are no longer necessary. As discussed in the Proposing Release, we rely on information reported by investment advisers on Form ADV to monitor trends, assess emerging risks, inform policy choices and rulemaking, and assist our staff in examination and enforcement efforts.301 We believe that the amendments to Form ADV will improve the information provided by investment advisers to the Commission, clients and prospective clients, and may improve investor protection by informing policy choices and focusing examination activities. We also believe that the amendments to the Advisers Act books and records rule may improve investor protections by providing useful information to our examination and enforcement staff in evaluating advisers’ performance claims. While, as stated above, we believe that most that can rely on umbrella registration are doing so, incorporating umbrella registration into Form ADV will make the existence of umbrella registration more widely known to advisers, which may result in more eligible advisers taking advantage of the opportunity to umbrella register. This could, make filing ADV more efficient for such advisers, reducing their filing costs. In addition, we believe 301 Proposing Release, supra footnote 3 at Section III.A. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 60441 that incorporating umbrella registration into Form ADV will benefit the Commission, clients and prospective clients by improving the consistency and quality of the information that private fund advisers disclose about their business. The regulatory regime as it exists today for investment advisers serves as the economic baseline against which the costs and benefits, as well as the impact on efficiency, competition, and capital formation of the amendments are discussed. The baseline includes the current requirement for investment advisers to file Form ADV, the staff guidance regarding a filing adviser filing a single Form ADV on behalf of itself and each relying adviser,302 the current requirements for investment advisers to maintain books and records, and other current rules under the Advisers Act. The parties that will be affected by the amendments are: investment advisers that file Form ADV, including private fund advisers that rely on, or will rely on, umbrella registration, and investment advisers that currently manage, or will manage, separately managed accounts; the Commission; current and future advisory clients; and other current and future users of investment adviser information reported on Form ADV, including third-party information providers. Based on IARD system data as of May 16, 2016, approximately 12,024 investment advisers are registered with the Commission, and 3,248 exempt reporting advisers file reports with the Commission. Approximately 8,718 investment advisers registered with the Commission (73%) reported assets under management attributable to separately managed account clients. Of those 8,718 advisers, approximately 2,538 advisers reported regulatory assets under management attributable to separately managed account clients of at least $500 million and less than $10 billion and approximately 545 advisers reported regulatory assets under management attributable to separately managed account clients of at least $10 billion.303 Advisers with at least $10 billion in regulatory assets under management attributable to separately managed accounts will be subject to 302 See 2012 ABA Letter, supra footnote 5. on IARD system data as of May 16, 2016. These estimates are approximations because Form ADV currently collects information about assets under management by client type and the number of clients of each type in broad ranges. Item 5.D.(1)–(3) will require advisers to specify their assets under management and number of clients by client type, which will benefit our ability to understand and oversee the investment advisers that advise these accounts and recognize potential risks. 303 Based E:\FR\FM\01SER2.SGM 01SER2 60442 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES additional reporting on separately managed accounts on Form ADV. Approximately 743 registered advisers to private funds currently submit a single Form ADV on behalf of themselves and 2,587 relying advisers, relying on the 2012 ABA Letter. All investment advisers registered or required to be registered with the Commission are subject to the Advisers Act books and records rule. As we explained in the Proposing Release, we have sought, where possible, to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from the amendments to Form ADV and Investment Advisers Act rules, and reasonable alternatives.304 In many cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide reasonable estimates. The economic effects of the amendments also depend upon a number of factors which we often cannot estimate. Examples include the extent to which investor protection and our ability to oversee investment advisers will improve, and the extent to which investors will utilize the information in Form ADV to choose or retain an investment adviser. Therefore, some of the discussion below is qualitative in nature. Several commenters raised concerns about the burdens and costs associated with these amendments, and in some cases suggested that our quantitative estimates in the Proposing Release underestimated these costs. We describe their comments below, and have modified certain provisions in response to the comments. B. Amendments to Form ADV Certain amendments to Form ADV are designed to address potential gaps in information, such as information about advisers’ separately managed accounts, and obtain additional information on areas such as social media, additional offices, foreign clients, and wrap fee accounts. We believe this information will improve the depth and quality of information that we collect on investment advisers, which will assist the Commission in our oversight activities and clients and potential clients in assessing advisers.305 We also are adopting amendments to Form ADV to establish a more efficient method for multiple private fund adviser entities operating a single advisory business to register with us using a single Form ADV. Finally, we are adopting several clarifying, technical and other amendments to Form ADV. 1. Economic Baseline and Affected Market Participants As noted above and in the Proposing Release, the investment adviser regulatory regime currently in effect serves as the economic baseline against which the costs and benefits, as well as the impact on efficiency, competition and capital formation, of the amendments to Form ADV are discussed. Investment advisers use Form ADV to register with the Commission and with the states. Once registered, an investment adviser is required to file an annual amendment within 90 days of the end of its fiscal year, and more frequently if required by the instructions to Form ADV.306 Form ADV is also used by exempt reporting advisers to submit, and periodically update, reports to the Commission by completing a limited subset of items on Form ADV. Information filed on Form ADV is publicly available through the IAPD Web site.307 The parties that will be affected by the amendments to Form ADV are: Investment advisers that file Form ADV with the Commission; the Commission; current and future advisory clients; and other current and future users of information filed on Form ADV, including third-party information providers. 2. Analysis of the Amendments to Form ADV and Alternatives As discussed in Section II. above, we believe the amendments to Form ADV will improve our ability to oversee investment advisers and identify potential risks by increasing the amount, consistency, and reliability of the information disclosed by investment advisers, which will enhance our staff’s ability to effectively carry out the riskbased examination program and other risk monitoring activities, and may improve investor protection by informing policy choices and focusing examination activities. The amendments to Form ADV will address certain data gaps by requiring advisers to report additional information. Clients and potential clients may indirectly benefit to the extent that the amendments improve our oversight of investment advisers. The enhanced reporting requirements also may directly improve the ability of clients and potential clients of investment advisers to make more informed decisions about the selection and retention of investment advisers.308 To the extent that clients and future clients use the information investment advisers file in Form ADV to differentiate between investment advisers, the enhanced reporting requirements may result in a limited increase in competition among investment advisers for clients. The amendments will likely not have a significant effect on capital formation or on the ability of investors to efficiently allocate capital across investments because the amendments do not directly relate to the amount of capital investors allocate to investments or their ability to allocate capital across investments. We further identify effects on efficiency, competition, and capital formation in the discussion below. a. Information Regarding Separately Managed Accounts We are adopting amendments to Form ADV that will require investment advisers to report information regarding separately managed accounts, which are managed for clients other than pooled investment vehicles.309 Based on IARD system data, approximately 73% of investment advisers registered with the Commission reported assets under management attributable to separately managed accounts.310 We do not currently collect information from investment advisers specific to separately managed accounts, but we currently collect detailed information about an adviser’s registered investment company and private fund clients. The absence of detailed information about separately managed accounts limits the ability of our staff to understand, monitor and oversee the investment advisers that advise these accounts and recognize the risk exposures relating to these accounts. The newly reported information on Form ADV regarding separately managed accounts is intended to enhance the ability of our staff to effectively carry out our riskbased examination program and other risk-monitoring activities, as it does with other information on ADV and other filings by the Commission. The additional information regarding separately managed accounts will also assist us in addressing regulatory issues and identifying areas for additional examination and enforcement activities. The additional information investment advisers will file relating to separately managed accounts will be 308 See 304 Proposing Release, supra footnote 3 at Section III.A. 305 See supra Section I. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 306 See rule 204–1(a) under the Advisers Act. 307 Certain personal identifying information is not made public. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 supra Section II.A.2.a. supra Section II.A.1. 310 Based on IARD system data as of May 16, 2016. 309 See E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations publicly available.311 As discussed above, we continue to believe that public disclosure of information about separately managed accounts on Form ADV is appropriate in the public interest as well as for the protection of investors. Commenters expressed concern relating to the public disclosure of the separately managed account information and its potential impact on competition between investment advisers. Many commenters opposing the public disclosure of separately managed account information cited the potential cost of disclosure of confidential information, particularly for advisers with a small number of separately managed account clients.312 In addition, other commenters cited the potential disclosure of proprietary investment or trading strategies as a potential cost of publicly releasing the separately managed account information.313 We revised certain items on the form to address commenters’ concerns regarding the potential disclosure of confidential or proprietary information. As proposed, Item 5.D. would have required investment advisers to report the number of clients even for investment advisers that manage fewer than five accounts. In addition, under the proposed amendments, Section 5.K.(2) of Schedule D would have required investment advisers to report the number of accounts and the net asset value of the accounts.314 In response to comments, we have revised Item 5.D. by adding a ‘‘Fewer than 5 clients’’ column, which allows advisers with fewer than five clients in a particular category to avoid reporting the exact number of clients in that category. In addition, Section 5.K.(2) in Schedule D will not require investment 311 See supra Section II.A.1.e. Letter; BlackRock Letter; IAA Letter; Invesco Letter; NYSBA Committee Letter; Oppenheimer Letter; PEGCC Letter; Shearman Letter; SIFMA Letter. One commenter suggested that investors may instead invest in a fund structure, or forego investment opportunities with an investment adviser altogether, rather than place assets in a separately managed account and risk the disclosure of separately managed account information. Schulte Letter. As discussed above, the modifications from the proposal should reduce the potential for the disclosure of private or sensitive information relating to separately managed accounts, and should alleviate potential investor concerns and the effect of the disclosure on their investment decisions. 313 ABA Committee Letter; Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; Schulte Letter; Shearman Letter; SIFMA Letter. 314 Also, investment advisers will be required to report the total dollar amount of borrowings that correspond to ranges of gross notional exposure and not the weighted average amount. See supra Section II.A.1.c. asabaliauskas on DSK3SPTVN1PROD with RULES 312 AIMA VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 advisers to report the number of separately managed accounts. We believe that these changes mitigate the risk of any client-specific information being disclosed. In addition, as we discussed in Section II.A., this information would be reported for one or two data points per year, depending on the amount of regulatory assets under management attributable to separately managed accounts, ninety days after the end of the adviser’s fiscal year, and only on an aggregate basis for all the separately managed account clients that an adviser manages. Given the limited number of data points that advisers to separately managed accounts must report on, the fact that the information is reported in aggregate across an adviser’s separately managed accounts, and the time lag between those data points and any public reporting, we do not believe that this reporting could compromise trading strategies. In the Proposing Release, we also discussed other alternatives. For example, we could have required different information regarding separately managed account regulatory assets under management such as information at different time intervals or with different asset categories. We have determined not to require reporting at a higher frequency or in a more granular manner, because, as discussed above, we believe that the information we are requiring today will appropriately enhance our staff’s ability to effectively carry out our risk-based examination program and other risk assessment and monitoring activities, and that more frequent or granular reporting requirements may increase the costs to investment advisers to report the information. One commenter suggested as an alternative a separate form for separately managed account reporting that would be filed on a confidential basis, but, as discussed above, we believe that given the changes discussed above, we have mitigated concerns about client confidentiality. We proposed to require at least some information about separately managed accounts from all advisers, and additional information from advisers with at least $150 million in regulatory assets under management. In response to commenters who requested modifications to alleviate potential reporting burdens on smaller advisers relative to the proposal, we are adopting amendments that require less information about separately managed accounts than what was proposed for investment advisers managing at least $150 and less than $500 million in PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 60443 regulatory assets.315 Another alternative would be to require, as proposed, investment advisers with at least $150 million in separately managed account regulatory assets under management to provide this additional information regarding these accounts. However, the higher threshold we are adopting will reduce the number of investment advisers required to provide this additional information by approximately 2,800 advisers, thereby reducing costs for those advisers with at least $150 million but less than $500 million in assets under management that would no longer have to report the additional information. As discussed in Section II.A.1.c., the $500 million threshold was suggested by commenters and will provide us information with respect to over 98% of the separately managed account assets that would have been reported under the proposed approach.316 Another alternative would be to collect different information regarding derivatives in separately managed accounts. For example, commenters raised concerns about the utility of gross notional exposure as a measure of derivative risk exposures. Several commenters stated that gross notional metrics are not accurate measures of risk or leverage,317 and expressed concern that gross notional metrics could be misleading to or misunderstood by investors without additional context.318 Other commenters suggested alternative measures of derivative risk exposures.319 We recognize that gross notional metrics do not always reflect the way in which derivatives are used in a separately managed account and are not a risk measure, but rather they are commonly used metrics that are comparable to information collected in Form PF regarding private funds. On balance, therefore, we continue to believe that, for most types of derivatives the gross notional metrics generally provide a measure of the scale of an account’s derivatives activities that is sufficient for this regulatory purpose, which is to collect information about the scale of an account’s derivatives activities, rather than to collect specific risk metrics or more granular information regarding the ways 315 See supra Section II.A.1.c. IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter. 317 See BlackRock Letter; Dechert Letter; IAA Letter; MFA Letter. 318 See Dechert Letter; IAA Letter; Invesco Letter; MFA Letter; NYSBA Committee Letter. 319 See AIMA Letter; BlackRock Letter; Dechert Letter. 316 See E:\FR\FM\01SER2.SGM 01SER2 60444 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES in which derivatives are used in a separate account.320 We are also adopting, as proposed, amendments that will require investment advisers to report the identity of the custodians that account for at least ten percent of each adviser’s total separately managed account regulatory assets under management, and the amount held at such custodians. As discussed in the Proposing Release,321 alternatives to the custodian reporting requirements include collecting different information, changing reporting thresholds, changing the frequency of reporting, obtaining information from other parties and not requiring certain information, such as the location of the custodian’s office.322 Although requiring less information would decrease the reporting requirements and the costs to investment advisers to file Form ADV, as discussed above, we believe that the reporting requirements as adopted will provide information important to us and improve the ability of our examination staff to identify advisers whose clients use the same custodian in the event a concern is raised about a particular custodian. One commenter suggested that we should collect data about custodians of separately managed accounts from the custodians themselves, but considering that the Commission does not directly regulate all custodians (including banks), we do not think this alternative appropriately addresses our regulatory objective. b. Additional Information Regarding Investment Advisers In addition to information regarding separately managed accounts, we are also adopting amendments to collect additional information about the business of investment advisers and other additional identifying information. For example, we are adopting amendments to require investment advisers to disclose information regarding their use of social media platforms. We are also adopting amendments to request additional information about an adviser’s participation in and assets under management attributable to wrap fee programs. Other amendments include replacing ranges with more precise information about the number of advisory clients and the amount of assets under management, the total 320 See supra Section II.A.1.c. 321 See Proposing Release, supra footnote 3 at Section II.A.1. 322 See AIMA Letter; IAA Letter; MMI Letter; NRS Letter; Oppenheimer Letter; SIFMA Letter regarding the custodian’s office location. See also supra Section II.A.1.d. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 number of offices that conduct investment advisory business, and information regarding each adviser’s top twenty-five largest offices in terms of numbers of employees. For several items we are requiring additional identifying information. The additional identifying information includes the CIK Numbers for all advisers that have obtained one or more such numbers, PCAOB-assigned numbers for auditing firms, and the SEC file number and the CRD number for sponsors of wrap fee programs. We believe the additional information describing the adviser’s business and the additional identifying information will be useful to the risk assessment, examination, and oversight of investment advisers. For example, the information regarding social media platforms will improve our understanding of how advisers use social media to communicate with current and potential clients. The additional identifying information will improve the ability of our staff and other current and future users of Form ADV information to cross-reference information from Form ADV with information from filings and other sources to investigate and obtain a more complete understanding of the business and relationships of investment advisers, and improve our oversight of investment advisers. In addition, to the extent that current and future investment advisory clients are interested in the information, the information may improve their ability to make informed decisions about the selection and retention of investment advisers. Several commenters expressed concern that the additional information describing the advisory business and the additional identifying information would increase the burden on investment advisers to file Form ADV.323 In addition, commenters questioned the benefits of the additional information and the additional identifying information to clients or potential clients and to the Commission. For example, one commenter raised concern regarding the usefulness of 323 Several commenters stated that advisers would need to update computer systems to obtain this data, and raised concerns about the increased burden that our proposal would place on advisers. ASG Letter; IAA Letter; LPL Letter; MMI Letter. Commenters also expressed concerns that investment advisers would need to update the additional information on more than an annual basis which would increase the burden on investment advisers. See BlackRock Letter; Morningstar Letter; NRS Letter; SIFMA Letter. We have clarified that certain information, such as information about additional offices, must only be updated on an annual basis, which should help address these concerns. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 replacing ranges with the number of advisory clients and the regulatory assets under management attributable to each client type.324 In addition, commenters believed that information regarding social media would not be informative to investors, who may be more likely to obtain the information through the adviser’s Web site or internet searches.325 Several commenters also expressed concern that the reporting of adviser offices would impose a significant burden on advisers with little or no benefit to either the Commission or investors.326 Alternatives to the amendments regarding disclosure of additional information about advisers include the disclosure of different information, more information, or less information on topics such as social media or advisers’ offices.327 When determining the specific amendments to Form ADV for adoption, we considered what information would be important for our oversight activities and for advisory clients and prospective clients to make decisions regarding the selection or retention of investment advisers against the costs to investment advisers to report this information. We believe that the amendments we are adopting today strike an appropriate balance of providing important information to the Commission, advisory clients and prospective clients while mitigating the burden on investment advisers to report the information. As noted above, however, we recognize that the burden on some large advisers might be significant, especially in the initial reporting cycle when they are required to report the additional information for the first time. However, we believe that the burden will decrease after the initial filing because in subsequent filings, advisers will only be reporting changes to their previously reported information. Another alternative to the amendments to Form ADV would be for us not to require investment advisers to report additional information but instead for us to undertake targeted examinations of investment advisers. We believe it is more efficient to compile information about advisers that can then be utilized to identify specific advisers for examinations. An absence of information about advisers also would reduce our ability to identify industry trends and assess risks. 324 ACG Letter. Letter; JAG Letter; Morgan Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter. 326 ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; NYSBA Committee Letter. 327 See supra footnote 111 and accompanying text. 325 ASG E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES c. Costs Applicable to Reporting Information Regarding Separately Managed Accounts and Additional Information on Form ADV The amendments that will require investment advisers to provide additional information about certain aspects of their business will impose additional costs, at least initially, for investment advisers to file Form ADV, but we believe based on our experience that much of the information we are requiring is readily available because it is used by investment advisers to conduct their business. Costs will vary across advisers, depending on the nature and size of an adviser’s business.328 For example, advisers that manage a limited number of separately managed accounts or that have smaller amounts of assets under management in those accounts will have fewer reporting requirements than advisers that manage a large number of separately managed accounts or that have larger amounts of assets under management in those accounts. In addition, investment advisers with a larger number of offices will have greater reporting requirements than investment advisers with fewer offices, particularly in the case of the initial filing. The one-time costs to initially report the information on Form ADV will also be greater for those investment advisers that currently do not collect or maintain the information. In addition, some amendments to Form ADV will require information that will impose a fixed filing cost that is not scalable with size, and therefore will have a relatively greater impact on small investment advisers. To the extent possible, we have attempted to quantify the costs of these amendments to Form ADV. Certain commenters questioned the cost estimates of the amendments to Form ADV, and some commenters noted that advisers will have to create new systems or processes to capture the additional information required and that the Commission underestimated these costs.329 We believe that much of the information, such as regulatory assets 328 Several commenters expressed concern that the proposed amendments would increase the costs for small advisers. See Comment Letter of Adrian Day Asset Management (May 21, 2015) (‘‘Adrian Day Letter’’); AIMA Letter; Diercks Letter; IAA Letter; SBIA Letter; Schwab & Co. Letter. For a discussion of these comments, please see the Final Regulatory Flexibility Analysis in Section V infra. 329 Adrian Day Letter; Financial Engines Letter; IAA Letter; NRS Letter; PCA Letter; SBIA Letter. One commenter noted that it would require significant systems work to aggregate gross notional exposure calculations at the investment adviser level. SIFMA II Letter. Other commenters also noted that investment advisers would need to modify or update computer software systems. ASG Letter; MMI Letter. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 under management, should be readily available to advisers, and that modifications to the proposed amendments, such as the reporting requirements relating to separately managed accounts, help mitigate the costs to investment advisers of reporting the additional information. As discussed in Section V., for purposes of the increased Paperwork Reduction Act (‘‘PRA’’) burden for Form ADV, we estimate that each adviser will incur average costs in connection with the amendments to Form ADV of approximately $1,273,330 for a total aggregate cost of $15,306,552.331 d. Umbrella Registration The amendments to Form ADV that will incorporate the concept of umbrella registration and establish a method on Form ADV for certain private fund advisers to use umbrella registration will simplify, and therefore make more efficient the filing procedures for these advisers and provide greater certainty about the availability of umbrella registration. The amendments will also improve the consistency and quality of the information that private fund advisers disclose about their business and provide a more complete picture of groups of private fund advisers that operate as a single business, thus allowing for greater comparability across private fund advisers that rely on umbrella registration.332 As of May 16, 2016, approximately 743 registered advisers indicated on Form ADV that they relied on the 2012 ABA Letter. Additional advisers may be eligible to use umbrella registration but do not currently do so. Several commenters suggested that the Commission expand the eligibility for umbrella registration to even more advisers. For example, many 330 We estimate that each adviser will spend, on average, 3 hours to complete the questions regarding separately managed accounts. We further estimate that the amendments to Part 1A that request other additional information will take each adviser, on average, 2 hours to complete. As a result, we estimate a 5 hour increase in the total average time burden related to the amendments to Form ADV. We expect that the performance of this function will most likely be equally allocated between a senior compliance examiner and a compliance manager. Data from the Securities Industry Financial Markets Association’s Management & Professional Earnings in the Securities Industry 2013 (‘‘SIFMA Management and Professional Earnings Report’’), modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for a senior compliance examiner and a compliance manager are $221 and $288 per hour, respectively. [2.5 hours × $221 = $553] + [2.5 hours × $288 = $720] = $1,273. 331 12,024 advisers × $1,273 = $15,306,552. 332 See supra Section II.A.3. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 60445 commenters recommended expanding eligibility for umbrella registration to non-U.S. filing advisers,333 and other commenters suggested expanding eligibility for umbrella registration to exempt reporting advisers.334 Other commenters recommended that we expand the eligibility for umbrella registration to apply to all related persons of a filing adviser.335 Although expanding the eligibility for umbrella registration to all related persons might decrease the aggregate costs of filing Form ADV, as we discussed above, we do not believe umbrella registration is appropriate for advisers that are related but that operate separate advisory businesses as it would compromise data quality and complicate analyses that rely on data from Form ADV. For purposes of the PRA, we estimate that each adviser that files Schedule R will incur average costs of approximately $255,336 for a total aggregate cost of $189,465.337 We do not believe the amendments to provide for umbrella registration will impose significant costs on investment advisers because advisers currently relying on the 2012 ABA Letter are already reporting much of the information that will be reported on Schedule R. We believe that the additional information that will be reported for relying advisers on Schedule R, such as the basis for SEC registration and form of organization, will be readily available to filing advisers.338 333 ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA Committee Letter; Schulte Letter; Shearman Letter. 334 ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; MFA Letter; NYSBA Committee Letter; SBIA Letter; Schulte Letter; Shearman Letter. 335 ACG Letter; Capital Research Letter; Dechert Letter; Morgan Letter; NRS Letter; NYSBA Committee Letter. 336 We estimate that for purposes of the PRA, the filing adviser will spend on average 1 hour completing Schedule R on behalf of its relying advisers. We expect that the performance of this function will most likely be equally allocated between a senior compliance examiner and a compliance manager. Data from the SIFMA Management and Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for a senior compliance examiner and a compliance manager are $221 and $288 per hour, respectively. (.5 hours × $221 = $111) + (.5 hours × $288 = $144) = $255. 337 743 advisers × $255 = $189,465. 338 One commenter was concerned that relying advisers would in effect be forced to share the details of employee compensation on a public filing. See Shearman Letter. The ownership information required of relying advisers, however, is consistent with the ownership information currently required of filing advisers. E:\FR\FM\01SER2.SGM 01SER2 60446 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations e. Clarifying, Technical and Other Amendments to Form ADV asabaliauskas on DSK3SPTVN1PROD with RULES The clarifying, technical and other amendments to Form ADV will make the filing process clearer and therefore more efficient for advisers, and increase the reliability and the consistency of information provided by investment advisers. More reliable and consistent information will improve our staff’s ability to interpret and evaluate the information provided by advisers, make comparisons across investment advisers, and better identify the investment advisers that may need additional outreach or examination. To the extent the clarifying and technical amendments we adopt today would make Form ADV easier to understand and complete, the amendments will decrease future filing costs, especially for those investment advisers registering with us for the first time. As proposed, we are adding questions to Form ADV that request an entity’s legal entity identifier, if any.339 As discussed above, the legal entity identifier is a unique identifier associated with a single entity and is intended to provide a uniform international standard for identifying parties to financial transactions. This information will help our examination staff more readily identify the use of particular custodians by separately managed accounts and private funds. Furthermore, the reporting of legal entity identifier information on Form ADV facilitates the ability of investors and the Commission to link the data reported with data from other filings or sources that is reported elsewhere as legal entity identifiers become more widely used by regulators and the financial industry. For example, this could aid in the performance of market analysis studies, surveillance activities, and systemic risk monitoring by the Commission.340 We do not believe that the clarifying, technical and other amendments to Form ADV will result in any additional costs for investment advisers and could result in some cost savings to the extent that advisers have fewer questions to research when completing the form. We have identified provisions of Form ADV 339 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(3)(f) (requesting the LEI, if any, for a custodian of separately managed accounts that is not a broker-dealer or that is a broker-dealer but does not have an SEC registration number) and 7.B.(1), Question 25g (similar question for private fund custodians); Schedule R, Section 1.G. (requesting LEI for relying adviser). 340 We note that, as of May 31, 2016, approximately 6.80% of all registered investment advisers report a legal entity identifier when filing Form ADV. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 that have caused confusion among filers in the past or that have resulted in inconsistent or unreliable information. As we discussed above, we believe that the clarifications and revisions to the questions and instructions of Form ADV will increase the efficiency of investment advisers to disclose information, and our ability to oversee investment advisers. Finally, given the nature of the clarifying, technical and other amendments to Form ADV that we are adopting today, we do not believe that these amendments will have an impact on capital formation or competition in the asset management industry or the markets in general. f. Exempt Reporting Advisers We believe the amendments to Form ADV will have a limited economic effect on exempt reporting advisers, including on their costs.341 Exempt reporting advisers are currently required to complete only a limited number of items in Part 1A of Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and corresponding schedules). We are adopting limited amendments to the items that exempt reporting advisers are required to complete, including the amendments to Item 1 regarding the use of social media and the reporting of information on up to 25 offices.342 We do not know the extent of social media use by exempt reporting advisers, and we recognize that these advisers will incur some costs associated with social media account reporting. We believe these costs will be limited based on the nature of exempt reporting adviser clients, which include venture capital funds and private funds. Approximately 15 of the approximately 3,248 exempt reporting advisers that file information with the Commission on Form ADV reported that they had five or more other offices. Thus, although exempt reporting advisers will incur costs to report the additional information, based on our staff’s experience and given the nature of the clients these funds advise, we expect that the amendments should result in a limited increase in reporting costs relative to other advisers. C. Amendments to Investment Advisers Act Rules As discussed above, we are adopting amendments to the Advisers Act books and records rule, and technical amendments to several other rules to remove transition provisions where the 341 See supra Section II.A.2.c. for a discussion of exempt reporting advisers and Amended Form ADV, Part 1A, Schedule D, Section 7.B.(1), Question 15(b). 342 Exempt reporting advisers will not be eligible to file new Schedule R. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 transition process is complete. The discussion below focuses on the amendments to the Advisers Act books and records rule, because the technical amendments are clarifying or ministerial in nature and therefore should have little, if any, economic effects. The amendments to rule 204–2 will require investment advisers to maintain additional materials related to the calculation and distribution of performance information. The amendments to rule 204–2(a)(16) will require each adviser to maintain the materials listed in rule 204–2(a)(16) that demonstrate the calculation of the performance or rate of return in any communication that the adviser circulates or distributes, directly or indirectly, to any person, rather than ten or more persons as currently required by the rule. The amendments to rule 204– 2(a)(7) will require each adviser to maintain originals of all written communications received and copies of written communications sent by the adviser relating to the performance or rate of return of any or all managed accounts or securities recommendations. We believe, based on our staff’s experience, and several commenters agreed, that most investment advisers currently maintain the information that will be required to be maintained under amended rule 204– 2.343 Under the amendments, each respondent will be required to retain records in the same manner and for the same period of time as currently required under rule 204–2. 1. Economic Baseline and Affected Market Participants As noted above, the regulatory regime as it exists today for investment advisers serves as the economic baseline against which the costs and benefits, as well as the impact on efficiency, competition, and capital formation, of the amendments to the Advisers Act books and records rule (rule 204–2) will be evaluated. The parties that will be directly affected by the amendments to rules under the Advisers Act include: Investment advisers registered with the Commission; the Commission; and current and future investment advisory clients. As discussed above, approximately 12,024 investment advisers are currently registered with the Commission. 343 ABA Committee Letter; Morningstar Letter; PCA Letter. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES 2. Analysis of the Effects of the Amendments to the Advisers Act Books and Records Rule The amendments to the Advisers Act books and records rule (rule 204–2) will benefit the clients and prospective clients of investment advisers by improving our ability to oversee investment advisers and making available to our examination staff all records necessary to evaluate performance information. The amendments to the books and records rule will provide our enforcement and examination staff with additional information to review an adviser’s performance communications, regardless of the number of clients or prospective clients that receive performance communications. The rule amendments may increase investor protection by increasing the disincentive for misleading or fraudulent communications, which may reduce incidents of fraud. In addition, investors may benefit from the amendments to the recordkeeping rule as these records will assist our staff in uncovering fraudulent or misleading communications regarding performance. As we discussed in the Proposing Release, to the extent that the amendments to the rule reduce misleading or fraudulent communications, the competitive position of investment advisers could be improved because clients and potential clients will receive more accurate information regarding an adviser’s performance and thus will be better able to differentiate among advisers.344 In addition, to the extent that the amendments to the rule improve the ability of clients and potential clients to differentiate among advisers, potential clients may be more likely to obtain investment advice from an investment adviser, which will increase the ability of investment advisers to compete for investor capital. The amendments could improve the ability of investors to better or more efficiently allocate capital across investments to the extent that the current allocation of capital is based on misleading or fraudulent information, which in turn could promote capital formation. An alternative suggested by several commenters would be to exclude from the rule one-on-one communications that are ‘‘customized responses from investors or one-on-one communications with sophisticated investors or clients’’ about their own 344 Proposing Release, supra footnote 3 at Section III.C.2. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 account performance.345 Another alternative would be to require maintenance of records supporting performance claims in communications that are distributed or circulated to less than the current threshold of ten persons. As discussed above, we believe the veracity of performance information is important regardless of whether it is a personalized client communication or in an advertisement sent to ten or more persons, and the absence of such records can reduce our ability to examine and monitor advisers.346 Several commenters felt the proposed amendments would be unnecessary and a burden on investment advisers. Some raised concerns regarding the potential burden to comply with the amendments to rule 204–2,347 and one commenter noted that while the amendments were not themselves burdensome, when aggregated with other recordkeeping obligations, could lead to overall compliance burdens for smaller advisers.348 Based on our staff’s experience and our analysis of the comments to the Proposing Release, however, we believe that most advisers already maintain this information.349 We also believe that this information is useful to the examination and oversight of advisers.350 We estimate that, for purposes of the PRA, advisers will incur an aggregate cost of approximately $1,071,338 per year for the total hours advisory personnel will spend in complying with the amended recordkeeping requirements.351 A possible nonquantifiable cost as a result of the amended recordkeeping requirements will be discouraging advisers from creating and communicating custom performance information to individual clients, who will then lose the benefit of having that information available to 345 PEGCC Letter. See also Berlin Letter; LPL Letter. 346 See supra Section II.B.1. 347 See ACG Letter; Anonymous Letter; ASG Letter; NRS Letter; PEGCC Letter; SBIA Letter. 348 SBIA Letter. 349 ABA Committee Letter; Morningstar Letter; PCA Letter. 350 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. See also IAA Letter. 351 We estimate that for purposes of the PRA, the amendments to rule 204–2 will increase the burden by 1.5 hours per adviser annually. We expect that the function of recording and maintaining records of performance information and communications will be performed by a combination of compliance clerks and general clerks at a cost of $65 per hour and $58 per hour, respectively. We anticipate that compliance clerks would perform an estimated 0.3 hours of the work created by the amendments to rule 204–2 and general clerks would perform the additional 1.2 hours. Therefore, the total cost per adviser would be (0.3 hours × $65 = $19.50) + (1.2 hours × $58 = $69.60) = approximately $89.10 for a total cost of $1,071,338 (12,024 advisers × $89.10). PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 60447 them. Although we believe that such a response to the rule will be unlikely, a decrease in communications could reduce the ability of clients and potential clients to compare advisers and potentially decrease competition. We expect that these costs will vary among firms, depending on a number of factors, including the degree to which advisers already maintain correspondence, performance information, and the inputs and worksheets used to generate performance information. Compliance costs also will vary depending on the degree to which performance figure determination and the recordkeeping process is automated, and the amount of updating to the adviser’s recordkeeping policy that will be required. V. Paperwork Reduction Act Analysis The amendments that we are adopting today contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).352 In the Proposing Release, we solicited comment on the proposed collection of information requirements. We also submitted the proposed collections of information to the Office of Management and Budget (‘‘OMB’’) for review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The titles for the collections of information we are amending are: (i) ‘‘Form ADV;’’ and (ii) ‘‘Rule 204–2 under the Investment Advisers Act of 1940.’’ An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. A. Form ADV Form ADV (OMB Control No. 3235– 0049) is the two-part investment adviser registration form. Part 1 of Form ADV contains information used primarily by Commission staff, and Part 2 is the client brochure. We are not adopting changes to Part 2. We use the information to determine eligibility for registration with us and to manage our regulatory and examination programs. Clients use certain of the information to determine whether to hire or retain an adviser. The collection of information is necessary to provide advisory clients, prospective clients, and the Commission with information about the adviser and its business, conflicts of interest and personnel. Rule 203–1 under the Advisers Act requires every person applying for investment adviser registration with the Commission to file Form ADV. Rule 204–4 under the 352 44 E:\FR\FM\01SER2.SGM U.S.C. 3501–3520. 01SER2 asabaliauskas on DSK3SPTVN1PROD with RULES 60448 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 May 16, 2016, approximately 12,024 investment advisers are registered with the Commission, and 3,248 exempt reporting advisers file reports with the Commission. The currently approved total annual aggregate burden estimate for all advisers completing, amending and filing Form ADV (Part 1 and Part 2) with the Commission is 154,402 hours with a monetized cost of $36,670,427. This collection is based on: (i) Total annual collection of information burden for SEC-registered advisers to file and complete Form ADV (Part 1 and Part 2), including private fund reporting, plus the burden associated with amendments to the form, preparing brochure supplements and delivering codes of ethics to clients; and (ii) the total annual collection of information burden for exempt reporting advisers to file and complete the required items of Part 1A of Form ADV, including the private fund reporting, plus the burden associated with amendments to the form. As discussed above, we are adopting amendments to Form ADV that are designed to provide additional information about investment advisers and their clients, including clients in separately managed accounts, provide for umbrella registration for private fund advisers and clarify and address technical and other issues in certain Form ADV items and instructions. The amendments we are adopting will increase the information requested in Part 1A of Form ADV, and we expect that this will correspondingly increase VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 the average burden on an adviser filing Form ADV. As discussed in Sections II.A. and II.B. of this Release, we received several comments that addressed whether the amendments to Form ADV and Rule 204–2 are necessary, whether there are ways to enhance the quality, utility, and clarity of the information to be collected, and whether we could further minimize the burden. Certain commenters addressed the accuracy of our burden estimates for the proposed collections of information, suggesting in general that our estimates were too low.353 We have considered these comments and have made certain modifications designed to address these and other comments received, and we are increasing our PRA burden estimates related to the amendments. We discuss below, in three subsections, the estimated revised collection of information requirements for Form ADV: First, we provide estimates for the revised burdens resulting from the amendments to Part 1A; second, we determine how those estimates will be reflected in the annual burden attributable to Form ADV; and third, we calculate the total revised burdens associated with Form ADV. The paperwork burdens of filing an amended Form ADV, Part 1A will vary among advisers, depending on factors such as the size of the adviser, the complexity of its operations, and the number or extent of its affiliations. 1. Changes in Average Burden Estimates As a result of the differing burdens on advisers to complete Form ADV, we have divided the effect of the amendments to the form into three subsections; first we address the change to the collection of information for registered advisers as a result of our amendments to Part 1A of Form ADV excluding those changes related to private funds; second, we discuss the amendments to Form ADV related to registered advisers to private funds, including the amendments to Section 7.B. of Schedule D and the new Schedule R that will implement umbrella registration; and third, we address the amendments to Form ADV affecting exempt reporting advisers. 353 ACG Letter; Adrian Day Letter; ASG Letter; Anonymous Letter; IAA Letter; NRS Letter; PEGCC Letter; PCA Letter; SBIA Letter. See also AIMA Letter (discussed reputational and marketing costs associated with separately managed account reporting). PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 a. Estimated Change in Burden Related to Part 1A Amendments (Not Including Private Fund Reporting) We are adopting amendments to Part 1A, some of which are merely technical changes or very simple in nature, and others that will require more time for an adviser to prepare a response. Advisers should have ready access to all the information necessary to respond to the items we are adopting today in their normal course of operations, because they likely maintain and use the requested information in connection with managing client assets. We anticipate that the responses to many of the questions will be unlikely to change from year to year, which will minimize the ongoing reporting burden associated with these questions. i. Amendments Related to Reporting of Separately Managed Account Information The amendments to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 5.K.(4) and Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3) are designed to collect information about the separately managed accounts managed by advisers. These amendments will enhance existing information we receive and permit us to conduct more robust risk monitoring with respect to advisers of separately managed accounts. As discussed above, the information collected about separately managed accounts will include regulatory assets under management reported by asset type, borrowings and derivatives information, and the identity of custodians that hold at least ten percent of separately managed account regulatory assets under management. We believe that advisers to separately managed accounts may maintain and use this or similar information for operational reasons (e.g., trading systems) and for customary account reporting to clients in separately managed accounts. Although we understand that much of the requested information may be used by advisers for operational reasons or account reporting, we expect that these amendments may subject advisers, particularly those that advise a large number of separately managed accounts and engage in borrowings and derivatives transactions on behalf of separately managed accounts, to an increased paperwork burden. We are adopting new Items 5.K.(1) through (4) and Sections 5.K.(1) and 5.K.(3) largely as proposed with certain modifications in response to comments we received. With respect to Section 5.K.(2), in order to minimize the burden on advisers E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations with a smaller amount of separately managed account assets under management, we initially proposed to require: (1) Advisers with regulatory assets under management attributable to separately managed accounts of at least $150 million but less than $10 billion to report borrowings and derivatives information as of the date the adviser calculates its regulatory assets under management for purposes of its annual updating amendment; and (2) advisers with regulatory assets under management attributable to separately managed accounts of at least $10 billion to report information as of that date and six months before that date. As we discussed above,354 at the suggestion of several commenters,355 we increased the proposed $150 million reporting threshold to $500 million in order to further alleviate the reporting burdens on smaller advisers without compromising our objectives.356 In response to commenters, we modified Section 5.K.(2) to base the reporting of borrowings and derivatives on regulatory assets under management in separately managed accounts, rather than the net asset value of the accounts, as proposed, because advisers may not characterize their separately managed accounts using net asset value.357 We also eliminated the requirement to report number of accounts. We believe that these changes will further decrease the burden on advisers to report information on separately managed accounts. In the Proposing Release, we estimated that each adviser would spend, on average, 2 hours completing the questions regarding separately managed accounts in the first year a new or existing investment adviser completes these questions.358 A number of commenters expressed concern that our estimate of the paperwork burdens associated with our proposed questions regarding separately managed accounts was too low.359 We are revising our Section II.A.1. Letter; NYSBA Committee Letter; Schwab & Co. Letter. 356 Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2). 357 See IAA Letter. 358 Proposing Release, supra footnote 3 at Section IV.A.1.a.i. 359 Adrian Day Letter; ASG Letter (one adviser suggested that outsourcing the work might be costly; another adviser reported having the required data but estimated that it would take approximately 1 hour to compile data in response to Sections 5.K.1(a) and (b)); IAA Letter. See also NYSBA Committee Letter (the proposed amendments to Form ADV and the Advisers Act will significantly increase the reporting obligations for many advisers); NRS Letter (burden estimate for proposed amendments is completely unrealistic and extremely low); SIFMA II Letter (most exposure estimate of the time that that it will take each adviser to complete the questions regarding separately managed accounts in the first year a new or existing adviser completes these questions from 2 hours to 3 hours.360 We have arrived at this burden estimate by considering the following: (1) The changes we are making to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 5.K.(4) and Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3); (2) our efforts to further alleviate the reporting burden on advisers that manage a smaller amount of separately managed account regulatory assets under management; and (3) the comments we received on our proposed burden estimate. We recognize that burdens will vary across advisers. Advisers that advise a large number of separately managed accounts, or that have significant regulatory assets under management attributable to separately managed accounts, will incur a greater burden than advisers that have no separately managed account clients or a limited number of such clients. Based on our review of advisers’ separately managed account business and the new reporting requirements, we believe that, on average, 3 hours is an appropriate estimate. ii. Other Additional Information Regarding Investment Advisers We are adding several new questions and amending existing questions on Form ADV regarding an adviser’s identifying information, advisory business, and financial industry affiliations. The revised questions primarily refine or expand existing questions or request information we believe that advisers already have for compliance purposes. For example, we are requiring each adviser to provide CIK Numbers if it has one or more such numbers and to provide the address of each of the adviser’s social media pages. Other questions require advisers to provide readily available or easily accessible information, such as the 354 Supra asabaliauskas on DSK3SPTVN1PROD with RULES 355 IAA VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 data is gathered at the client or account level and it would require significant systems work to aggregate these values at the adviser level). 360 Based on IARD system data as of May 16, 2016, approximately 8,718 registered investment advisers, or approximately 73% of all investment advisers registered with us, reported assets under management from clients other than registered investment companies, business development companies and pooled investment vehicles, indicating that they have assets under management attributable to separately managed accounts. Of those approximately 8,718 advisers, we estimate that 2,538 (approximately 29%) reported at least $500 million and less than $10 billion in regulatory assets under management from separately managed accounts and 545 (approximately 6%) reported at least $10 billion in regulatory assets under management from separately managed account clients. PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 60449 amendment to Part IA, Item 1.O. that requires advisers to report their assets within ranges. However, some of the revised questions may take longer for advisers to complete, such as the amendments to Schedule D, Section 1.F that require information about an adviser’s 25 largest offices other than its principal office and place of business. While this information should be readily available to an adviser because it should be aware of its offices, a clerk will be required to manually enter expanded information about the adviser’s offices in the first year the adviser responds to the item and then make updates in subsequent years. Some commenters thought that additional office reporting would be a significant burden on advisers.361 As discussed above in Section II.A.2.a., we recognize that the burden on some large advisers might be significant, especially in the initial reporting cycle when they are required to report their additional offices for the first time. However, we believe that the burden will decrease after the initial filing because in subsequent filings, advisers will only be reporting changes to their previously reported additional office information. We have clarified that advisers will only be required to update the information in Section 1.F. on an annual basis, which should help address some of the concerns raised by commenters about the burden associated with this amendment.362 We are adopting a number of amendments to Item 5 in addition to the questions relating to separately managed accounts discussed above. Like other new or revised items, we believe several of these new Item 5 questions will require advisers to provide readily available information, such as the number of clients and regulatory assets under management attributable to each category of clients during the last fiscal year. Advisers currently provide this information in ranges, and therefore likely already have available to them the more precise numbers to report. In addition, information such as whether the adviser uses different assets under management numbers in Part 1A vs. Part 2A of Form ADV should be readily available. Other revised items will likely present greater burdens for some 361 ACG Letter; CFA Letter; Morningstar Letter (for larger advisers, additional office reporting would require substantial time, although that burden would ease after the initial reporting period); NYSBA Committee Letter. 362 ASG Letter (updating additional office reporting more than annually would be burdensome); Morningstar Letter (the Commission should clarify how often additional office reporting needs to be updated). E:\FR\FM\01SER2.SGM 01SER2 60450 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations advisers but not others, depending on the nature and complexity of their businesses. For instance, the burden associated with the revised disclosure regarding wrap fee programs or non-U.S. clients will depend on whether and to what extent an adviser allocates client assets to wrap fee programs or the extent to which the adviser has non-U.S. clients. In the Proposing Release, we estimated that the proposed revisions to Part 1A of Form ADV and Schedule D would take each adviser approximately 1 hour, on average, to complete in the first year a new or existing adviser responds to the questions.363 Some commenters expressed concern that our burden estimate was too low,364 while others expressed concern about the impact of the increased overall compliance burden on smaller advisers.365 We are revising our estimate of the time that these amendments to Part 1A of Form ADV and Schedule D will take each adviser to complete in the first year a new or existing adviser responds to these questions from 1 hour to 2 hours. We have arrived at this revised burden estimate, in part, by considering the following: (1) The relative complexity and availability of the information required by the revised items to the current form and its approved burden; (2) the number and types of advisers affected by the proposed amendments; and (3) the comments we received on our proposed burden estimate. We understand that the burden will vary across advisers depending on their business and the factors discussed in this section. The burden for some advisers will exceed our estimate, and the burden for others will be less due to the nature of their business. We believe, on balance, that 2 hours is a reasonable estimate. asabaliauskas on DSK3SPTVN1PROD with RULES iii. Clarifying, Technical and Other Amendments As discussed above, we are adopting several further amendments to Form ADV that are designed to clarify the Form and its instructions and address technical issues. These changes 363 Proposing Release, supra footnote 3 at Section IV.A.1.a.ii. 364 ASG Letter (amendments will increase the time required to prepare response to Item 5). See NYSBA Committee Letter (the proposed amendments to Form ADV and the Advisers Act will significantly increase the reporting obligations for many advisers); NRS Letter (burden estimate for proposed amendments is completely unrealistic and extremely low). 365 PCA Letter (Commission grossly underestimated the potential cost for many advisers, particularly small advisers); SBIA Letter (Commission should consider the impact of the increased overall compliance burden on smaller private fund advisers). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 primarily refine existing questions. For example, we are deleting the phrase ‘‘newly formed adviser’’ from Part IA, Item 2.A.(9) because of questions from filers about whether that phrase refers to only newly formed corporate entities. Similarly, we are amending Part IA, Item 8.B.(2) to clarify that the question applies to any related person who recommends the adviser to advisory clients or acts as a purchaser representative. Because these amendments do not change the scope or amount of information required to be reported on Form ADV, we do not believe that these clarifying, technical, and other amendments to Part 1A of Form ADV will increase or decrease the average total collection of information burden for advisers in their first year filing Form ADV. We did not receive comments regarding reporting burdens associated with these technical and clarifying amendments. As a result of the amendments to Form ADV Part 1A discussed above, including the amendments related to separately managed accounts, additional items, and technical and clarifying amendments, we estimate the average total collection of information burden will increase 5 hours to 45.74 hours per adviser for the first year that an adviser completes Form ADV (Part 1 and Part 2).366 b. Estimated Changes in Burden Related to Private Fund Reporting Requirements We are adopting several amendments to Part 1A, Schedule D, Section 7.B. that will refine and enhance existing information we receive about advisers to private funds. In addition, as part of our codification of umbrella registration, we are adding a new schedule to Part 1A— Schedule R—to be submitted by advisers to private funds that use umbrella registration to file a single Form ADV. We believe the information required by the amendments to Part 1A, Schedule D, Section 7.B will be readily available or easily accessible to advisers to private funds. For example, the PCAOB assigned number for a private fund auditor should be readily available or easily accessible to that private fund’s adviser. As discussed in Section II.A.2.c., we modified Part 1A, Schedule D, Section 7.B.(1). Question 15(b) regarding sales of private funds to qualified clients in response to 366 Currently approved estimate of the average total collection of information burden per SEC registered adviser for the first year that an adviser completes Form ADV (40.74 hours) + 3 hours to complete the questions about separately managed accounts + 2 hours to complete other additional information regarding investment advisers = 45.74 hours. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 commenters’ concerns. The question is now limited to 3(c)(1) funds, and requires only a ‘‘yes’’ or ‘‘no’’ answer, rather than requiring advisers to report the percentage of a private fund held by qualified clients. Other amendments to Section 7.B. are designed to make the questions easier to answer, but do not cause a change in reporting burden, including moving certain ‘‘notes’’ to questions and changes to the current question regarding unqualified opinions. The currently approved total annual burden estimate for advisers making their initial filing in completing Item 7.B. and Schedule D, Section 7.B. is 1 hour per private fund. We do not estimate that the amendments to Schedule D, Section 7.B, including the changes from the proposal, will increase or decrease the total annual burden because the information is readily available to advisers. Most of the comments on the amendments to Part 1A, Schedule D, Section 7.B. concerned the qualified client question, Question 15(b), which we modified as discussed above. The incorporation of umbrella registration into Form ADV will codify a staff position and provide a method for certain private fund advisers that operate as a single advisory business to file a single registration form. Umbrella registration will only be available if the filing adviser and each relying adviser advise only private funds and clients in separately managed accounts that are qualified clients, as defined in rule 205– 3 under the Advisers Act, that are otherwise eligible to invest in the private funds advised by the filing or a relying adviser. The filing and relying advisers will also have to satisfy certain requirements, including that each relying adviser is controlled by or under common control with the filing adviser. There has been staff guidance for single registration under defined circumstances since 2012,367 and the amendments to Form ADV will provide for umbrella registration and simplify the process of umbrella registration for advisers that operate as a single advisory business. We are adding a new schedule to Part 1A, Schedule R, that will need to be filed with respect to each relying adviser, as well as a new question to Schedule D, that will link a private fund reported on Form ADV to the specific (filing or relying) adviser that advises it. Schedule R will require identifying information, basis for Commission registration, and ownership information about each relying adviser. We believe that much of the information we are requiring in 367 See E:\FR\FM\01SER2.SGM 2012 ABA Letter, supra footnote 5. 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES Schedule R will be readily available to private fund advisers because it is information that they are already reporting either on Form ADV filings for separate advisers or on a single Form ADV filing, in reliance on the staff guidance. Accordingly, although these new requirements will cause an increase in the information collected, the increased burden should largely be attributable to data entry and not data collection. Furthermore, some advisers who currently separately file Form ADV for each of their advisers may cumulatively have a reduced Form ADV burden by switching to umbrella registration. We also believe that new filing advisers using umbrella registration will readily have information available about their relying advisers, because they are operating as a single advisory business. In addition, filing advisers will be able to check a box indicating that the relying adviser’s address is the same as the filing adviser, rather than provide the relying adviser’s address. We did not receive comments on the burdens specific to Schedule R. There is no currently approved annual burden estimate for completing Schedule R because it is a new Schedule. Taking into account the scope of information we are requesting, our understanding that much of the information is readily available and currently required on Form ADV, and the fact that private fund advisers that file an umbrella registration in reliance on staff guidance had on average three relying advisers,368 we continue to estimate that advisers to private funds that elect to rely on umbrella registration will spend on average 1 hour per filing adviser completing new Schedule R for the first time. c. Estimated Changes in Burden Related to Exempt Reporting Adviser Reporting Requirements Exempt reporting advisers are required to complete a limited number of items in Part 1A of Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and corresponding schedules), are not required to complete Part 2 and will not be eligible to file new Schedule R. The amendments to Part 1A will revise only Items 1 and 7 for exempt reporting advisers. We believe that most exempt reporting advisers are unlikely to be required to do additional reporting in response to the new requirements. In addition, the information required by 368 Based on IARD system data as of May 16, 2016, approximately 743 investment advisers rely on the 2012 ABA Letter to file Form ADV on behalf of themselves and 2,587 relying advisers, an average of approximately 3 relying advisers per filing adviser. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 these revisions should be readily available to any adviser as part of their ongoing operations and management of client assets.369 For instance, we estimate that almost all exempt reporting advisers currently have five or fewer offices (the number of offices currently required by Form ADV) and thus will not have to provide information on additional offices.370 Accordingly, we do not expect that the amendments will increase or decrease the currently approved total annual burden estimate of two hours per exempt reporting adviser initially completing these items on Form ADV, other than Item 7.B. We also do not expect that the amendments will increase or decrease the currently approved total annual burden estimate of 1 hour per private fund per exempt reporting adviser initially completing Item 7.B. and Section 7.B. of Schedule D. 2. Annual Burden Estimates a. Estimated Annual Burden Applicable to All Registered Investment Advisers i. Estimated Initial Hour Burden (Not Including Burden Applicable to Private Funds) for First Year Adviser To Complete Form ADV (Part 1 and Part 2) We estimate that, as a result of the amendments to Form ADV Part 1A discussed above, other than those applicable to private funds, the average total collection of information burden per respondent will increase 5 hours to 45.74 hours per adviser for the first year that an adviser completes Form ADV (Part 1 and Part 2). Approximately 12,024 investment advisers are currently registered with the Commission.371 Not including private fund reporting, the estimated aggregate annual burden applicable to these advisers will be 549,978 hours 372 (60,120 hours of it attributable to the amendments).373 As with the 369 One commenter suggested that it would be burdensome for exempt reporting advisers to begin collecting information on the qualified client status of their investors. As discussed above, we have made revisions to address this concern. SBIA Letter. 370 Based on IARD system data as of May 16, 2016, approximately 15 exempt reporting advisers reported on Form ADV that they had five or more other offices. 371 Based on IARD system data as of May 16, 2016. We include currently registered advisers in the estimated initial hour burden calculation because, for purposes of estimating burdens under the Paperwork Reduction Act, we assume that every new and existing registered adviser completes an initial registration in a three year period, which is the period after which estimates are required to be renewed. 372 45.74 hour per-adviser burden × 12,024 advisers = 549,978 hours. 373 5 hour per-adviser additional burden × 12,024 advisers = 60,120 hours. PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 60451 Commission’s prior Paperwork Reduction Act estimates for Form ADV, we believe that most of the paperwork burden will be incurred in advisers’ initial submission of the amended Form ADV, and that over time this burden will decrease substantially because the paperwork burden will be limited to updating information.374 Amortizing the burden imposed by Form ADV over a three-year period to reflect the anticipated period of time that advisers will use the revised Form will result in an average annual burden of an estimated 183,326 hours per year 375 (20,040 hours per year of it attributable to the amendments),376 or approximately 15.25 hours per year for each adviser currently registered with the Commission.377 Based on IARD system data, we estimate that there will be approximately 1,000 new investment advisers filing Form ADV with us annually. Therefore, we estimate that the total annual aggregate burden estimate applicable to these advisers for the first year that they complete Form ADV but excluding private fund reporting requirements is 45,740 hours (1,000 advisers × 45.74 hours). Amortizing the burden imposed by Form ADV for new registrants over a three-year period to reflect the anticipated period of time that advisers will use the revised Form will result in an average annual aggregate burden estimate of 15,247 hours per year 378 (1,667 of it attributable to the amendments).379 We therefore estimate the total annual aggregate hour burden to be 198,573 hours per year.380 ii. Estimated Initial Hour Burden Applicable to Registered Advisers to Private Funds The amount of time that a registered adviser managing private funds will incur to complete Item 7.B. and Section 7.B. of Schedule D will vary depending on the number of private funds the adviser manages. Of the advisers currently registered with us, we estimate that approximately 4,469 registered advisers advise a total of 30,896 private funds, and, on average, 300 Commission-registered advisers annually will make their initial filing with us reporting approximately 1,100 374 We discuss the burden for advisers making annual updating amendments to Form ADV in Section iii below. 375 549,978 hours/3 = 183,326 hours. 376 60,120 hours/3 = 20,040 hours. 377 183,326 hours/12,024 advisers = 15.25 hours. 378 45,740 hours/3 = 15,247 hours. 379 5,000 hours/3 = 1,667 hours. 380 15,247 hours for new registrants + 183,326 hours for existing registrants = 198,573 hours. E:\FR\FM\01SER2.SGM 01SER2 60452 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES private funds.381 The currently approved annual burden estimate for advisers making their initial filing in completing Item 7.B. and Schedule D, Section 7.B. is 1 hour per private fund. As a result, we estimate that the private fund reporting requirements that are applicable to registered investment advisers will add 31,996 hours to the overall annual aggregate burden estimate applicable to registered advisers.382 As noted above, we believe most of the paperwork burden will be incurred in connection with advisers’ initial submission of Form ADV, and that over time the burden will decrease substantially because it will be limited to updating (instead of compiling) information. Amortizing this burden over three years, as we did above with respect to the initial filing of the rest of the form, results in an annual aggregate average estimated burden of 10,665 hours per year.383 We also are adding a new Schedule R to Form ADV for umbrella registration. Of the advisers currently registered with us, we estimate based on current Form ADV filings that approximately 743 registered advisers currently submit a single Form ADV on behalf of themselves and approximately 2,587 relying advisers.384 Taking into account the scope of information we are requesting and our understanding that much of the information is readily available and is already reported by advisers, we estimate that advisers to private funds that elect to rely on umbrella registration will spend 1 hour per filing adviser completing new Schedule R. As a result, we estimate that umbrella registration will add 743 385 hours to the annual burden estimate applicable to registered advisers. We estimate that, on average, 51 SEC registered advisers annually will make their initial filing with us as filing advisers, increasing the overall annual burden for advisers to private funds an additional 51 hours, or 794 hours in total. Amortizing these hours for a three year period as with the rest of the 381 Based on IARD system data as of May 16, 2016. We include existing funds of currently registered advisers in the estimated initial hour burden calculation because, for purposes of estimating burdens under the Paperwork Reduction Act, we assume that every existing registered adviser completes an initial filing completing Item 7.B. and Schedule D, Section 7.B. per fund in a three year period, which is the period after which estimates are required to be renewed. 382 1 hour × 30,896 private funds = 30,896 hours. 1 hour × 1,100 private funds = 1,100 hours. 30,896 hours + 1,100 hours = 31,996 hours. 383 31,996 hours/3 = 10,665 hours. 384 Based on IARD system data as of May 16, 2016. 385 743 filing advisers × 1 hour per completing Schedule R = 743 hours. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 burdens associated with Form ADV, results in an annual aggregate average burden of 265 additional hours per year.386 iii. Estimated Annual Burden Associated With Amendments, New Brochure Supplements, and Delivery Obligations The current approved collection of information burden for Form ADV has three elements in addition to those discussed above: (1) The annual burden associated with annual and other amendments to Form ADV; (2) the annual burden associated with creating new Part 2 brochure supplements for advisory employees throughout the year; and (3) the annual burden associated with delivering codes of ethics to clients as a result of the offer of such codes contained in the brochure. We anticipate that our amendments to Form ADV will increase the currently approved annual burden estimate associated with annual amendments to Form ADV from 6 hours to 8 hours per adviser, but will not impact interim updating amendments to Form ADV.387 We continue to estimate that, on average, each adviser filing Form ADV through the IARD will likely amend its form two times during the year. We estimate, based on IARD system data, that advisers, on average, make one interim updating amendment (at an estimated 0.5 hours per amendment) and one annual updating amendment each year. Our estimate for the annual updating amendment in the Proposing Release was 7 hours per amendment each year. Based on the comments we received regarding separately managed account reporting that are discussed above,388 we are increasing the estimate to 8 hours per amendment each year.389 In addition, the currently approved annual burden estimates are that each investment adviser registered with us will, on average, spend 1 hour per year 386 794 hours/3 = 265 hours. commenters were concerned about the burden on advisers of updating social media information via interim updating amendments. See BlackRock Letter; Oppenheimer Letter; SIFMA Letter. As discussed in Section II.A.2.a., we clarified that we are limiting the required social media reporting to an adviser’s accounts on publicly available social media platforms where the adviser controls the content. We believe changes to such platforms will be less frequent than changes, for example, to platforms where an adviser does not control the content. Therefore, we do not believe that updating social media reporting via interim updating amendments will increase the currently approved annual burden estimate associated with interim updating amendments. 388 AIMA Letter; ASG Letter; IAA Letter; SIFMA Letter. See also Adrian Day Letter; NRS Letter. 389 (12,024 advisers x 0.5 hours/other than annual amendment) + (12,024 advisers × 8 hours/annual amendment) = 102,204 hours. 387 Certain PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 making interim amendments to brochure supplements,390 and an additional 1 hour per year to prepare new brochure supplements as required by Part 2.391 The currently approved annual burden estimate is that advisers spend an average of 1.3 hours annually to meet obligations to deliver codes of ethics to clients upon request.392 We are not changing these estimates as the amendments do not affect these requirements. The increase in the annual burden estimate associated with annual amendments to Form ADV and the increase in the number of registered investment advisers since the last approval of this collection, increase the total annual burden for advisers registered with us attributable to amendments, brochure supplements and obligations to deliver codes of ethics to 141,883 hours.393 iv. Estimated Annual Cost Burden The currently approved total annual collection of information burden estimate for Form ADV has a one-time initial cost for outside legal and compliance consulting fees in connection with the initial preparation of Part 2 of Form ADV. We do not anticipate that the amendments we are adopting to Form ADV will affect the per adviser cost burden estimates for outside legal and compliance consulting fees. In addition to the estimated legal and compliance consulting fees, investment advisers of private funds incur costs with respect to the requirement for investment advisers to report the fair value of private fund assets. We did not receive any comments regarding these specific costs. We expect that 1,000 new advisers will register annually with the Commission. We estimate that the initial cost related to preparation of Part 2 of Form ADV will be $4,400 for legal services and $5,000 for compliance consulting services, in each case, for those advisers who engage legal counsel or consultants. We anticipate that a quarter of these advisers will seek the help of outside legal services and half will seek the help of compliance consulting services. Accordingly, we estimate that 250 of these advisers will use outside legal services, for a total annual aggregate cost burden of 390 12,024 hours attributable to interim amendments to the brochure supplements = 12,024 advisers × 1 hour = 12,024 hours. 391 12,024 hours attributable to new brochure supplements = 12,024 advisers × 1 hour = 12,024 hours. 392 15,631 hours for the delivery of codes of ethics = 12,024 advisers × 1.3 hours = 15,631 hours. 393 102,204 hours + 12,024 hours + 12,024 hours + 15,631 hours = 141,883 hours. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations $1,100,000,394 and 500 advisers will use outside compliance consulting services, for a total annual aggregate cost burden of $2,500,000,395 resulting in a total annual aggregate cost burden among all respondents of $3,600,000 for outside legal and compliance consulting fees related to drafting narrative brochures.396 We estimate that 6% of registered advisers have at least one private fund client that may not be audited. These advisers therefore may incur costs to fair value their private fund assets. Based on IARD system data as of May 16, 2016, 4,469 registered advisers currently advise private funds. We therefore estimate that approximately 268 registered advisers may incur costs of $37,625 each on an annual basis, for an aggregate annual total cost of $10,083,500.397 Together, we estimate that the total cost burden among all respondents for outside legal and compliance consulting fees related to third party or outside valuation services and for drafting outside legal and compliance consulting fees to be $13,683,500.398 b. Estimated Annual Burden Applicable to Exempt Reporting Advisers asabaliauskas on DSK3SPTVN1PROD with RULES i. Estimated Initial Hour Burden Based on IARD system data as of May 16, 2016, there are approximately 3,248 exempt reporting advisers currently filing reports with the SEC.399 The paperwork burden applicable to these exempt reporting advisers consists of the burden attributable to 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 394 25% × 1000 SEC registered advisers = approximately 250 advisers. $4,400 for legal services × 250 advisers = $ 1,100,000. 395 50% × 1000 SEC registered advisers = 500 advisers. $5,000 for consulting services × 500 advisers = $2,500,000. 396 $1,100,000 + $2,500,000 = $3,600,000. 397 268 advisers × $37,625 = $10,083,500. 398 $3,600,000 + $10,083,500 = $13,683,500. 399 Based on IARD system data as of May 16, 2016. We include existing exempt reporting advisers and their private funds in the estimated initial hour burden calculation because, for the purpose of estimating burdens under the Paperwork Reduction Act, we assume that every new and existing exempt reporting adviser completes an initial Form ADV in a three year period, which is the period after which estimates are required to be renewed. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 Schedule D, is 2 hours. As discussed above, we do not anticipate that our amendments to Form ADV will affect the per exempt reporting adviser burden estimate. Based on IARD system data, we estimate that there will be 500 new exempt reporting advisers filing Form ADV annually. Therefore, we estimate that the total aggregate annual burden applicable to the existing and new exempt reporting advisers for the first year that they complete Form ADV but excluding private fund reporting requirements increases to 7,496 hours.400 Amortizing the burden imposed by Form ADV over a three-year period to reflect the anticipated period of time that advisers will use the revised Form ADV results in an average annual aggregate burden estimate of 2,499 hours per year.401 As discussed above, we estimate the burden of completing Item 7.B. and Section 7.B. of Schedule D to be 1 hour per private fund. We do not anticipate that our amendments to Form ADV will affect the per exempt reporting adviser burden of completing Item 7.B. and Section 7.B. of Schedule D. Based on IARD system data as of May 16, 2016, we estimate that, on average, the 3,248 exempt reporting advisers report 11,915 funds. In addition, we estimate that the 500 new exempt reporting advisers making their initial filing will report approximately 1,000 funds, resulting in a total aggregate annual burden of 12,915 hours.402 Amortizing this total burden over three years as we did above for registered advisers results in an average annual aggregate burden estimate of 4,305 hours per year,403 or approximately 1 hour per year, on average, for each exempt reporting adviser.404 ii. Estimated Annual Burden Associated With Amendments and Final Filings In addition to the burdens associated with initial completion and filing of the portion of the form that exempt reporting advisers are required to prepare, we estimate that, based on IARD system data, each exempt reporting adviser will amend its form 2 times per year. On average, these consist of one interim updating amendment (at an estimated 0.5 hours per 400 2 hours × (3,248 reporting exempt reporting advisers + 500 new exempt reporting advisers) = 7,496 hours. 401 7,496 hours/3 = 2,499 hours. 402 11,915 funds + 1,000 funds = 12,915 funds. 12,915 × 1 hour = 12,915 hours. 403 12,915 hours/3 years = 4,305 hours per year. 404 4,305 hours per year/3,748 exempt reporting advisers = 1.1 hours per year. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 60453 amendment) 405 and one annual updating amendment (at an estimated 1 hour per amendment) 406 each year. In addition, we anticipate 200 final filings by exempt reporting advisers annually (at an estimated 0.1 hours per filing).407 We do not anticipate that our amendments to Form ADV will affect the per exempt reporting adviser burden for amendments or final filings. However, based on the increase in the number of exempt reporting advisers, the total annual burden associated with exempt reporting advisers filing amendments and final filings has increased to 4,892 hours.408 3. Total Revised Burdens The revised total annual aggregate collection of information burden for SEC registered advisers to file and complete the revised Form ADV (Parts 1 and 2), including the initial burden for both existing and anticipated new registrants, private fund reporting, plus the burden associated with filing amendments to the form, preparing brochure supplements and delivering codes of ethics to clients, is estimated to be approximately 351,386 hours per year, for a monetized total of approximately $89,427,737.409 The revised total annual collection of information burden for exempt reporting advisers to file and complete the required Items of Part 1A of Form 405 3,248 exempt reporting advisers × .5 hours = 1,624 hours. 406 3,248 exempt reporting advisers × 1 hour = 3,248 hours. 407 200 final filings × 0.1 hours = 20 hours. 408 1,624 hours + 3,248 hours + 20 hours = 4,892 hours. Exempt reporting advisers are not required to complete Part 2 of Form ADV and so will not incur an hour burden to prepare new brochure supplements or the cost for preparation of the brochure. Exempt reporting advisers also do not have an obligation to deliver codes of ethics to clients when requested as required by Part 2 of Form ADV. 409 198,573 hours per year attributable to initial preparation of Form ADV + 10,665 hours per year attributable to initial private fund reporting requirements + 265 hours per year for initial umbrella registration + 141,883 hours per year attributable to filing amendments, brochure supplements and obligations to deliver codes of ethics = 351,386 hours. One commenter stated that the work of compliance is generally carried out by the Chief Compliance Officer with limited assistance from others. PCA Letter. However, based on our experience, we expect that at most Commission registered advisers, the performance of this function will most likely be equally allocated between a senior compliance examiner and a compliance manager, or persons performing similar functions. Data from the SIFMA Management and Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for these positions are $221 and $288 per hour, respectively. (175,693 hours × $221) + (175,693 hours × $288) = $89,427,737. E:\FR\FM\01SER2.SGM 01SER2 60454 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES ADV, including the burdens associated with private fund reporting, amendments to the form and final filings, will be approximately 11,696 hours per year, for a monetized total of $2,976,632.410 We estimate that with today’s amendments to Form ADV, the revised total aggregate annual hour burden for the form will be approximately 363,082 hours and the monetized total will be approximately $92,404,369.411 This is an increase of 208,680 hours and $55,733,942 from the currently approved annual aggregate burden estimates,412 which is attributable primarily to the currently approved burden estimates not considering the amortized annual burden of Form ADV on existing registered advisers and exempt reporting advisers; but also to the larger registered investment adviser and exempt reporting adviser population since the most recent approval, adjustments for inflation, and the amendments to Form ADV. The resulting blended average per adviser burden for Form ADV is 23.77 hours (for a monetized total of $6,051),413 which consists of an average annual burden of 29.22 hours 414 for each of the estimated 12,024 SEC registered advisers, and 3.60 hours 415 for each of the estimated 3,248 exempt reporting advisers. Registered investment advisers are also expected to incur an annual cost burden of $13,683,500, an increase of $10,083,500 from the current approved cost burden estimate of $3,600,000. The increase in annual cost burden is attributable to the currently approved burden not considering the cost to 410 2,499 hours per year attributable to initial preparation of Form ADV + 4,305 hours per year attributable to initial private fund reporting requirements + 4,892 hours per year for amendments and final filings = 11,696 hours. We expect that the performance of this function will most likely be equally allocated between a senior compliance examiner and a compliance manager, or persons performing similar functions. Data from the SIFMA Management and Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for these positions are $221 and $288 per hour, respectively. (5,848 × $221) + (5,848 × $288) = $2,976,632. 411 351,386 hours + 11,696 hours = 363,082 hours. $89,427,737 + $2,976,632 = $92,404,369. 412 363,082 hours–154,402 hours = 208,680 hours. $92,404,369–$36,670,427 (currently approved monetized burden estimate) = $55,733,942. 413 363,082 hours/(12,024 registered advisers + 3,248 exempt reporting advisers) = 23.77 hours. $92,404,369/(12,024 registered advisers + 3,248 exempt reporting advisers) = $6,051. 414 351,386 hours/12,024 registered advisers = 29.22 hours. 415 11,696 hours/3,248 exempt reporting advisers = 3.60 hours. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 advisers to fair value private fund assets. B. Rule 204–2 Rule 204–2 (OMB Control No. 3235– 0278) requires investment advisers registered, or required to be registered under section 203 of the Act, to keep certain books and records relating to their advisory business. The collection of information under rule 204–2 is necessary for the Commission staff to use in its examination and oversight program. The information provided to the Commission in connection with staff examinations, investigations and oversight programs would be kept confidential subject to the provisions of applicable law. The collection of information is mandatory. The amendments to rule 204–2 will require investment advisers to make and keep the following records: (i) Documentation necessary to demonstrate the calculation of the performance the adviser distributes to any person, and (ii) all written communications received or sent relating to the adviser’s performance. The currently approved total annual burden for rule 204–2 is based on an estimate of 10,946 registered advisers subject to rule 204–2 and an estimated average burden of 181.45 burden hours each year per adviser, for a total annual aggregate burden estimate of 1,986,152 hours. Based upon updated IARD system data as of May 16, 2016, the approximate number of investment advisers is 12,024. As a result of the increase in the number of advisers registered with the Commission since the current total annual burden estimate was approved, the total burden estimate has increased by 195,603 hours.416 We estimate that most advisers provide, or seek to provide, performance information to their clients. Under the amendments, each adviser will be required to retain the records in the same manner, and for the same period of time, as other books and records under the rule.417 We believe based on staff experience, and several commenters confirmed,418 that the documentation necessary to support the performance calculations is customarily maintained, or required to be maintained by advisers already in 416 12,024 advisers × 181.45 hours = 2,181,755 hours. 2,181,755 hours ¥ 1,986,152 hours = 195,603 hours. 417 Specifically, the records must be maintained in an easily accessible place for at least five years from the end of the fiscal year during which the last entry was made in such record, the first two years in an appropriate office of the investment adviser. See rule 204–2(e)(1). 418 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 account statements or portfolio management systems. We also believe that most advisers already maintain this information in their books and records, in order to show compliance with the Advisers Act advertising rule, rule 206(4)–1. In the Proposing Release, we estimated that the proposed amendments to rule 204–2 would increase the burden by approximately .5 hours per adviser annually. We received several comments suggesting that our estimated burden increase was significantly too low.419 While we continue to believe that most advisers currently maintain this information, after considering the commenters’ concerns, we now estimate that the amendments to rule 204–2 will increase the burden by approximately 1.5 hours per adviser annually for a total annual aggregate increase of 18,036 hours.420 The revised annual aggregate burden estimate will be 2,199,791 hours.421 The revised average burden estimate of the recordkeeping requirements under rule 204–2 per SEC-registered adviser will be approximately 183 hours per year.422 The burden may be less than 1.5 hours for those advisers that currently maintain this information, and we acknowledge that the burden may be greater than 1.5 hours for advisers that frequently provide performance information to clients and do not currently maintain this information. We believe that, on average, 1.5 hours is an appropriate estimate for this collection of information. Advisers will likely use a combination of compliance clerks and general clerks to make and keep the information and records required under the rule. The currently approved total annual aggregate cost burden is $108,708,557.10. We estimate the hourly wage for compliance clerks to be $65 per hour, including benefits, and the hourly wage for general clerks to be $58 per hour, including benefits.423 For 419 ACG Letter; Anonymous Letter (estimates a training burden of 4–8 hours per effected employee in the first year; estimates that there will be additional expenses for data analysis and storage); PEGCC Letter (argues that, with respect to the proposed amendments to rule 204–2, the Commission significantly understated the burden on advisers and presented little evidence to support its burden estimate). See ASG Letter. 420 12,024 advisers × 1.5 hours = 18,036 hours. 421 1,986,152 (current approved burden) + 195,603 (burden for additional registrants) + 18,036 (burden for amendments) = 2,199,791 hours. 422 2,199,791 hours / 12,024 advisers = 183 hours. 423 Our hourly wage rate estimate for a compliance clerk and general clerk is based on data from the SIFMA Office Salaries in the Securities Industry Report 2013 (‘‘SIFMA Office Salaries Report’’), modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 2.93, to account for bonuses, firm size, employee benefits and overhead. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations each adviser, 183 annual burden hours will be required to make and keep the information and records required under the rule. We anticipate that compliance clerks will perform an estimated 32 hours of this work, and general clerks will perform the remaining 151 hours. The total annual cost per respondent therefore will be an estimated $10,838,424 for a total annual aggregate burden cost estimate of approximately $130,316,112,425 an increase of $21,607,555 from the currently approved total annual aggregate cost per respondent.426 The increase in cost is attributable to a larger registered investment adviser population since the most recent PRA approval, an adjustment for inflation in the hourly wage estimates for a compliance clerk and general clerk, and the rule 204–2 amendments discussed in this Release. VI. Final Regulatory Flexibility Analysis The Commission has prepared the following Final Regulatory Flexibility Act Analysis, in accordance with section 4(a) of the Regulatory Flexibility Act, in relation to our amendments to Form ADV and rule 204–2 and our technical amendments to certain other rules under the Advisers Act.427 We prepared an Initial Regulatory Flexibility Analysis (‘‘IRFA’’) in the Proposing Release.428 asabaliauskas on DSK3SPTVN1PROD with RULES A. Need for and Objectives of the Amendments We are adopting amendments to Form ADV that are designed to provide the Commission with additional information about registered investment advisers, including information about separately managed accounts, provide for umbrella registration for multiple investment advisers operating as a single advisory business, and provide technical, clarifying and other amendments to certain Form ADV provisions. The amendments to Form ADV will improve the depth and quality of the information provided by investment advisers to the Commission and the public. We are also amending the Advisers Act books and records rule to require advisers to make and keep supporting documentation that demonstrates performance calculations or rates of hours per compliance clerk × $65) + (151 hours per general clerk × $58) = ($2,080 + $8,758) = $10,838. 425 $10,838 per adviser × 12,024 advisers = approximately $130,316,112. 426 $130,316,112 ¥ $108,708,557 = $21,607,555. 427 5 U.S.C. 604(a). 428 See Proposing Release, supra footnote 3 at Section V. return in any written communications that the adviser circulates or distributes, directly or indirectly, to any person. We believe that the amendments to the books and records rule will improve investor protections by providing useful information in examining and evaluating advisers’ performance claims. Finally, we are adopting technical amendments to certain rules under the Advisers Act to remove transition provisions where the transition process is complete. B. Significant Issues Raised by Public Comments The Commission is sensitive to the burdens that the Form ADV and rule amendments may have on small advisers. In the Proposing Release, we requested comment on matters discussed in the IRFA. In particular, we sought comments on the number of small entities, particularly small advisers, to which the amendments to Form ADV and Advisers Act rules would apply, and the impact of those amendments on the small entities, including whether the effects would be economically significant. The Commission received one comment letter specifically addressing the IRFA 429 in addition to several comment letters that discussed the impact of the proposed amendments to Form ADV on smaller advisers.430 With respect to the reporting on Form ADV regarding separately managed accounts, several commenters suggested decreasing the burden on small advisers by increasing the threshold for reporting derivatives and borrowings information in Schedule D, Section 5.K.(2) to $500 million from the proposed $150 million.431 As discussed above, we are persuaded by commenters that this is a sensible accommodation that would allow us to meet our regulatory objectives while alleviating reporting burdens on smaller advisers, and have raised the minimum threshold for reporting information about the use of borrowings and derivatives in separately managed accounts to advisers with at least $500 million in separately managed account regulatory assets under management, from the proposed threshold of $150 million.432 A commenter also suggested not requiring advisers with less than $150 million in 424 (32 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 429 PCA Letter. Day Letter; AIMA Letter; Diercks Letter; IAA Letter; SBIA Letter; Schwab & Co. Letter. 431 IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter. 432 See Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2). 430 Adrian PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 60455 separately managed account assets to report any separately managed account information, including in Sections 5.K.(1) and 5.K.(3).433 As discussed in Section II.A.1. of this Release, we recognize that this reporting will impose some burden on all advisers with separately managed accounts, but we believe that gathering this information is important for us to gain a full understanding of assets held in separately managed accounts managed by investment advisers of different sizes. We also have limited both the scope of information to be reported and the frequency of reporting, which lessens the burden on small advisers. One commenter described more generally the burdens of the amendments to Form ADV on smaller private fund advisers.434 Other commenters noted that smaller advisers may not have additional staff to meet any increased burdens in reporting, and that smaller advisers may not have the staffing that we assume in calculating monetary burdens on advisers.435 Another commenter noted that the requirement to report information about additional offices may have a disproportionate impact on smaller advisers.436 With respect to the amendments that we proposed to the Books and Records rule, one commenter noted that while the amendments were not themselves burdensome, when aggregated with other recordkeeping obligations, could lead to overall compliance burdens for smaller advisers.437 While we acknowledge commenters’ concerns, records from advisers of all sizes are required for our staff to be able to conduct its oversight of advisers, including examinations and investigations. Further, based on our staff’s experience and the information provided by several commenters,438 we believe that most advisers already maintain this information. Thus, we are adopting the amendments largely as proposed. With respect to the amendments to Form ADV and the Advisers Act rules generally, we believe that they will improve the depth and quality of information provided by investment advisers to the Commission and the public and our oversight of advisers. 433 AIMA Letter; see also ASG Letter (suggesting establishing a minimum regulatory assets under management threshold above which reporting requirements would be imposed). 434 See SBIA Letter. 435 Adrian Day Letter; Diercks Letter; PCA Letter. 436 NRS Letter. 437 SBIA Letter. 438 See, e.g., ABA Committee Letter; Morningstar Letter; PCA Letter. E:\FR\FM\01SER2.SGM 01SER2 60456 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES Information about advisers of all sizes is required for the Commission and its staff to perform their roles in overseeing advisers. Accordingly, we are not modifying the reporting requirements for smaller advisers. C. Small Entities Subject to the Rule and Rule Amendments The amendments to Form ADV and the Advisers Act rules affect all advisers registered with the Commission and exempt reporting advisers, including small entities. Under Commission rules, for the purposes of the Advisers Act and the Regulatory Flexibility Act, an investment adviser generally is a small entity if it: (1) Has assets under management having a total value of less than $25 million; (2) did not have total assets of $5 million or more on the last day of the most recent fiscal year; and (3) does not control, is not controlled by, and is not under common control with another investment adviser that has assets under management of $25 million or more, or any person (other than a natural person) that had total assets of $5 million or more on the last day of its most recent fiscal year.439 Our rule and Form ADV amendments will not affect most advisers that are small entities (‘‘small advisers’’) because they are generally registered with one or more state securities authorities and not with us. Under section 203A of the Advisers Act, most small advisers are prohibited from registering with the Commission and are regulated by state regulators. Based on IARD system data, we estimate that as of May 16, 2016, approximately 526 advisers that are small entities are registered with the Commission.440 Because these advisers are registered, they, like all SECregistered investment advisers, will all be subject to the amendments to Form ADV, rule 204–2 and other Advisers Act rules. The only small entity exempt reporting advisers that are subject to the amendments are exempt reporting advisers that maintain their principal office and place of business in Wyoming or outside the United States. Advisers with less than $25 million in assets under management generally are prohibited from registering with us unless they maintain their principal office and place of business in Wyoming or outside the United States. Exempt reporting advisers are not required to report regulatory assets under management on Form ADV and therefore we do not have a precise 439 Rule 0–7(a) under the Advisers Act. on SEC-registered investment adviser responses to Form ADV, Item 5.F and Item 12. 440 Based VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 number of exempt reporting advisers that are small entities. Exempt reporting advisers are required to report in Part 1A, Schedule D the gross asset value of each private fund they manage.441 Based on responses to that question, we estimate that there is approximately 1 exempt reporting adviser with its principal office and place of business in Wyoming that meets the definition of small entity. Advisers with their principal office and place of business outside the United States may have additional assets under management other than what is reported in Schedule D. Based on IARD filings, approximately 14.3% of registered investment advisers with their principal office and place of business outside the U.S. are small entities. Based on IARD system data as of May 16, 2016, there are approximately 1,428 exempt reporting advisers with their principal office and place of business outside the U.S. We estimate that 14.3% of those advisers, approximately 204 exempt reporting advisers, are small entities. D. Projected Reporting, Recordkeeping, and Other Compliance Requirements The amendments to Form ADV and rule 204–2 impose certain reporting, recordkeeping, and compliance requirements on all Commissionregistered advisers, including small advisers. All Commission-registered small advisers are required to file Form ADV and include the new information required by the amendments, and all Commission-registered small advisers are subject to the amended recordkeeping requirements. Our technical amendments to other Advisers Act rules do not impose different reporting, recordkeeping, or other compliance requirements on small advisers. Form ADV Amendments The amendments to Form ADV require registered investment advisers to report different or additional information than what is currently required. Approximately 526 small advisers currently registered with us are subject to these requirements. We expect these 526 small advisers to spend, on average, 5 hours to respond to the new and amended questions, not including items relating to private fund reporting, which is discussed below.442 We expect the aggregate cost to small advisers associated with this process is $669,335.443 441 See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A., Question 11. 442 See Section V. of this Release. 443 We expect that performance of this function will most likely be equally allocated between a PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 In addition, of these 526 small advisers, we estimate that 3 small advisers currently rely on the 2012 ABA Letter to act as filing advisers for their relying advisers.444 We expect that our changes to codify umbrella registration will take 3 hours 445 in the aggregate, at a cost to small advisers of $764.446 We do not know how many additional small advisers will use umbrella registration as incorporated into Form ADV. We do not estimate any increase or decrease in burden related to our amendments for small private fund advisers, other than the hours related to Schedule R, or for exempt reporting advisers. The total estimated costs associated with our amendments to Form ADV that we expect will be borne by small advisers is $670,099.447 Amendments to Books and Records Rule Our amendments to rule 204–2’s performance information recordkeeping provisions require investment advisers to make and keep the following records: (i) Documentation necessary to demonstrate the calculation of the performance the adviser distributes to any person, and (ii) all written communications received or sent relating to the adviser’s performance. These amendments will create reporting, recordkeeping, and other compliance requirements for small advisers. As discussed in the Paperwork Reduction Act Analysis in Section V. above, the amendments to rule 204–2 will increase the burden by senior compliance examiner and a compliance manager. Data from the SIFMA Management and Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $221 and $288 per hour, respectively. 526 small advisers × 5 hours = 2,630 hours. [1,315 hours × $221 = $290,615] + [1,315 hours × $288 = $378,720] = $669,335. 444 Based on IARD system data as of May 16, 2016. 445 For purposes of the Paperwork Reduction Act, we estimated in Section V of this Release that amendments to codify umbrella registration will take an additional 1 hour per filing adviser. 446 As discussed in connection with the Paperwork Reduction Act, we expect that performance of this function will most likely be equally allocated between a senior compliance examiner and a compliance manager. Data from the SIFMA Management and Professional Earnings Report, modified by Commission staff to account for an 1,800-hour work year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $221 and $288 per hour, respectively. 3 filing advisers × 1 hour = 3 hour. [1.5 hours × $221 = $332] + [1.5 hours × $288 = $432] = $764. 447 $669,335 + $764 = $670,099. These costs are discussed in Paperwork Reduction Act Analysis in Section V. of this Release. E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations approximately 1.5 hours per adviser. We expect the aggregate cost to small advisers associated with our amendments is $46,700.448 E. Agency Action To Minimize Effect on Small Entities asabaliauskas on DSK3SPTVN1PROD with RULES The Regulatory Flexibility Act directs the Commission to consider significant alternatives that would accomplish the stated objective, while minimizing any significant adverse impact on small entities. In connection with the Form ADV and rule amendments, the Commission considered the following alternatives: (i) The establishment of differing compliance or reporting requirements that take into account the resources available to small advisers; (ii) the clarification, consolidation, or simplification of compliance and reporting requirements under the Form ADV and rule amendments for such small entities; (iii) the use of performance rather than design standards; and (iv) an exemption from coverage of the Form ADV and rule amendments, or any part thereof, for such small entities. Regarding the first and second alternatives, the adopted amendments require reporting on separately managed accounts on Schedule 5.K.(2) of Form ADV only for advisers with $500 million or more of regulatory assets under management attributable to separately managed accounts. Further, we require semi-annual information filed annually for those advisers with regulatory assets under management attributable to separately managed accounts of at least $10 billion, and annual information for other advisers.449 Requiring no reporting on these items for advisers with less than $500 million, and less detailed reporting for advisers with less than $10 billion, is designed to balance our regulatory needs for this type of information while seeking to minimize the reporting burden on advisers that manage a smaller amount of separately managed account assets where appropriate. 448 As discussed in connection with the Paperwork Reduction Act, we expect that performance of this function will most likely be allocated between compliance clerks and general clerks with compliance clerks performing 17% of the function and general clerks performing 83% of the function. Data from the SIFMA Office Salaries Report modified by Commission staff to account for an 1,800-hour work year and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions are $65 per hour and $58 per hour, respectively. 526 small advisers × 1.5 hours = 789 hours. [0.17 × 789 hours × $65 = $8,718] + [0.83 × 789 hours × $58 = $37,982] = $46,700. 449 Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 Regarding the first and fourth alternatives for the other amendments to Form ADV and Advisers Act rules, we do not believe that different compliance or reporting requirements or an exemption from coverage of the Form ADV and rule amendments, or any part thereof, for small entities, would be appropriate. Information about advisers of all sizes is required for the Commission and its staff to perform their role in overseeing investment advisers. Accordingly, we are not modifying the reporting requirements for smaller advisers. Regarding the second alternative for the other amendments to Form ADV and the Advisers Act rules, we considered whether further clarification, consolidation, or simplification of the compliance requirements was feasible or necessary. In response to commenters, we clarified certain instructions and items, which apply to all advisers filing Form ADV. The remaining Form ADV amendments do not change that all SEC-registered advisers use a single form, Form ADV, and an existing filing system, IARD, for reporting and registration purposes, and this does not change for small entities. With respect to the rule 204–2 amendments, we believe that the same requirements should apply to all advisers to permit our staff to more effectively examine them. Regarding the third alternative, we considered using performance rather than design standards with respect to the amendments to Form ADV and rule 204–2 but, for the Commission and its staff to perform their role in overseeing advisers, advisers must provide certain registration information and maintain books and records in a uniform and quantifiable manner so that it is useful to our regulatory and examination program. VII. Statutory Authority The Commission is adopting amendments to Form ADV under section 19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) and 28(e)(2) of the Securities Exchange Act of 1934 [15 U.S.C. 78w(a) and 78bb(e)(2)], section 319(a) of the Trust Indenture Act of 1939 [15 U.S.C. 7sss(a)], section 38(a) of the Investment Company Act of 1940 [15 U.S.C. 80a– 37(a)], and section 203(c)(1), 204 and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b–3(c)(1), 80b–4, and 80b–11(a)]. The Commission is amending rule 204–2 pursuant to the authority set forth in sections 204 and 211 of the Advisers Act [15 U.S.C. 80b– 4 and 80b–11]. The Commission is amending rule 202(a)(11)(G)–1 pursuant PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 60457 to authority in sections 202(a)(11)(G) and 206A of the Advisers Act [15 U.S.C. 80b–2(a)(11)(G) and 80b–6A]. The Commission is amending rule 203–1 pursuant to authority in section 206A of the Advisers Act [15 U.S.C. 80b–6A]. The Commission is rescinding rule 203A–5 and amending rule 204–1 pursuant to authority in sections 204 and 211(a) of the Advisers Act [15 U.S.C. 80b–4 and 80b–11(a)]. The Commission is amending rule 204–3 pursuant to authority in sections 204, 206(4) and 211(a) of the Advisers Act [15 U.S.C. 80b–4, 80b–6(4) and 80b– 11(a)]. List of Subjects in 17 CFR Parts 275 and 279 Reporting and recordkeeping requirements; Securities. Text of Rule and Form Amendments For the reasons set forth in the preamble, title 17, chapter II of the Code of Federal Regulations is amended as follows. PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940 1. The general authority citation for part 275 continues to read as follows, and the sectional authority for § 275.230A–5 is removed. ■ Authority: 15 U.S.C. 80b–2(a)(11)(G), 80b– 2(a)(11)(H), 80b–2(a)(17), 80b–3, 80b–4, 80b– 4a, 80b–6(4), 80b–6a, and 80b–11, unless otherwise noted. * * * * § 275.202(a)(11)(G)–1 * [Amended] 2. Amend § 275.202(a)(11)(G)–1 by removing paragraph (e). ■ 3. Section 275.203–1 is amended by: ■ a. In the first sentence of paragraph (a) removing the phrase ‘‘Subject to paragraph (b), to’’ and adding in its place ‘‘To’’; ■ b. Removing paragraph (b); ■ c. In the NOTE TO PARAGRAPHS (a) AND (b), revising the paragraph heading; ■ d. Redesignating paragraphs (c) and (d) as paragraphs (b) and (c); and ■ e. Removing paragraph (e). The revision reads as follows: ■ § 275.203–1 Application for investment adviser registration. (a) * * * NOTE TO PARAGRAPH (a): * * * * * * * * § 275.203A–5 [Removed and Reserved] 4. Section 275.203A–5 is removed and reserved. ■ E:\FR\FM\01SER2.SGM 01SER2 60458 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations § 275.204–1 [Amended] 5. Section 275.204–1 is amended by: a. In the first sentence of paragraph (b)(1) removing the phrase ‘‘Subject to paragraph (c) of this section, you’’ and adding in its place ‘‘You’’; ■ b. Removing paragraph (c); and ■ c. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d). ■ 6. Section 275.204–2 is amended by: ■ a. Revising paragraph (a)(7); and ■ b. In paragraph (a)(16) removing the phrase ‘‘to 10 or more persons’’ and adding in its place ‘‘to any person’’. The revision reads as follows: ■ ■ § 275.204–2 Books and records to be maintained by investment advisers. asabaliauskas on DSK3SPTVN1PROD with RULES (a) * * * (7) Originals of all written communications received and copies of all written communications sent by such investment adviser relating to: (i) Any recommendation made or proposed to be made and any advice given or proposed to be given; (ii) Any receipt, disbursement or delivery of funds or securities; (iii) The placing or execution of any order to purchase or sell any security; (iv) The performance or rate of return of any or all managed accounts or securities recommendations: Provided, however: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 (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. * * * * * § 275.204–3 [Amended] 7. Section 275.204–3 is amended by: a. Removing paragraph (g); and b. Redesignating paragraph (h) as paragraph (g). ■ ■ ■ PART 279—FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 1940 8. The authority citation for Part 279 continues to read as follows: ■ PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b–1, et seq. 9. Form ADV [referenced in § 279.1] is amended by: ■ a. In the instructions to the form, revising the sections entitled ‘‘Form ADV: General Instructions.’’ The revised version of Form ADV: General Instructions is attached as Appendix A; ■ b. In the instructions to the form, revising the section entitled ‘‘Form ADV: Instructions for Part 1A.’’ The revised version of Form ADV: Instructions for Part 1A is attached as Appendix B; ■ c. In the instructions to the form, revising the section entitled ‘‘Form ADV: Glossary of Terms.’’ The revised version of Form ADV: Glossary of Terms is attached as Appendix C; ■ d. In the form, revising Part 1A. The revised version of Form ADV, Part 1A, is attached as Appendix D. ■ Note: The text of Form ADV does not and the amendments will not appear in the Code of Federal Regulations. By the Commission. Dated: August 25, 2016. Brent J. Fields, Secretary. BILLING CODE 8011–01–P E:\FR\FM\01SER2.SGM 01SER2 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60459 APPENDIX A FORM ADV (Paper Version) • • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT FORM BY EXEMPT REPORTING ADVISERS Form 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? • • • VerDate Sep<11>2014 Register with the Securities and Exchange Commission Register with one or more state securities authorities Amend those registrations; 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.000</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Investment advisers use Form ADV to: 60460 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations • • • • 3. 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 How is Form ADV organized? Form ADV contains four parts: • Part IA 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 IA. o Exempt reporting advisers (that are not also registering with any state securities authority) must complete only the following Items of Part IA: 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 1A also contains several supplemental schedules. The items of Part 1A let you know which schedules you must complete. o Schedule A asks for information about your direct owners and executive officers. o Schedule B asks for information about your indirect owners. o 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 I A. o ScheduleR asks for additional information about relying advisers. o Disclosure Reporting Pages (or DRPs) are schedules that ask for details about disciplinary events involving you or your advisory affiliates. 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. Every application for registration must include a narrative brochure prepared in VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00044 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.001</GPH> Part IB asks additional questions required by state securities authorities. Part IB 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 IB, you will not see Part IB). • asabaliauskas on DSK3SPTVN1PROD with RULES • Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60461 accordance with the requirements of Part 2A of Form ADV. See Advisers Act Rule 2031. • 4. 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? • SEC- and State-Registered Advisers: o 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 items, including corresponding sections of Schedules A, B, C, and D and all sections of Schedule R 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: you are adding or removing a relying adviser as part of your umbrella registration; • information you provided in response to Items 1 (except 1. 0. and Section 1.F. of Schedule D), 3, 9 (except 9.A.(2), 9.8.(2), 9.E., and 9.F.), or 11 ofPart 1A or Items 1, 2.A. through 2.F ., or 2.1. of Part 1B or Sections 1 or 3 of Schedule R becomes inaccurate in any way; • information you provided in response to Items 4, 8, or 10 of Part 1A, or Item 2.G. ofPart 1B, or Section 10 of ScheduleR becomes materially inaccurate; or • information you provided in your brochure becomes materially inaccurate (see note below for exceptions). Notes: Part 1: Ifyou are submitting an other-than-annual amendment, you are not required to update your responses to Items 2, 5, 6, 7, 9.A.(2), 9.8.(2), 9.E., 9.F., or 12 ofPart 1A, Items 2.H. or 2.1. ofPart 1B, Section l.F. of Schedule D or Section 2 of Schedule R even if your responses to those items have become inaccurate. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.002</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES • 60462 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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. • • • 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. 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. Exempt reporting advisers: o Annual UpdatinJ! 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, including corresponding sections of Schedules A, B, C, and D, by filing additional amendments (other-than-annual amendments) promptly if: • information you provided in response to Items 1 (except Item 1.0. and Section 1.F. of Schedule D), 3, or 11 becomes inaccurate in any way; or • 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. VerDate Sep<11>2014 What is SEC umbrella registration and how can I satisfy the requirements of filing an umbrella registration? 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00046 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.003</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 5. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60463 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: 1. 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. n. 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 of the filing adviser or relying adviser providing the advice is a United States person. iii. 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. 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.004</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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). 60464 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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-thanannual amendment and add or delete Schedule Rs 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 Domestic Investment Adviser Execution Page, if you (the advisory firm) are a resident ofthe United States; or o Non-Resident Investment Adviser Execution Page, if you (the advisory firm) are not a resident ofthe United States. • 7. 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. 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. How do I file my Form ADV? Complete Form ADV electronically using the Investment Adviser Registration Depository (lARD) if: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00048 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.005</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 8. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations • You are filing with the SEC (and submitting notice filings to any of the state securities authorities), or • 60465 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. Complete Form ADV (Paper Version) on paper if: • 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. • 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 ofthe 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 explains how the form may be submitted. Mail the forms to: FINRA Entitlement Group, 9509 Key West Avenue, Rockville, MD 20850. 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. 10. VerDate Sep<11>2014 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? 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.006</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Questions regarding the Entitlement Process should be addressed to FINRA at 240.386.4848. 60466 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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. 11. 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) of Part 1A, you must apply for registration with the SEC within 90 days after you file the annual updating amendment. Once you register with the 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). I am an exempt reporting adviser. When must I submit my first report on Form ADV? asabaliauskas on DSK3SPTVN1PROD with RULES • VerDate Sep<11>2014 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) ofthe Advisers Act as an adviser solely to one or more venture capital funds or section 203(m) ofthe Advisers Act because 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00050 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.007</GPH> 13. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60467 you act solely as an adviser to private funds and have assets under management in the United States of less than $150 million. • 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. 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? 14. 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 1A next to the state(s) you would like to receive the report. Each of your investment adviser representatives may also be subject to registration requirements. For additional information 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 "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 Schedule D to your annual updating amendment that you have private fund assets of $150 million or more. VerDate Sep<11>2014 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. • asabaliauskas on DSK3SPTVN1PROD with RULES • If you were relying on SEC rule 203(m)-1 and you reported in Section 2.B. of Schedule D 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00051 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.008</GPH> 15. 60468 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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. 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: asabaliauskas on DSK3SPTVN1PROD with RULES o VerDate Sep<11>2014 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 of Part 1A of Form ADV. 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.009</GPH> • Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations o 16. 60469 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? 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>. 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 made on Form ADV-W.) The hardship filing fee schedule is available by contacting FINRA at 240.386.4848. 17. What if I am not able to file electronically? 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. I am eligible to file on paper. How do I make a paper filing? When filing on paper, you must: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00053 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.010</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 18. 60470 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations • • • Type all of your responses. Include your name (the same name you provide in response to Item l.A. of Part lA) 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. Where you submit your paper filing depends on why you are eligible to file on paper: • 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 all 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: OCIE Registrations Branch. Federal Information Law and Requirements VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00054 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.011</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Failure to file Form ADV-NR promptly may delay SEC consideration of your initial application. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60471 Sections 203 and 204 ofthe 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. SEC's Collection oflnformation 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00055 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.012</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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 60472 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations APPENDIXB FORM ADV (Paper Version) • • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT BY EXEMPT REPORTING ADVISERS Form ADV: Instructions for Part 1A 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 1.A. with the full legal name of your bank, and answer Item l.B. with your own name (the name ofthe 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 Schedule D 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. a. Item 2.A.(1): Adviser with Regulatory Assets Under Management of $100 Million or More. You may check box 1 only ifyour 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 $1 00 million but less than $11 0 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00056 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.013</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60473 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 ofthe 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 ofthe state where you maintain your principal office and place of business. To determine whether such state securities authority does not conduct such examinations, see: https://www.sec.gov/divisions/investment/midsizeadviserinfo.htm. See section 203A(a)(2) ofthe Advisers Act. c. Item 2.A.(5): Adviser to an Investment Company. You may check box 5 only ifyou 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 only if your 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00057 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.014</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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. 60474 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations within 90 days of filing this Form ADV. You are not eligible for this exemption if you only advise plan participants on allocating their investments within their pension plans. See SEC rule 203A-2(a). • f. To calculate the value of assets for purposes ofthis exemption, aggregate the assets of the plans for which you provided advisory services at the end ofthe 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. 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)(l)(iii). If you check box 8, you also must complete Section 2.A.(8) of Schedule D. g. 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: • 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 will 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 ofyour 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00058 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.015</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Ifyou check box 9, you also must complete Section 2.A.(9) of Schedule D. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60475 Note: If you expect to be eligible for SEC registration because of the amount of your regulatory assets under management, that amount must be $1 00 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.(1 0) of Schedule D. You must complete Section 2.A.(l 0) of Schedule D 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. 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: • • asabaliauskas on DSK3SPTVN1PROD with RULES 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. 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 maintain a record demonstrating that you provide investment advice to your clients exclusively through an interactive website in accordance with these limits. Item 2.A.(13): Adviser No Longer Eligible to Remain Registered with the SEC. You must check box 13 if: • VerDate Sep<11>2014 you are registered with the SEC; 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00059 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.016</GPH> 1. 60476 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations • • 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 of less 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 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.(l), 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00060 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.017</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES a. 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. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60477 registered as an 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 lA Instruction 4.a.(l ), 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 ofthe 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; 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00061 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.018</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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: 60478 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations • • base your response to Item 5.G. and Item 5.1. on the types of advisory services you expect to provide during the next year; and skip Item 5.H. b. Item S.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% ofthe total value ofthe account consists of securities. For purposes ofthis 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: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00062 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.019</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (3) Continuous and Regular Supervisory or Management Services. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60479 (a) you have discretionary authority over and provide ongoing supervisory or management services with respect to the account; or (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. Ifyou 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: (b) do not have discretionary authority, but provide the same allocation services, and satisfy the criteria set forth in Instruction 5.b.(3); VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00063 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.020</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (a) have discretionary authority to allocate client assets among various mutual funds; 60480 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (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 (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: (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. 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00064 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.021</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60481 include as securities) ($6,000,000 + $1,000,000 = $7,000,000) comprise at least 50% ofthe value ofthe account (here, 70%). (See Instruction 5.b.(l)). 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)). Third, what is the entire value of the account? The entire value of the account ($1 0,000,000) is included in the calculation of the adviser's total regulatory assets under management. 6. Item 7: Financial Industry Affiliations and Private Fund Reporting Item 7 .A. and Section 7 .A. of Schedule D ask questions about you and your related persons' financial industry affiliations. 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. (I) of Schedule D 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. 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.(l) and 7 .B.(2) of Schedule D, 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00065 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.022</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES b. When filing Section 7 .B. (I) of Schedule D 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.(l) for that fund. If you file a Section 7 .B.(l) 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.(l) for a master-feeder arrangement under Instruction 6.d. below, you must acquire an identification number also for each feeder fund. 60482 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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.(l) 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, ifthe 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: (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. (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 ofthe Form D SEC file numbers of any ofthe 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 12d 1-1 under the same Act. (2) Question 10: Type of Private Fund: For purposes ofthis question, the following definitions apply: "Hedge fund" means any private fund (other than a securitized asset fund): (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 oftwice its net asset value (including any committed capital); or VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00066 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.023</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (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); Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60483 (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 ofthis 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. "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. "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. "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 of the private fund that 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 ofthese questions, disregard any feeder fund's investment in its master fund. (See questions 6-7 for the definition of "master fund" and "feeder fund"). 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00067 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.024</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 7. Item 10: Control Persons 60484 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 8. Additional Information VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00068 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.025</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES If you believe your response to an item in Form ADV Part lA requires further explanation, or if you wish to provide additional information, you may do so on ScheduleD, in the Miscellaneous section. Completion of this section is optional Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60485 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 1A, Items 7, 11, DRPs; Part 1B, 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 lA and updates the responses to any other item for which the information is no longer accurate. [Used in: General Instructions; Part 1A, Instructions, Introductory Text, Item 2; Part 2A, Instructions, Appendix 1 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 1A, Instructions, Item 5, Schedule D) 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] VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00069 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.026</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 5. Brochure Supplement: A written disclosure statement containing information about certain of your supervised persons that your firm is required by Part 2B of Form 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] 60486 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 6. Charged: Being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge). [Used in: Part 1A, Item 11; DRPs] 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 ADV-W] 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 1A, 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 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 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 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. 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 leveraged 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 1A, Schedule D) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00070 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.027</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES [Used in: General Instructions; Part 1A, Instructions, Items 2, 7, 10, 11, 12, Schedules A, B, C, D, R; DRPs] Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60487 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 1A, Item 9; Part 1B, Instructions, Item 2; Part 2A, Items 15, 18] 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 1A, Instructions, Item 8; Part 1B, Instructions; Part 2A, Items 4, 16, 18; Part 2B, Instructions] 13. Employee: This term includes an independent contractor who performs advisory functions on your behalf. [Used in: Part 1A, Instructions, Items 1, 5, 11; Part 2B, Instructions] 14. Enjoined: This term includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or a temporary restraining order. [Used in: Part 1A, Item 11; DRPs] 16. Exempt Reporting Adviser: An investment adviser that qualifies for the exemption from registration under section 203(1) ofthe Advisers Act because it is an adviser solely to one or VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00071 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.028</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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 regulated 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 includes a single stock future, equity index future, dividend swap, total return swap (contract for difference), warrant and right. [Used in: Part 1A, Schedule D) 60488 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations more venture capital funds, or under rule 203(m)-1 ofthe 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 1A; 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 least $1,000. The term also includes a general court martial. [Used in: Part 1A, 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 1A, Items 1, 2, 3, 10 and 11; Schedule R} 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 1A, Item 1, Schedules A, B, C, D, R, DRPs; Form ADV-W, Item 1} 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 1A, Schedule D) 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 1A, Items 1, 11, DRPs; Part 2A, Item 9; Part 2B, Item 3} 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 1A, Item 11; Part 1B, Item 2; Part 2A, Item 9; Part 2B, Item 3} 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00072 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.029</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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 ofthe state or political subdivision or any agency, authority, or instrumentality thereof, acting in their official capacity. [Used in: Part 1A, Item 5} Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60489 principal amounts as of the reporting date. For options, use delta adjusted notional value. [Used in: Part JA, 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 JA, Item 5} 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 JB, 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 JA, 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) of Regulation S-X (17 CFR 210.2-01(b) and (c)). [Used in: Part JA, 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 inforeign exchange derivatives and excluded from interest rate derivatives. This information must be presented in terms of 10year bond equivalents. [Used in: Part JA, Schedule D) 30. Investment Adviser Representative: Any of your firm's supervised persons (except those that provide only impersonal investment advice) is an investment adviser representative, if-• the supervised person regularly solicits, meets with, or otherwise communicates with your firm's clients, • the supervised person has more than five clients who are natural persons and not high net worth individuals, and • 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. 31. 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00073 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.030</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES [Used in: General Instructions; Part JA, Item 5; Part 2B, Item 1} 60490 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations adviser, broker-dealer, municipal securities dealer, government securities broker or dealer, issuer, investment company, futures sponsor, bank, or savings association). [Used in: Part 1A, Items 7, 11, Schedule D, DRPs; Part 1B, Item 2; Part 2A, Items 9 and 19; Part 2B, Items 3, 4 and 7} 32. 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 1A, Item 11; Part 2A, Items 9 and 10; Part 2B, Items 3 and 7} 33. Legal Entity Identifier: A "legal entity identifier" assigned by a utility endorsed by the Global LEI Regulatory Oversight Committee (ROC) or accredited by the Global LEI Foundation (GLEIF). [Used in: Part 1A, Item 1, Schedules D and R] 34. 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 ofthe 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; • The members of your firm's investment committee or group that determines general investment advice to be given to clients; and • 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 1B, Item 2; Part 2A, Items 9, 10 and 19} 36. 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 ifthe sanctioned person does not contest the fine. (Check with the appropriate selfregulatory organization to determine if a particular rule violation has been designated as "minor" for these purposes.) [Used in: Part 1A, Item 11} VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00074 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.031</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 35. 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} Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60491 37. Misdemeanor: For jurisdictions that do not differentiate between afelony and a misdemeanor, a misdemeanor is an offense punishable by a sentence ofless than one year imprisonment and/or a fine of less than $1,000. The term also includes a special court martial. [Used in: Part 1A, Item 11; DRPs; Part 2A, Item 9; Part 2B, Item 3} 38. 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} 39. 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 1A, Item 2; Execution Page(s); Form ADVW] 40. 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 1A, Items 2 and 11, Schedules D and R; DRPs; Part 2A, Item 9; Part 2B, Item 3} 41. Other Derivative: Any derivative that is not a commodity derivative, credit derivative, equity derivative,foreign exchange derivative or interest rate derivative. [Used in: Part 1A, Schedule D) 42. Parallel Managed Account: With respect to any registered investment company or series thereof or business development company, a parallel managed account is any managed account or other pool of assets that you advise and that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as the identified investment company or series thereof or business development company that you advise. [Used in: Part 1A, Schedule D) 43. 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 1A, Item 5; Part 2A, Items 6 and 19} 45. 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00075 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.032</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 44. 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] 60492 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations firm. [Used in: Part 1A, Instructions, Items 1 and 2; Schedules D and R; Form ADV-W, Item 1} 46. 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: General Instructions; Part 1A, Instructions, Items 2, 5, 7, and 9; Part 1A, Schedule D) 4 7. 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 1A, Item 11, DRPs; Part 1B, Item 2; Part 2A, Item 9; Part 2B, Item 3} 48. Qualified Client: A client that satisfies the definition of qualified client in SEC rule 205-3. [Used in: General Instructions; Part 1A, Schedule D) 49. Related Person: Any advisory affiliate and any person that is under common control with your firm. [Used in: Part 1A, Items 7, 8 and 9; ScheduleD; Form ADV-W, Item 3; Part 2A, Items 10, 11, 12 and 14; Part 2A, Appendix 1, Item 6} 50. 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 1A, Items 1, 7 and 11; Schedules D and R} 51. 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 selfregulatory organizations. [Used in: Part 1A, Item 11; DRPs; Part 1B, Item 2; Part 2A, Items 9 and 19; Part 2B, Items 3 and 7] 52. 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 1A, Schedule D) 54. State Securities Authority: The securities commissioner or commission (or any agency, office or officer performing like functions) of any state ofthe United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession ofthe United States. [Used throughout Form ADV] VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00076 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.033</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 53. 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 1A, Item 5, ScheduleD; Part 2A, Instructions, Appendix 1 Instructions} Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60493 55. 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} 56. 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 1A, Items 1, 2, 3, 7, 10 and 11, Schedules D and R} 57. 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 1A, Instructions, Item 5; Schedule D) 58. 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 1} VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.034</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 59. 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 1, Item 5; ScheduleD; Part 2A, Instructions, Item 4, used throughout Appendix 1; Part 2B, Instructions} 60494 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations APPENDIXD FORM ADV (Paper Version) • UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND • REPORT BY EXEMPT REPORTING ADVISERS PARTlA 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: D Submit an initial application to register as an investment adviser with the SEC. D Submit an initial application to register as an investment adviser with one or more states. D Submit an annual updating amendment to your registration for your fiscal year ended_ __ D Submit an other-than-annual amendment to your registration. 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 Submit an other-than-annual amendment to your report. D 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00078 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.035</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES A. Your full legal name (if you are a sole proprietor, your last, first, and middle names): Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60495 B. (1) Name under which you primarily conduct your advisory business, if different from Item 1.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. C. If this filing is reporting a change in your legal name (Item 1.A.) or primary business name (Item 1.B.(1 )), enter the new name and specify whether the name change is of D your legal name or D your primary business name: D. (1) If you are registered with the SEC as an investment adviser, your SEC file number: 801-- - - - (2) If you report to the SEC as an exempt reporting adviser, your SEC file number: 802-- - - - (3) If you have one or more Central Index Key numbers assigned by the SEC ("CIK Numbers"), all of your CIK numbers: _ _ _ __ E. (1) If you have a number ("CRD Number") assigned by the FINRA 's CRD system or by the lARD system, your CRD number: _ _ _ _ __ (2) If you have additional CRD Numbers, your additional CRD numbers: _ _ _ __ Ifyour firm does not have a CRD number, skip this Item I.E. Do not provide the CRD number of one ofyour officers, employees, or affiliates. F. Principal Office and Place of Business (1) Address (do not use a P.O. Box): (city) (state/country) If this address is a private residence, check this box: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00079 Fmt 4701 Sfmt 4725 (zip +4/postal code) D E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.036</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (number and street) 60496 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations List on Section l.F ofScheduleD any office, other than your principal office and place of business, at which you conduct investment advisory business. J.fyou 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 J.fyou 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 of numbers of employees as of the end ofyour most recently completed fiscal year. (2) Days of week that you normally conduct business at your principal office and place of business: 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) (5) What is the total number of offices, other than your principal office and place of business, at which you conduct investment advisory business as of the end of your most recently completed fiscal year?______________ G. Mailing address, if different from your principal office and place of business address: (number and street) (city) (state/country) If this address is a private residence, check this box: (zip+4/postal code) D H. If you are a sole proprietor, state your full residence address, if different from your principal office and place of business address in Item l.F.: (city) VerDate Sep<11>2014 18:15 Aug 31, 2016 (state/country) Jkt 238001 PO 00000 Frm 00080 Fmt 4701 Sfmt 4725 (zip+4/postal code) E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.037</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (number and street) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations I. 60497 Do you have one or more websites or accounts on publicly available social media platforms (including, but not limited to, Twitter, Facebook and Linkedin)? Yes D No D If "yes, " list all firm website addresses and the address for each of the firm's accounts on publicly available social media platforms 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 of the other information. You may need to list more than one portal address. Do not provide the addresses of websites or accounts on publicly available social media platforms where you do not control the content. Do not provide the individual electronic mail (e-mail) addresses of employees or the addresses of employee accounts on publicly available social media platforms. 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, ifyou have one. If not, you must complete Item 1.K. below. (name) (other titles, if any) (area code) (telephone number) (area code) (facsimile number, if any) (number and street) (city) (state/country) (zip+4/postal code) (2) If your Chief Compliance Officer is compensated or employed by any person other than you, a related person or an investment company registered under the Investment Company Act of 1940 that you advise for providing chief compliance officer services VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00081 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.038</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (electronic mail (e-mail) address, if Chief Compliance Officer has one) 60498 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations to you, provide the person's name and IRS Employer Identification Number (if any): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 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) (telephone number) (area code) (facsimile number, if any) (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 of business? Yes D No D If "yes," complete Section l.L. ofSchedule D. M. Are you registered with aforeignfinancial regulatory authority? Yes D No D Answer "no" ifyou are not registered with a foreign financial regulatory authority, even ifyou have an affiliate that is registered with a foreign financial regulatory authority. If "yes," complete Section l.M ofSchedule D. N. Are you a public reporting company under Sections 12 or 15(d) ofthe Securities Exchange Act of 1934? D No D 0. Did you have $1 billion or more in assets on the last day of your most recent fiscal year? VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00082 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.039</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Yes Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Yes D No 60499 D If yes, what is the approximate amount of your assets: $1 billion to less than $1 0 billion 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 behalf of clients. Determine your total assets using the total assets shown on the balance sheet for your most recent fiscal year end P. 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. Item2 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.(12), 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.(13). Part 1A Instruction 2 provides information to help you determine whether you may affirmatively respond to each of these items. You (the adviser): D (1) are a large advisory firm that either: (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; VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00083 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.040</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (a) has regulatory assets under management of$100 million (in U.S. dollars) or more; or 60500 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 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; Click HERE for a list ofstates in which an investment adviser, if registered, would not be subject to examination by the state securities authority. D (3) have your principal office and place of business in Wyoming (which does not regulate advisers); D (4) have your principal office and place of business outside the United States; D (5) are an investment adviser (or subadviser) to an investment company registered under the 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; 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 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; Ifyou check this box, D (9) are an adviser relying on rule 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 (1 0) are a multi-state adviser that is required to register in 15 or more states and is relying on rule 203A-2(d); VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.041</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES complete Section 2.A. (8) ofSchedule D. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Ifyou check this box, 60501 complete Section 2.A. (1 0) ofSchedule D. D (11) are an Internet adviser relying on rule 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, as defined in rule 203(1)-1; D (2) qualify for the exemption from registration because you act solely as an adviser to private funds and have assets under management, as defined in rule 203(m)-1, in the United States of less 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, as defined in rule 203(m)-1, in the United States of $150 million or more. Ifyou check box (2) or (3), complete Section 2.B. ofSchedule D. State Securities Authority Notice Filings and State Reporting by Exempt Reporting Advisers D AL D CT D HI D AK D DE D ID VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 D KY D MN D NH D OH D SC D LA D MS D NJ D OK D SD Frm 00085 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 D VI D VA ER01SE16.042</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES C. Under state laws, SEC-registered advisers may be required to provide to state securities authorities a copy ofthe 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 ofthis and all subsequent filings or reports you submit to 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). 60502 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D D D D AZ AR CA CO D D D D DC FL GA GU D D D D IL IN IA KS D ME D MD D MA DMI D MO D MT D NE DNV D NM D NY D NC DND D OR DTN D WA D PA D TX D WV D PR D UT D WI DRI D VT 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 of the 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 Corporation D Sole Proprietorship D Limited Liability Partnership (LLP) D Partnership D Limited Liability Company (LLC) D Limited Partnership (LP) D 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 of the state or country where you reside. Ifyou are changing your response to this Item, Item 4 see Part JA Instruction 4. Successions A. 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 Yes D No and Section 4 ofSchedule D. B. Date of Succession: (mm/dd/yyyy) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.043</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES If "yes," complete Item 4.B. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60503 Ifyou have already reported this succession on a previous Form ADVfiling, 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 IA 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.(l), (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 ofthe 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 broker-dealer? (3) Approximately how many ofthe 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? (6) Approximately how many firms or other persons solicit advisory clients on your behalf? VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.044</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (5) Approximately how many ofthe employees reported in 5.A. are licensed agents of an insurance company or agency? 60504 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations In your response to Item 5.B. (6), do not count any ofyour employees and count a firm only once - do not count each of the firm 's employees that solicit on your behalf 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 of individuals and their family members, but does not include businesses organized as sole proprietorships. The category "business development companies" consists of companies that have made an election pursuant to section 54 of the 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)(3) 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 ofthe following type of client. If you have fewer than 5 clients in a particular category (other than (d), (e), and (f)) you may check Item 5.D.(2) rather than respond to Item 5.D.(l). The aggregate amount of regulatory assets under management reported in Item 5.D.(3) should equal the total amount of regulatory assets under management reported in Item 5.F.(2)(c) below. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00088 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.045</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES If a client fits into more than one category, select one category that most accurately represents the client to avoid double counting clients and assets. If you advise a registered investment company, business development company, or pooled investment vehicle, report those assets in categories (d), (e), and (f) as applicable. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (1) Number of Client(s) (2) Fewer than 5 Clients asabaliauskas on DSK3SPTVN1PROD with RULES (a) Individuals (other than high net worth individuals) (b) High net worth individuals (c) Banking or thrift institutions (d) Investment compames (e) Business development companies ~ >< (f) Pooled investment vehicles (other than investment companies and business development companies) (g) Pension and profit sharing plans (but not the plan participants or government pension plans) (h) Charitable organizations (i) State or municipal government entities (including government pension plans) G) Other investment advisers (k) Insurance compames (1) Sovereign wealth funds and foreign official institutions (m) Corporations or other businesses not listed above (n) Other: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 (3) Amount of Regulatory Assets under Management PO 00000 Frm 00089 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.046</GPH> Type of Client 60505 60506 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Compensation Arrangements E. You are compensated for your investment advisory services by (check all that apply): D D D D D D D (1) (2) (3) (4) (5) (6) (7) A percentage of assets under your management Hourly charges Subscription fees (for a newsletter or periodical) Fixed fees (other than subscription fees) Commissions Performance-basedfees Other (specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Regulatory Assets Under Management F. (1) Do you provide continuous and regular supervisory or management services to securities portfolios? D Yes D No (2) If yes, what is the amount of your regulatory assets under management and total number of accounts? U.S. Dollar Amount 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 clients who are non-United States persons? Advisory Activities G. What type(s) of advisory services do you provide? Check all that apply. asabaliauskas on DSK3SPTVN1PROD with RULES D (4) D (5) D (6) VerDate Sep<11>2014 18:15 Aug 31, 2016 Financial planning services Portfolio management for individuals and/or small businesses 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) Portfolio management for pooled investment vehicles (other than investment companies) Portfolio management for businesses (other than small businesses) or institutional clients (other than registered investment companies and other pooled investment vehicles) Pension consulting services Jkt 238001 PO 00000 Frm 00090 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.047</GPH> D (1) D (2) D (3) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D D D D D (7) (8) (9) (10) (11) D (12) 60507 Selection of other advisers (including private fund managers) Publication of periodicals or newsletters Security ratings or pricing services Market timing services Educational seminars/workshops Other (specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 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. Ifyou check Item 5. G. (3), report the 811 or 814 number of the investment company or investment companies to which you provide advice in Section 5. G. (3) ofSchedule D. H. If you provide financial planning services, to how many clients did you provide these services during your last fiscal year? D 0 D 1-10 D 11-25 D 26-50 D 51-100 D 101-250 D 251-500 D More than 500 If more than 500, how many? _ _ _ (round to the nearest 500) 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) portfolio manager for a wrap fee program? $_ _ __ (c) sponsor to and portfolio manager for the same wrap fee program? $_ _ _ __ Ifyou report an amount in Item 5.! (2)(c), do not report that amount in Item 5.! (2)(a) or Item 5.1 (2)(b). Ifyou are a portfolio manager for a wrap fee program, list the names of the programs, their sponsors and related information in Section 5.! (2) ofSchedule D. 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.048</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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) or enter any amounts in response to Item 5.! (2). 60508 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (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.(3)(d)-(f) (separately managed account clients)? D Yes D No Ifyes, complete Section 5.K(l) ofSchedule D. (2) Do you engage in borrowing transactions on behalf of any of the separately managed D Yes D No account clients that you advise? Ifyes, complete Section 5.K(2) ofSchedule D. (3) Do you engage in derivative transactions on behalf of any of the separately managed account clients that you advise? D Yes D No Ifyes, complete Section 5.K(2) ofSchedule D. (4) After subtracting the amounts in Item 5.D.(3)(d)-(f) above from your total regulatory assets under management, does any custodian hold ten percent or more of this remaining amount of regulatory assets under management? D Yes D No Ifyes, complete Section 5.K (3) ofSchedule D 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): broker-dealer (registered or unregistered) registered representative of a broker-dealer commodity pool operator or commodity trading advisor (whether registered or exempt from registration) D (4) futures commission merchant D (5) real estate broker, dealer, or agent D (6) insurance broker or agent D (7) bank (including a separately identifiable department or division of a bank) D (8) trust company D (9) registered municipal advisor D (10) registered security-based swap dealer D (11) major security-based swap participant VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00092 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.049</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES D (1) D (2) D (3) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60509 D (12) accountant or accounting firm D (13) lawyer or law firm D (14) other financial product salesperson (specify): _ _ _ _ _ _ _ _ _ _ _ __ Ifyou engage in other business using a name that is different from 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 D Yes D No giving investment advice)? (2) If yes, is this other business your primary business? D Yes D No If "yes, " describe this other business on Section 6.B. (2) ofSchedule D, and ifyou engage in this business under a different name, provide that name. (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) ofSchedule D, and ifyou engage in this business under a different name, provide that name. Item 7 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 under common control with you. You have a related person that is a (check all that apply): D (1) asabaliauskas on DSK3SPTVN1PROD with RULES D D D D D D D D VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00093 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.050</GPH> D broker-dealer, municipal securities dealer, or government securities broker or dealer (registered or unregistered) (2) other investment adviser (including financial planners) (3) registered municipal advisor (4) registered security-based swap dealer (5) major security-based swap participant (6) 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 60510 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D D D D D (11) (12) (13) (14) (15) lawyer or law firm msurance company or agency pension consultant real estate broker or dealer sponsor or syndicator oflimited partnerships (or equivalent), excluding pooled investment vehicles D (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 of a broker-dealer. The number ofyour firm's employees who perform investment advisory functions should be disclosed under Item 5.B. (1). The number ofyour firm's employees who are registered representatives of a 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. 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. 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 of interest with your clients. You must complete Section 7.A. ofScheduleD 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 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 of the Advisers Act. B. Are you an adviser to any private fund? D Yes D No ofSchedule D, except in certain circumstances described in the next sentence and in Instruction 6 of the Instructions to Part 1A. Ifyou are registered or applyingfor 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 of its Form ADV (e.g., if VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00094 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.051</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES If "yes," then for each private fund that you advise, you must complete a Section 7.B. (1) 60511 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations you are a subadviser), do not complete Section 7.B.(l) ofSchedule D 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 204-2(d), you may identify the private fund in Section 7.B. (1) or 7.B. (2) ofScheduleD using the same code or designation in place of the 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. Newly-formed advisers should base responses to these questions 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: Yes No (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 Yes No D D Sales Interest in Client Transactions B. Do you or any related person: (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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00095 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.052</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (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)? 60512 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D D D D 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 D D D D D D D D D D H. (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 or managing partner? (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)? Investment or Brokerage Discretion C. Do you or any related person have discretionary authority to determine the: 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? related persons? 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? asabaliauskas on DSK3SPTVN1PROD with RULES (2) If "yes" to G .(1) 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? VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00096 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.053</GPH> F. If you answer "yes" to E. above, are any of the brokers or dealers 60513 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations I. 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 In your response to Item 8.!, do not include the regular salary you pay to an employee. In responding to Items 8.H and 8.!, 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.!) any person in exchange for client referrals, including any bonus that is based, at least in part, on the number or amount of client 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? Ifyou are registering or registered with the SEC, D D 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 of client 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.(l)(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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00097 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.054</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES you deduct your advisory fees directly from your clients' accounts, do not include the amount of those assets and the number of those clients in your response to Item 9.A. (2). Ifyour related person has custody of client assets in connection with advisory services you provide to clients, do not include the amount of those assets and the number of those clients in your response to Item 9.A. (2). Instead, include that information in your response to Item 9.B. (2). 60514 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 No D D D (a) cash or bank accounts? (b) securities? D You are required to answer this item regardless ofhow you answered Item 9.A.(l)(a) or (b). (2) If you checked "yes" to Item 9.B.(l)(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: U.S. Dollar Amount Total Number of Clients (a)$ _ _ _ _ __ (b) _ _ _ _ __ C. If 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. lfyou checked Item 9. C. (2), C. (3) or C. (4), list in Section 9. C. ofSchedule D the 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 (1) you act as a qualified custodian D D (2) your related person(s) act as qualified custodian(s) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00098 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 No D D ER01SE16.055</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES accountants that are engaged to perform the audit or examination or prepare an internal control report. (lfyou checked Item 9. C. (2), you do not have to list auditor information in Section 9. C. ofSchedule D ifyou already provided this information with respect to the private funds you advise in Section 7.B. (1) ofSchedule D). Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60515 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. of Schedule D, regardless of whether you have determined the related person to be operationally independent under rule 206(4)-2 of the Advisers Act. E. If 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 (MM/YYYY) the examination commenced: _ _ _ _ _ _ _ __ F. If 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 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. If 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. A. Does any person not named in Item 1.A. or Schedules A, B, or C, directly or indirectly, control your management or policies? D Yes D No Ifyes, complete Section 1O.A. of Schedule D. B. If any person named in Schedules A, B, or C or in Section 1O.A. of Schedule D is a public reporting company under Sections 12 or 15(d) ofthe Securities Exchange Act of 1934, please complete Section 1O.B. of Schedule D. 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" include the filing adviser and all relying advisers under an umbrella registration. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00099 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.056</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Item 11 Disclosure Information 60516 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 ofTerms 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 of any 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 of an event only in responding to Items ll.A. (1), ll.A. (2), ll.B. (1), ll.B. (2), ]J.D. (4), and ll.H (l)(a). For purposes of calculating this ten-year period, the date of an event is the date the final order, judgment, or decree was entered, or the date any rights of appeal 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. Yes D No D (1) been convicted of or pled guilty or nolo contendere ("no contest") in a domestic, foreign, or military court to any felony? D D (2) been charged with any felony? D D 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: 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. (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, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses? VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00100 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 D D ER01SE16.057</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES B. In the past ten years, have you or any advisory affiliate: 60517 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D (2) been charged with a misdemeanor listed in Item ll.B.(l )? 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.B. (2) to charges that are currently pending. For "yes" answers to the following questions, complete a Regulatory Action DRP: Yes No (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 connection 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 (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? D D (4) in the past ten years, entered an order against you or any advisory affiliate in connection with an investment-related activity? D D C. Has the SEC or the Commodity Futures Trading Commission (CFTC) ever: (5) ever denied, suspended, or revoked your or any advisory affiliate's registration or license, or otherwise prevented you or any advisory VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00101 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.058</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES D. Has any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority: 60518 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations affiliate, by order, from associating with an investment-related business or restricted your or any advisory affiliate's activity? 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 investment-related 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 F. Has an authorization to act as an attorney, accountant, or federal contractor granted to you or any advisory affiliate ever been revoked or suspended? D D G. Are you or any advisory affiliate now the subject of any regulatory proceeding that could result in a "yes" answer to any part of Item ll.C., ll.D., or ll.E.? D D E. Has any self-regulatory organization or commodities exchange ever: For "yes" answers to the following questions, complete a Civil Judicial Action DRP: 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00102 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.059</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES H. (1) Has any domestic or foreign court: 60519 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (2) Are you or any advisory affiliate now the subject of any civil proceeding that could result in a "yes" answer to any part of Item 11.H.(1)? D D Item 12 Small Businesses 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 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. A. Did you have total assets of $5 million or more on the last day of your most recent fiscal year? 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 If "yes, "you do not need to answer Items 12.B. and 12. C. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00103 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.060</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES B. Doyou: 60520 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations C. Are you: D D D 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00104 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.061</GPH> VerDate Sep<11>2014 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? asabaliauskas on DSK3SPTVN1PROD with RULES (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? Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60521 FORMADV Schedule A Direct Owners and Executive Officers 1. 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 ChiefExecutive Officer, Chief Financial Officer, Chief Operations Officer, Chief Legal Officer, Chief Compliance Officer (Chief Compliance Officer is required ifyou 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 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 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-inlaw, 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, all 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 Yes D No 4. In the DE/FE/I column below, enter "DE" ifthe 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00105 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.062</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 3. Do you have any indirect owners to be reported on Schedule B? 60522 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 5. Complete the Title or Status column 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: NA - less than 5% A- 5% but less than 10% B- 10% but less than 25% C - 25% but less than 50% D- 50% but less than 75% E- 75% or more 7. (a) In the Control Person column, enter "Yes" if the person has control as defined in the Glossary of Terms to Form ADV, and enter "No" ifthe 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 column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) ofthe Exchange Act. (c) Complete each column. Title or Status Date Title or Status Acquired Ownership Code Control Person asabaliauskas on DSK3SPTVN1PROD with RULES MM/YYYY I I I I I VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00106 Fmt 4701 Sfmt 4725 PR I I I I I E:\FR\FM\01SER2.SGM 01SER2 CRDNo. If None: S.S. No. and Date of Birth, IRS Tax No. or Employer IDNo. ER01SE16.063</GPH> FULL DE/FE/I LEGAL NAME (Individuals: Last Name, First Name, Middle Name) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60523 FORMADV Schedule B 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-inlaw, 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) ofthe Exchange Act) is reached, no further ownership information need be given. 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). VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00107 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.064</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 4. In the DE/FE/I column below, enter "DE" ifthe 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. 60524 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 6. Ownership codes are: C - 25% but less than 50% E- 75% or more D - 50% but less than 75% F- Other (general partner, trustee, or elected manager) 7. (a) In the Control Person column, enter "Yes" if the person has control as defined in the Glossary of Terms to Form ADV, and enter "No" ifthe 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 column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) ofthe Exchange Act. (c) Complete each column. Entity Status m Date Status Acquired Ownership Control Code Person CRDNo. If None: S.S.No. and Date of Birth, IRS Tax No. or Employer PR IDNo. Which Interest IS Owned MM/YYYY VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00108 Fmt 4701 I I I I I asabaliauskas on DSK3SPTVN1PROD with RULES I I I I I Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.065</GPH> FULL DE/FE/I LEGAL NAME (Individuals: Last Name, First Name, Middle Name) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60525 FORMADV Schedule C 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 column. 2. In the Type of Amendment column, indicate "A" (addition), "D" (deletion), or "C" (change in information about the same person). NA - less than 5% A- 5% but less than 10% B- 10% but less than 25% C - 25% but less than 50% D - 50% but less than 75% E- 75% or more G- Other (general partner, trustee, or elected member) asabaliauskas on DSK3SPTVN1PROD with RULES 4. List below all changes to Schedule A (Direct Owners and Executive Officers): DE/FE/I Type of FULL Title Date Title Ownership Control LEGAL Amendment or or Status Person Code NAME Status Acquired (Individuals: Last Name, First Name, Middle Name) MM/YYYY PR VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00109 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 CRDNo. If None: S.S.No. and Date of Birth, IRS Tax No. or Employer IDNo. ER01SE16.066</GPH> 3. Ownership codes are: Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations asabaliauskas on DSK3SPTVN1PROD with RULES 5. List below all changes to Schedule B (Indirect Owners): FULL DE/FE Type of Title Date Title LEGAL /I Amendment or or Status NAME Status Acquired (Individuals: Last Name, First Name, Middle Name) MM/YYYY VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00110 Fmt 4701 Sfmt 4725 Ownership Code E:\FR\FM\01SER2.SGM Control CRD Person No. If None: S.S.No. and Date of Birth, IRS Tax No. or Employe riD No. PR 01SER2 ER01SE16.067</GPH> 60526 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60527 FORMADV ScheduleD 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 D INITIAL or SECTION l.B. D AMENDED ScheduleD Other Business Names List your other business names and 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 Name - - - - - - - - - - - - - - - - - - - - - - - - - - - - SECTION l.F. D Amend Jurisdictions - - - - - - - - - - - - - - - - - - - - - - - - - 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 Schedule D 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 an 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) If this address is a private residence, check this box: (telephone number) D (area code) (facsimile number, if any) If this office location is also required to be registered with FINRA or a state securities 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 Branch Number here: _________ How many employees perform investment advisory functions from this office location? _ ___ VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00111 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.068</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (area code) (zip+4/postal code) 60528 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 firm D (7) Lawyer or law firm Describe any other investment-related business activities conducted from this office location: SECTION l.I. Website Addresses List your website addresses, including addresses for accounts on publicly available social media platforms where you control the content (including, but not limited to, Twitter, Facebook and/or Linkedln). You must complete a separate Schedule D Section l.I. for each website or account on a publicly available social media platform. Check only one box: D Add D Delete Address of Website/Account on Publicly Available Social Media Platform: SECTION l.L. Location of Books and Records Complete the following information for each location at which you keep your books and records, other than your principal office and place of business. You must complete a separate Schedule D, Section l.L. for each location. D Delete D Amend Name of entity where books and records are kept: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00112 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.069</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Check only one box: D Add Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60529 (number and street) (city) (state/country) If this address is a private residence, check this box: (area code) (telephone number) (zip+4/postal code) D (area code) (facsimile number, if any) This is (check one): D one of your branch offices or affiliates. D a third-party unaffiliated recordkeeper. D other. Briefly describe the books and records kept at this location. _ _ _ _ _ _ _ _ _ _ __ SECTION 1.M. Registration with Foreign Financial Regulatory Authorities List the name and country, in English, of each foreign financial regulatory authority with which you are registered. You must complete a separate Schedule D Section 1.M. for each foreign financial regulatory authority with whom you are registered. Check only one box: D Add D Delete Name of Foreign Financial Regulatory Authority _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ NameofCountry _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ SECTION 2.A.(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 ofthe registered adviser, provide the following information: Name of Registered Investment Adviser _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ CRD Number of Registered Investment Adviser _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ SEC Number of Registered Investment Adviser 801-_ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Investment Adviser Expecting to be Eligible for Commission Registration within 120 Days 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00113 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.070</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES SECTION 2.A.(9) 60530 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations appropriate boxes, you will be deemed to have made the required representations. You must make both of these representations: 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 I undertake to withdraw from SEC registration if, on the 120th day after my registration with the SEC becomes effective, I would be prohibited by Section 203A(a) ofthe Advisers Act from registering with the SEC. SECTION 2.A.(10) Multi-State Adviser If you are relying on rule 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 ofthese 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 if I file an amendment 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.(12) SEC Exemptive Order If you are relying upon an SEC order exempting you from the prohibition on registration, provide the following information: Date of order: ------ (mm/ddlyyyy) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00114 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.071</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Application Number: 803-_ _ _ __ Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations SECTION 2.B. 60531 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 rule 203(m)-1. If you are an investment adviser with its principal office and place of business outside 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 structure or legal status (e.g., form of organization or state of incorporation). If you acquired more than one firm in the succession you are reporting on this Form ADV, you must complete a separate ScheduleD Section 4 for each acquired firm. See Part lA Instruction 4. Name of Acquired Firm _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Acquired Firm's SEC File No. (if any) 801-_ _ _ _ _Acquired Firm's CRDNumber _ __ SECTION 5.G.(3) Advisers to Registered Investment Companies and Business Development Companies If you check Item 5.G.(3), what is the SEC file number (811 or 814 number) of each ofthe registered investment companies and business development companies to which you act as an adviser pursuant to an advisory contract? You must complete a separate Schedule D 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-_ _ _ _ __ Provide the regulatory assets under management of all parallel managed accounts related to a registered investment company (or series thereof) or business development company that you advise. $- - - - - - - - - - - SECTION 5.1.(2) Wrap Fee Programs Check only one box: D Add VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 D Delete Frm 00115 Fmt 4701 D Amend Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.072</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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. 60532 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Name of Wrap Fee Program _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Name of Sponsor _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ____ Sponsor's SEC File Number (if any) (e.g., 801-,8-,866-, 802-) _ _ _ _ _ __ Sponsor's CRD Number (if any): _ _ _ _ _ ____ SECTION 5.K.(1) Separately Managed Accounts After subtracting the amounts reported in Item 5.D.(3)(d)-(f) from your total regulatory assets under management, indicate the approximate percentage of this 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). Any regulatory assets under management reported in Item 5.D.(3)(d), (e), and (f) should not be reported below. 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. Each column should add up to 100% and numbers should be rounded to the nearest percent. Investments in derivatives, registered investment companies, business development companies, and pooled investment vehicles should be reported in those categories. Do not report those investments based on related or underlying portfolio assets. Cash equivalents include bank deposits, certificates of deposit, bankers' acceptances and similar bank instruments. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00116 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.073</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Some assets could be classified into more than one category or require discretion about which category applies. You may use your own internal methodologies and the conventions of your service providers in determining how to categorize assets, so long as the methodologies or conventions are consistently applied and consistent with information you report internally and to current and prospective clients. However, you should not double count assets, and your responses must be consistent with any instructions or other guidance relating to this Section. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60533 (a) Asset Type (i) Exchange-Traded Equity Securities (ii) Non Exchange-Traded Equity Securities (iii) U.S. Government/Agency Bonds (iv) U.S. State and Local Bonds (v) Sovereign Bonds (vi) Investment Grade Corporate Bonds (vii) Non-Investment Grade Corporate Bonds (viii) Derivatives (ix) Securities Issued by Registered Investment Companies or Business Development Companies (x) Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies) (xi) Cash and Cash Equivalents (xii) Other Mid-year - -% End of year VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00117 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.074</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Generally describe any assets included in "Other"_ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 60534 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (b) Asset Type (i) Exchange-Traded Equity Securities (ii) Non Exchange-Traded Equity Securities (iii) U.S. Government/Agency Bonds (iv) U.S. State and Local Bonds (v) Sovereign Bonds (vi) Investment Grade Corporate Bonds (vii) Non-Investment Grade Corporate Bonds (viii) Derivatives (ix) Securities Issued by Registered Investment Companies or Business Development Companies (x) Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies) (xi) Cash and Cash Equivalents (xii) Other End of year % -- 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 $500 million but less than $10 billion, you should complete Question (b). 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 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00118 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.075</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (a) 60535 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 column 1, indicate the regulatory assets under management attributable to separately managed accounts associated with each level of gross notional exposure. For purposes of this table, 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 regulatory assets under management of the account. In column 2, provide the dollar amount of borrowings for the accounts included in column 1. In column 3, provide aggregate gross notional value of derivatives divided by the aggregate regulatory assets under management of the accounts included in column 1 with respect to each category of derivatives specified in 3(a) through (f). You may, but are not required to, complete the table with respect to any separately managed account with regulatory assets under management of less than $10,000,000. Any regulatory assets under management reported in Item 5.D.(3)(d), (e), and (f) should not be reported below. (i) Mid-Year Gross Notional Exposure 1 Regulatory Assets Under Management 2 Borrow- 3 Derivative Exposures (d) Equity Derivative (e) Commadity Derivative ings (a) Interest (b) Rate Foreign Derivative Exchange Derivative (c) Credit Derivative (f) Other Deriv -ative 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00119 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.076</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Less than 10% 10-149% 150% or more 60536 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations (ii) End of Year Gross Notional Exposure 1 Regulatory Assets Under Management 2 3 Borrowings Derivative (a) Interest Rate Derivative (b) Foreign Exchange Derivative (c) Credit Derivative Exposures (d) Equity Derivative (e) Commodity Derivative (f) Other Deriv -ative Less than 10% 10-149% 150% or more 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. (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 column 1, indicate the regulatory assets under management attributable to separately managed accounts associated with each level of gross notional exposure. For purposes of this table, 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 regulatory assets under management of the account. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00120 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.077</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES In column 2, provide the dollar amount of borrowings for the accounts included in column 1. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60537 You may, but are not required to, complete the table with respect to any separately managed accounts with regulatory assets under management of less than $10,000,000. Any regulatory assets under management reported in Item 5.D.(3)(d), (e), and (f) should not be reported below. Gross Notional Exposure 1 Regulatory Assets Under 2 Borrowings Mana~ement Less than 10% 10-149% 150% or more 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. 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 aggregate separately managed account regulatory assets under management. (a) Legal name of custodian: _ _ _ _ _ _ _ _ _ _ _ _ _ __ (b) Primary business name of custodian: _ _ _ _ _ _ _ _ _ _ _ __ (c) The location(s) of the custodian's office(s) responsible for custody of the assets (city, state and country): _ _ _ _ _ _ _ __ (d) Is the custodian a related person of your firm? D Yes D No (e) If the custodian is a broker-dealer, provide its SEC registration number (if any) 8-_ __ (f) 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) _ _ _ _ _ __ SECTION 6.A. VerDate Sep<11>2014 18:15 Aug 31, 2016 Names ofYour Other Businesses Jkt 238001 PO 00000 Frm 00121 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.078</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (g) What amount of your regulatory assets under management attributable to separately managed accounts is held at the custodian? _ _ _ _ _ _ _ _ __ 60538 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations If you are actively engaged in other business using a different name, provide that name and the other line( s) of business. D Add D Delete Other Business Name: D Amend --------------------------------- Other line(s) ofbusiness in which you engage using this name: (check all that apply) D (1) D (2) D (3) D D D D D D D D D D D (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) broker-dealer (registered or unregistered) registered representative of a broker-dealer commodity pool operator or commodity trading advisor (whether registered or exempt from registration) futures commission merchant real estate broker, dealer, or agent insurance broker or agent bank (including a separately identifiable department or division of a bank) trust company registered municipal advisor registered security-based swap dealer major security-based swap participant accountant or accounting firm lawyer or law firm other financial product salesperson (specify): _________________________ Description of Primary Business SECTION 6.B.(2) Describe your primary business (not your investment advisory business): If you engage in that business under a different name, provide that name: Description of Other Products and Services SECTION 6.B.(3) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00122 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.079</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Describe other products or services you sell to your client. You may omit products and services that you listed in Section 6.B.(2) above. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60539 If you engage in that business under a different name, provide that name: SECTION 7 .A. Financial Industry Affiliations Complete a separate ScheduleD Section 7.A. for each related person listed in Item 7.A. Check only one box: D Add D Delete D Amend 1. Legal Name of Related Person: _ _ _ _ _ _ _ _ _ _ _ _ _ __ 2. Primary Business Name of Related Person: _ _ _ _ _ _ _ _ _ _ _ __ 3. Related Person's SEC File Number (if any) (e.g., 801-,8-,866-, 802-) _ _ _ _ _ _ __ 4. Related Person's (a) CRD Number (if any): - - - - - (b) CIKNumber(s) (ifany): _ _ _ __ 5. Related Person is: (check all that apply) D (a) broker-dealer, municipal securities dealer, or government securities broker or dealer D (b) other investment adviser (including financial planners) D (c) registered municipal advisor D (d) registered security-based swap dealer D (e) major security-based swap participant D (f) commodity pool operator or commodity trading advisor (whether registered or exempt from registration) D (g) futures commission merchant D (h) banking or thrift institution D (i) trust company D G) accountant or accounting firm D (k) lawyer or law firm D (1) msurance company or agency D (m) pension consultant D (n) real estate broker or dealer D (o) sponsor or syndicator of limited partnerships (or equivalent), excluding pooled investment vehicles D (p) sponsor, general partner, managing member (or equivalent) of pooled investment vehicles D Yes D No 7. Are you and the related person under common control? D Yes D No 8. (a) Does the related person act as a qualified custodian for your clients VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00123 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.080</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 6. Do you control or are you controlled by the related person? 60540 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations in connection with advisory services you provide to clients? D Yes D No (b) If you are registering or registered with the SEC and you have answered "yes" to question 8.(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 D Yes D No that are maintained at the related person? (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: (number and street) (city) (state/country) (zip+4/postal code) 9. (a) If the related person is an investment adviser, is it exempt from registration? D Yes D No D Yes D No (b) If the answer is yes, under what exemption? _ _ _ _ __ 10. (a) Is the related person registered with a foreign financial regulatory authority? (b) If the answer is yes, list the name and country, in English of eachforeignfinancial regulatory authority with which the related person is registered. _ _ _ _ _ _ _ __ 11. Do you and the related person share any supervised persons? D Yes D No 12. Do you and the related person share the same physical location? D Yes D No SECTION 7.B.(l) Private Fund Reporting Check only one box: D Add D Delete D Amend A. PRIVATE FUND Information About the Private Fund (b) Private fund identification number: _ _ _ _ _ _ _ __ 2. Under the laws of what state or country is the private fund organized: _ _ _ _ _ __ VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00124 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.081</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 1. (a) Name ofthe private fund: _ _ _ _ _ _ _ __ Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60541 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 and/or relying adviser(s) that sponsor(s) or manage(s) this private fund. 4. The private fund (check all that apply; you must check at least one): D (1) qualifies for the exclusion from the definition of investment company under section 3(c)(1) of the Investment Company Act of 1940 D (2) qualifies for the exclusion from the definition of investment company under section 3(c)(7) of the Investment Company Act of 1940 5. 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 - - - - - - - - - - - - - - - - - - - Name of Country ___________________ 6. (a) Is this a "master fund" in a master-feeder arrangement? D Yes D No (b) If yes, what is the name and private fund identification number (if any) of the feeder funds investing in this private fund? Check only one box: D Add D Delete D Amend Name of private fund: ___________________________ Private fund identification number: - - - - - - - - - - - - - - - - - - - - - - (c) Is this a "feeder fund" in a master-feeder arrangement? D Yes D No Check only one box: D Add VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00125 D Delete Fmt 4701 Sfmt 4725 D Amend E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.082</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (d) If yes, what is the name and private fund identification number (if any) of the master fund in which this private fund invests? 60542 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Name of private fund: _ _ _ _ _ _ _ _ _ _ _ _ __ Private fund identification number: _ _ _ _ _ _ _ _ _ __ 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.(1) for a master-feeder arrangement according to the instructions to this Section 7.B.(l), for each ofthe feeder funds answer the following questions: Check only one box: D Add D Delete D Amend (a) Name oftheprivatefund: _ _ _ _ _ _ _ __ (b) Private fund identification number: _ _ _ _ _ _ _ __ (c) Under the laws of what state or country is the private fund organized: _ _ _ __ (d) Name(s) of the General Partner, Manager, Trustee or Directors (or persons serving in a similar capacity): (1) Check only one box: D Add D Delete D Amend (2) If filing an umbrella registration, identify the filing adviser and/or relying adviser(s) that sponsor(s) or manage(s) this private fund: (e) The private fund (check all that apply; you must check at least one): D (1) qualifies for the exclusion from the definition of investment company under section 3(c)(1) of the Investment Company Act of 1940 D (2) qualifies for the exclusion from the definition of investment company under section 3(c)(7) of the Investment Company Act of 1940 (f) List the name and country, in English, of eachforeignfinancial regulatory authority with which the private fund is registered. D Delete D Amend English Name of Foreign Financial Regulatory Authority _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00126 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.083</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Check only one box: D Add Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60543 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 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. 8. (a) Is this private fund a "fund of funds"? D Yes D No NOTE: For purposes of this question only, answer "yes" ifthe 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? D Yes D No 9. During your last fiscal year, did the private fund invest in securities issued by investment companies registered under the Investment Company Act of 1940 (other than "money market funds," to the extent provided in Instruction 6.e.)? D Yes D No 10. What type of fund is the private fund? D hedge fund D liquidity fund D securitized asset fund D private equity fund D venture capital fund D real estate fund D Other private fund: _ _ __ NOTE: For definitions ofthese fund types, please see Instruction 6 ofthe Instructions to Part 1A. 11. Current gross asset value of the private fund: $_ _ _ _ __ Ownership 12. Minimum investment commitment required of an investor in the private fund: $_ __ 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). 14. What is the approximate percentage of the private fund beneficially owned by you and % your related persons: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00127 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.084</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 13. Approximate number of the private fund's beneficial owners: _ _ __ 60544 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 15. (a) What is the approximate percentage ofthe private fund beneficially owned (in the aggregate) by funds offunds: % (b) If the private fund qualifies for the exclusion from the definition of investment company under section 3(c)(1) of the Investment Company Act of 1940, are sales of the fund limited to qualified clients? D Yes D No 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? D Yes D No (b) If the answer to question 17.(a) is "yes," provide the name and SEC file number, if any, ofthe adviser ofthe private fund. Ifthe answer to question 17.(a) is "no," leave this question blank. _ _ _ _ __ 18. (a) Do any investment advisers (other than the investment advisers listed in Section 7.B.(l).A.3.(b)) advise the private fund? D Yes D No (b) If the answer to question 18.(a) is "yes," provide the name and SEC file number, if any, of the other advisers to the private fund. If the answer to question 18.(a) is "no," leave this question blank. Check only one box: D Add N arne of Adviser: D Delete D Amend -------- Adviser's SEC File Number:- - - - - - - 19. Are your clients solicited to invest in the private fund? D Yes D No NOTE: For purposes ofthis 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 private fund ever relied on an exemption from registration of its securities under D Yes D No Regulation D of the Securities Act of 1933? Check only one box: D Add D Delete D Amend 021-- - - - - - - VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00128 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.085</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 22. If yes, provide the private fund's Form D file number (if any): Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60545 B. SERVICE PROVIDERS D Check this box if you are filing this Form ADV 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 fund 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? D Yes D Yes (2) If the answer to question 23.(a)(l) is "yes," are the financial statements prepared in accordance with U.S. GAAP? D No D No If the answer to question 23.(a)(l) is "yes," respond to questions (b) through (h) below. If the private fund uses more than one auditing firm, you must complete questions (b) through (f) separately for each auditing firm. Check only one box: D Add D Delete D Amend (b) Name ofthe auditing firm: _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ (c) The location of the auditing firm's office responsible for the private fund's audit (city, state and country): _ _ _ _ _ _ _ _ _ _ _ _ __ (d) Is the auditing firm an independent public accountant? D Yes D No (e) Is the auditing firm registered with the Public Company Accounting Oversight Board? D Yes D No If yes, Public Company Accounting Oversight Board-Assigned Number: _ _ __ D Yes D No (g) Are the private fund's audited financial statements for the most recently completed fiscal year distributed to the private fund's investors? D Yes D No (h) Do all ofthe reports prepared by the auditing firm for the private fund since your last annual updating amendment VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00129 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.086</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (f) If "yes" to (e) above, is the auditing firm subject to regular inspection by the Public Company Accounting Oversight Board in accordance with its rules? 60546 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations contain unqualified opinions? D Yes D No DReport Not 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) Does the private fund use one or more prime brokers? D Yes D No If the answer to question 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 Delete D Amend (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 D No D Yes D No Custodian 25. (a) Does the private fund use any custodians (including the prime brokers listed above) to hold some or all of its assets? If the answer to question 25.(a) is "yes," respond to questions (b) through (g) 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: _ _ _ _ _ _ _ _ __ (e) Is the custodian a related person of your firm? VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00130 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM D Yes 01SER2 D No ER01SE16.087</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (d) The location of the custodian's office responsible for custody of the private fund's assets (city, state and country): _ _ _ _ _ _ _ _ __ Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60547 (f) 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? D Yes D No If the answer to question 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. Check only one box: 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 firm? D Yes D No (e) Does the administrator prepare and send investor account statements to the private fund's investors? D Yes (provided to all investors) D Some (provided to some but not all investors) D No (provided to no investors) (f) If the answer to question 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? - - - - - - -% Marketers 28. (a) Does the private fund use the services of someone other than you VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00131 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.088</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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. 60548 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations or your employees for marketing purposes? D Yes D No You must answer "yes" whether the person acts as a placement agent, consultant, finder, introducer, municipal advisor or other solicitor, or similar person. If the answer to question 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 D No (c) Name of the marketer: _ _ _ _ _ _ _ _ _ _ _ _ _ __ (d) Ifthe marketer is registered with the SEC, its file number (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? D Yes D No (g) If the answer to question 28.(f) is "yes," list the website address(es): _ _ __ SECTION 7.B.(2) Private Fund Reporting (1) Name oftheprivatefund: _ _ _ _ _ _ _ _ __ (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 filing: , 801- - - - or 802-- - - - D Yes D No 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00132 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.089</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (4) Are your clients solicited to invest in this private fund? Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations SECTION 9.C. 60549 Independent Public Accountant You 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 Schedule D Section 9.C. for each independent public accountant. Check only one box: D Add D Delete D Amend (1) Name ofthe independent public accountant: _ _ _ _ _ _ _ _ _ _ _ __ (2) The location of the independent public accountant's office responsible for the services provided: (number and street) (city) (state/country) (zip+4/postal code) (3) Is the independent public accountant registered with the Public Company Accounting Oversight Board? D Yes D No If "yes," Public Company Accounting Oversight Board-Assigned 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 rules? D Yes D No (5) The independent public accountant is engaged to: A. D audit a pooled investment vehicle B. D perform a surprise examination of clients' assets C. D prepare an internal control report (6) Since your last annual updating amendment, did all ofthe reports prepared by the independent public accountant that audited the pooled investment vehicle or that examined internal controls contain unqualified opinions? D Yes D No DReport Not Yet Received Ifyou check "Report Not Yet Received, "you must promptly file an amendment to your SECTION 1O.A. VerDate Sep<11>2014 18:15 Aug 31, 2016 Control Persons Jkt 238001 PO 00000 Frm 00133 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.090</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Form ADV to update your response when the accountant's report is available. 60550 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations You must complete a separate Schedule D Section 1O.A. for each control person not named in Item 1.A. or Schedules A, B, or C 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) CRD Number (if any): _ _ _ _ _ _ _ _ Effective Date: _ _ _ _ __ mm/dd/yyyy Termination Date: - - - - - - mm/dd/yyyy (3) Business Address: (number and street) (city) (state/country) If this address is a private residence, check this box: D (zip+4/postal code) (4) Individual Name (if applicable) (Last, First, Middle): (5) CRD Number (if any): _ _ _ _ _ __ Effective Date: - - - - - mm/dd/yyyy Termination Date: - - - - - - mm/dd/yyyy (6) Business Address: (number and street) (city) (state/country) If this address is a private residence, check this box: D (zip+4/postal code) SECTION 1O.B. VerDate Sep<11>2014 18:15 Aug 31, 2016 Control Person Public Reporting Companies Jkt 238001 PO 00000 Frm 00134 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.091</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (7) Briefly describe the nature ofthe control: Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60551 If any person named in Schedules A, B, or C, or in Section 1O.A. of Schedule D is a public reporting company under Sections 12 or 15(d) ofthe Securities Exchange Act of 1934, please provide the following information (you must complete a separate Schedule D 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00135 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.092</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES You may use the space below to explain a response to an Item or to provide any other information. 60552 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations FORMADV ScheduleR Check the box that indicates what you would like to do: Submit a new Schedule R D Submit an initial Schedule R Amend a Schedule R D Amend an existing Schedule R Delete a Schedule R D Delete an existing Schedule R for a relying adviser that is no longer eligible for SEC registration D Delete an existing Schedule R for a relying adviser that is no longer relying on this umbrella registration SECTION 1 Identifying Information Responses to this Section 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 l.A. above or Item l.A. ofthe filing adviser's Form ADV Part lA. 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: ------------------ D. If you currently have, or ever had, 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 CRDnumber: - - - - - - - - - - - VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00136 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.093</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES You do not have to include the names or jurisdictions of the filing adviser or other relying adviser(s) in response to this Section I. C. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60553 Ifyou do not have a CRD number, skip this Section J.D. Do not provide the CRD number of one ofyour officers, employees, or affiliates (including 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) (city) (zip +4/postal code) (state/country) If this address is a private residence, check this box: D (2) Days of week that you normally conduct business at your principal office and place of business: 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) F. 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: (zip+4/postal code) D VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00137 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.094</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES G. Provide your Legal Entity Identifier if you have one: _______________________ 60554 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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. H. If you have Central Index Key numbers assigned by the SEC ("CIK Numbers"), 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 2.A.(1) through 2.A.(8), below. Part 1A Instruction 2 provides information to help you determine whether you may affirmatively respond to each of these items. You (the relying adviser): D (1) are a large advisory firm 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 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 (4) VerDate Sep<11>2014 have your principal office and place of business in Wyoming (which does not regulate advisers); have your principal office and place of business outside the United States; 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00138 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.095</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES D (3) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D (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) 60555 are an adviser relying on rule 203A-2(c) because you expect to be eligible for SEC registration within 120 days; If you check this box, you must make both of the representations below: D D D (7) 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. By submitting this Form ADV to the SEC, the filing adviser undertakes to file an amendment to this umbrella registration to remove this Schedule R 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. 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: VerDate Sep<11>2014 18:15 Aug 31, 2016 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. Jkt 238001 PO 00000 Frm 00139 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.096</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES D 60556 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D (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-_ _ _ _ _ _ _ Date of order: _ _ _ _ __ (mm/dd/yyyy) D (9) are no longer eligible to remain registered with the SEC. SECTION 3 Form of Organization A. How are you organized? D Corporation D Sole Proprietorship D Limited Liability Partnership (LLP) D Partnership D Limited Liability Company (LLC) D Limited Partnership (LP) D 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? _ _ _ _ _ _ _ _ __ Ifyou are a partnership, provide the name of the state or country under whose laws your partnership was formed SECTION 4 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, Chief Financial Officer, Chief Operations Officer, Chief Legal Officer, director and any other individuals with similar status or functions; 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, VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00140 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.097</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (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); Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60557 mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-inlaw, 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, all 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? D Yes D No (4) In the DE/FE/I column below, enter "DE" ifthe 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 column 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: NA - less than 5% A - 5% but less than 10% B- 10% but less than 25% C - 25% but less than 50% D - 50% but less than 75% E- 75% or more (7) (a) In the Control Person column, enter "Yes" ifthe person has control as defined in the Glossary of Terms to Form ADV, and enter "No" ifthe person does not have control. Note that under this definition, most executive officers and all 25% owners, general partners, elected managers, and trustees are control persons. (b) In the PR column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) ofthe Exchange Act. (c) Complete each column. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00141 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.098</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Check this box if you are filing this Form ADV 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 60558 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations FULL LEGAL NAME (Individuals : Last Name, First Name, Middle Name) DE/ FE/I Title or Status Date Title or Status Acquired Ownership Code MM/YY Control Person CRDNo. If None: S.S.No. and Date of Birth, IRS Tax No. or Employer IDNo. PR yy I I I I I I I I I I 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-inlaw, 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 (3) Continue up the chain of ownership listing all 25% 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. VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00142 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.099</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (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. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60559 (4) In the DE/FE/I column below, enter "DE" if the owner is a domestic entity, "FE" ifthe owner is an entity incorporated or domiciled in a foreign country, or "I" ifthe owner is an individual. (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). (6) Ownership codes are: C - 25% but less than 50% E- 75% or more D - 50% but less than 75% F- Other (general partner, trustee, or elected manager) (7) (a) In the Control Person column, enter "Yes" if the person has control as defined in the Glossary of Terms to Form ADV, and enter "No" ifthe 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 column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) ofthe Exchange Act. (c) Complete each column. Check this box if you are filing this Form ADV 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 Ownership Code MM/ yyyy CRDNo. If None: S.S. No. and Date of Birth, IRS Tax No. or Employer IDNo. PR I I I I I I I I I I C. Does any person not named in Section l.A., Section 4.A., or Section 4.B. directly or indirectly, control your management or policies? D Yes D No VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00143 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.100</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Control Person 60560 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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) CRD Number (if any): _ _ _ _ _ _ _ _ Effective Date: _ _ _ _ __ mm/dd/yyyy Termination Date: - - - - - - mm/dd/yyyy (3) Business Address: (number and street) (city) (state/country) If this address is a private residence, check this box: (zip+4/postal code) D (4) Individual Name (if applicable) (Last, First, Middle): (5) CRD Number (if any): _ _ _ _ _ __ Effective Date: - - - - - mm/dd/yyyy Termination Date: - - - - - - mm/dd/yyyy (6) Business Address: (number and street) (city) (state/country) If this address is a private residence, check this box: (zip+4/postal code) D VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00144 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.101</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (7) Briefly describe the nature ofthe control: Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60561 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) ofthe 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00145 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.102</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES (2) The public reporting company's CIK number (Central Index Key number that the SEC assigns to each reporting company): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 60562 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations CRIMINAL 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.A. or ll.B. of Form ADV. Check item(s) being responded to: D ll.A(l) D ll.A(2) D ll.B(l) D ll.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 ofthe same charge arising out ofthe same event(s) should be reported on the same DRP. Unrelated criminal actions, including separate cases arising out ofthe same event, must be reported on separate DRPs. Use this DRP to report all charges arising out ofthe 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): D You (the advisory firm) D You and one or more of your advisory affiliates D One or more of your advisory affiliates Ifthis DRP is being filed for an advisory affiliate, give the full name ofthe 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 "nonregistered" by checking the appropriate box. Your Name Your CRD Number ADV DRP -ADVISORY AFFILIATE CRDNumber This advisory affiliate is Da firm Registered: DYes Dan individual DNo VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00146 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.103</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES Name (For individuals, Last, First, Middle) Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60563 D This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. D 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. D 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: B. If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with Form ADV, BD or U-4) to the lARD or CRD for the event? Ifthe 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. 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. Date First Charged (MM/DD/YYYY): _______ D Exact D Explanation VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00147 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.104</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES If not exact, provide explanation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 60564 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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 ofthe Charge(s) within the Event involve afelony? D Yes D. Current status of the Event? D Pending D Final D On Appeal D No E. Event Status Date (complete unless status is Pending) (MM/DD/YYYY): D Exact D Explanation If not exact, provide explanation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00148 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.105</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 4. 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 sentencesuspension, probation, etc.), (e) Start Date of Penalty, (f) Penalty/Fine Amount, and (g) Date Paid. Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60565 VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00149 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.106</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 5. 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 ofthe charge(s) occurred. (Your response must fit within the space provided.) 60566 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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. ofForm ADV. Check item(s) being responded to: D ll.C(2) D ll.C(l) D ll.D(l) D ll.D(2) D ll.E(l) D ll.E(2) D ll.F. D 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(5) D ll.D(5) 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. PART I 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 Ifthis DRP is being filed for an advisory affiliate, give the full name ofthe 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 "nonregistered" by checking the appropriate box. Your Name Your CRD Number ADV DRP -ADVISORY AFFILIATE asabaliauskas on DSK3SPTVN1PROD with RULES VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00150 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 Dan individual DNo ER01SE16.107</GPH> This advisory affiliate is Da firm Registered: DYes CRDNumber Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60567 Name (For individuals, Last, First, Middle) D This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. D 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 11.D(4), and only ifthat 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. D 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: B. If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with Form ADV, BD or U-4) to the lARD or CRD for the event? Ifthe 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. PART II 1. Regulatory Action initiated by: D SEC D Other Federal D SRO D State D Foreign (Full name ofregulator,foreignfinancial regulatory authority, federal, state or SRO) D D D D Civil and Administrative Penalty(ies)/Fine(s) Bar Cease and Desist Censure VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00151 Fmt 4701 D D D D Sfmt 4725 Disgorgement Expulsion Injunction Prohibition E:\FR\FM\01SER2.SGM D D D D Restitution Revocation Suspension Undertaking 01SER2 ER01SE16.108</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 2. Principal Sanction (check appropriate item): 60568 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations D Denial D Reprimand D Other- - - - Other Sanctions: 3. Date Initiated (MM/DD/YYYY): _ _ _ _ _ __ D Exact D Explanation 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): DAnnuity(ies) - Fixed DAnnuity(ies) - Variable DDerivative(s) DDirect Investment(s)DPP and LP Interest(s) DEquity - OTC DEquity Listed (Common & Preferred Stock) DFutures - Commodity DFutures - Financial Dindex Option(s) Dinsurance DCD(s) DCommodity Option(s) DDebt - Asset Backed DDebt- Corporate DDebt - Government DDebt - Municipal Dinvestment Contract(s) DMoney Market Fund(s) DMutual Fund(s) DNo Product DOptions DPenny Stock(s) DUnit Investment Trust(s) DOther Other Product Types: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00152 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.109</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 7. Describe the allegations related to this regulatory action (your response must fit within the space provided): Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 8. Current status? D Pending D OnAppeal 60569 D Final 9. If on appeal, regulatory action appealed to (SEC, SRO, Federal or State Court) and Date Appeal Filed: If Final or On Appeal, complete all items below. For Pending Actions, complete Item 13 only. 10. How was matter resolved (check appropriate item): DAcceptance, Waiver & Consent (AWC) DConsent DDecision DDecision & Order of Offer of Settlement DVacated DDismissed DOrder DWithdrawn DSettled DOther - - - - - DStipulation and Consent 11. Resolution Date (MM/DD/YYYY): D Exact D Explanation If not exact, provide explanation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 12. Resolution Detail: A. Were any ofthe following Sanctions Ordered (check all appropriate items)? D Monetary/Fine D Revocation/Expulsion/Denial Amount: $ - - - D Censure D Disgorgement/Restitution D Cease and Desist/Injunction D Bar D Suspension VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00153 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.110</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES B. Other Sanctions Ordered: 60570 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 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: VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00154 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.111</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 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). Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60571 CIVIL JUDICIAL 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 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: D D D D ll.H(l)(a) ll.H(2) 2.F(l) 2.F(4) D ll.H(l )(b) D ll.H(l)(c) D 2.F(2) D 2.F(5) D 2.F(3) 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 Item ll.H. of Part 1A or Item 2.F. of Part lB. Use only one DRP to report details related to the same event. Unrelated civil judicial actions must be reported on separate DRPs. PART I 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 ofthe advisory affiliate below (for individuals, Last name, First name, Middle name). Ifthe advisory affiliate has a CRD number, provide that number. If not, indicate "nonregistered" by checking the appropriate box. Your CRD Number Your Name ADV DRP -ADVISORY AFFILIATE asabaliauskas on DSK3SPTVN1PROD with RULES VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00155 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 Dan individual DNo ER01SE16.112</GPH> This advisory affiliate is Da firm Registered: DYes CRDNumber 60572 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations Name (For individuals, Last, First, Middle) D This DRP should be removed from the ADV record because the advisory affiliate(s) is no longer associated with the adviser. D 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 11.H.(1)(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. D 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: B. If the advisory affiliate is registered through the lARD system or CRD system, has the advisory affiliate submitted a DRP (with Form ADV, 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 ofthis form does not relieve the advisory affiliate of its obligation to update its lARD or CRD records. PART II 1. Court Action initiated by: (Name ofregulator,foreignfinancial regulatory authority, SRO, commodities exchange, agency, firm, private plaintiff, etc.) 2. Principal Relief Sought (check appropriate item): D Disgorgement D Civil Penalty(ies) D Injunction /Fine(s) VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00156 Fmt 4701 D Money Damages D Restraining Order (Private/Civil Complaint) D Restitution D Other Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.113</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES D Cease and Desist Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60573 Other Relief Sought: 3. Filing Date of Court Action (MM/DD/YYYY): _ _ _ _ _ D Exact D Explanation If not exact, provide explanation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 4. Principal Product Type (check appropriate item): DDerivative(s) DDirect Investment(s)DPP and LP Interest(s) DEquity - OTC DEquity Listed (Common & Preferred Stock) DFutures - Commodity DFutures - Financial Dindex Option(s) Dinsurance DAnnuity(ies) - Fixed DAnnuity(ies) - Variable DCD(s) DCommodity Option(s) DDebt - Asset Backed DDebt- Corporate DDebt - Government DDebt - Municipal Dinvestment Contract(s) DMoney Market Fund(s) DMutual Fund(s) DNo Product DOptions DPenny Stock(s) DUnit Investment Trust(s) DOther Other Product Types: 5. Formal Action was brought in (include name of Federal, 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 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00157 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.114</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 7. Describe the allegations related to this civil action (your response must fit within the space provided): 60574 Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 8. Current status? D Pending D OnAppeal D Final 9. If on appeal, action appealed to (provide name of court) and Date Appeal Filed (MM/DD/YYYY): 10. If pending, date notice/process was served (MM/DD/YYYY): _ _ __ D Explanation D Exact 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): DConsent DDismissed DJudgment Rendered DOpinion DSettled DWithdrawn 12. Resolution Date (MM/DD/YYYY): DOther - - - - - D Exact D Explanation If not exact, provide explanation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ 13. Resolution Detail: A. Were any of the following Sanctions Ordered or Relief Granted (check appropriate items)? D Monetary/Fine D Revocation/Expulsion/Denial Amount: $ - - - D Censure D Disgorgement/Restitution D Cease and Desist/Injunction D Bar D Suspension VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00158 Fmt 4701 Sfmt 4725 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.115</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES B. Other Sanctions: Federal Register / Vol. 81, No. 170 / Thursday, September 1, 2016 / Rules and Regulations 60575 C. 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 oftime 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. 2016–20832 Filed 8–31–16; 8:45 am] BILLING CODE 8011–01–C VerDate Sep<11>2014 18:15 Aug 31, 2016 Jkt 238001 PO 00000 Frm 00159 Fmt 4701 Sfmt 9990 E:\FR\FM\01SER2.SGM 01SER2 ER01SE16.136</GPH> asabaliauskas on DSK3SPTVN1PROD with RULES 14. Provide a brief summary of circumstances related to the action(s), allegation(s), disposition(s) and/or finding(s) disclosed above (your response must fit within the space provided).

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 170 (Thursday, September 1, 2016)]
[Rules and Regulations]
[Pages 60417-60575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20832]



[[Page 60417]]

Vol. 81

Thursday,

No. 170

September 1, 2016

Part II





Securities and Exchange Commission





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17 CFR Parts 275 and 279





Form ADV and Investment Advisers Act Rules; Final Rule

Federal Register / Vol. 81 , No. 170 / Thursday, September 1, 2016 / 
Rules and Regulations

[[Page 60418]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-4509; File No. S7-09-15]
RIN 3235-AL75


Form ADV and Investment Advisers Act Rules

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'' or 
``SEC'') is adopting amendments to Form ADV that are designed to 
provide additional information regarding advisers, including 
information about their separately managed account business, 
incorporate a method for private fund adviser entities operating a 
single advisory business to register using a single Form ADV, and make 
clarifying, technical and other amendments to certain Form ADV items 
and instructions. The Commission also is adopting amendments to the 
Advisers Act books and records rule and technical amendments to several 
Advisers Act rules to remove transition provisions that are no longer 
necessary.

DATES: Effective October 31, 2016.
    Compliance Date: See Section III of this final rule.

FOR FURTHER INFORMATION CONTACT: Bridget D. Farrell, Senior Counsel, 
Jennifer Songer, Senior Counsel, Betselot Zeleke, Attorney-Adviser, or 
Sara Cortes, Assistant Director at (202) 551-6787 or IArules@sec.gov, 
Investment Adviser Regulation Office, Division of Investment 
Management, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 
rules 202(a)(11)(G)-1 [17 CFR 275.202(a)(11)(G)-1], 203-1 [17 CFR 
275.203-1], 204-1 [17 CFR 275.204-1], 204-2 [17 CFR 275.204-2], and 
204-3 [17 CFR 275.204-3] under the Investment Advisers Act of 1940 [15 
U.S.C. 80b] (``Advisers Act'' or ``Act''),\1\ and amendments to Form 
ADV [17 CFR 279.1] under the Advisers Act. The Commission is also 
rescinding rule 203A-5 [17 CFR 275.203A-5] under the Advisers Act.
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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 part 275], in which 
these rules are published.
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Table of Contents

I. Background
II. Discussion
    A. Amendments to Form ADV
    1. Information Regarding Separately Managed Accounts
    a. Amendments to Item 5 of Part 1A and Section 5 of Schedule D
    b. Section 5.K.(1) of Schedule D
    c. Section 5.K.(2) of Schedule D
    d. Section 5.K.(3) of Schedule D
    e. Public Disclosure of Separately Managed Account Information
    f. Additional Comments About Reporting of Separately Managed 
Accounts
    2. Additional Information Regarding Investment Advisers
    a. Additional Identifying Information
    b. Additional Information About Advisory Business
    c. Additional Information About Financial Industry Affiliations 
and Private Fund Reporting
    3. Umbrella Registration
    4. Clarifying, Technical and Other Amendments to Form ADV
    a. Amendments to Item 2
    b. Amendments to Item 4
    c. Amendments to Item 7
    d. Amendments to Item 8
    e. Amendments to Section 9.C. of Schedule D
    f. Amendments to Disclosure Reporting Pages
    g. Amendments to Instructions and Glossary
    B. Amendments to Investment Advisers Act Rules
    1. Amendments to Books and Records Rule
    2. Technical Amendments to Advisers Act Rules
    a. Rule 203A-5
    b. Rule 202(a)(11)(G)-1(e)
    c. Rule 203-1(e)
    d. Rule 203-1(b), Rule 204-1(c) and Rule 204-3(g)
III. Effective and Compliance Dates
    A. Effective Date
    B. Compliance Dates
IV. Economic Analysis
    A. Introduction
    B. Amendments to Form ADV
    1. Economic Baseline and Affected Market Participants
    2. Analysis of the Amendments to Form ADV and Alternatives
    a. Information Regarding Separately Managed Accounts
    b. Additional Information Regarding Investment Advisers
    c. Costs Applicable to Reporting Information Regarding 
Separately Managed Accounts and Additional Information on Form ADV
    d. Umbrella Registration
    e. Clarifying, Technical and Other Amendments to Form ADV
    f. Exempt Reporting Advisers
    C. Amendments to Investment Advisers Act Rules
    1. Economic Baseline and Affected Market Participants
    2. Analysis of the Effects of the Amendments to the Advisers Act 
Books and Records Rule
V. Paperwork Reduction Act Analysis
    A. Form ADV
    1. Changes in Average Burden Estimates
    a. Estimated Change in Burden Related to Part 1A Amendments (Not 
Including Private Fund Reporting)
    i. Amendments Related to Reporting of Separately Managed Account 
Information
    ii. Other Additional Information Regarding Investment Advisers
    iii. Clarifying, Technical and Other Amendments
    b. Estimated Changes in Burden Related to Private Fund Reporting 
Requirements
    c. Estimated Changes in Burden Related to Exempt Reporting 
Adviser Reporting Requirements
    2. Annual Burden Estimates
    a. Estimated Annual Burden Applicable to All Registered 
Investment Advisers
    i. Estimated Initial Hour Burden (Not Including Burden 
Applicable to Private Funds) for First Year Adviser To Complete Form 
ADV (Part 1 and Part 2)
    ii. Estimated Initial Burden Applicable to Registered Advisers 
to Private Funds
    iii. Estimated Annual Hour Burden Associated With Amendments, 
New Brochure Supplements, and Delivery Obligations
    iv. Estimated Annual Cost Burden
    b. Estimated Annual Burden Applicable to Exempt Reporting 
Advisers
    i. Estimated Initial Hour Burden
    ii. Estimated Annual Burden Associated With Amendments and Final 
Filings
    3. Total Revised Burden
    B. Rule 204-2
VI. Final Regulatory Flexibility Analysis
    A. Need for and Objectives of the Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Rule and Rule Amendments
    D. Projected Reporting Recordkeeping, and Other Compliance 
Requirements
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Authority
Appendix A: Form ADV: General Instructions
Appendix B: Form ADV: Instructions for Part 1A
Appendix C: Form ADV: Glossary of Terms
Appendix D: Form ADV, Part 1A

I. Background

    Form ADV is used by investment advisers to register with the 
Commission and with the states.\2\ The information collected on Form 
ADV serves a vital role in our regulatory program and our ability to 
protect

[[Page 60419]]

investors. On May 20, 2015,\3\ we proposed amendments to Part 1A of 
Form ADV in three areas: Revisions to fill certain data gaps and to 
provide additional information about investment advisers, including 
their separately managed account business; amendments to incorporate a 
method for private fund adviser entities operating a single advisory 
business to register with us using a single Form ADV; and clarifying, 
technical and other amendments to existing items and instructions.\4\
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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.
    \3\ See Amendments to Form ADV and Investment Advisers Act 
Rules, Investment Advisers Act Release No. 4091 (May 20, 2015) [80 
FR 33718 (June 12, 2015)] (``Proposing Release'').
    \4\ In general, this Release discusses the Commission's rule and 
form amendments that will affect advisers registered with the 
Commission. We understand that the state securities authorities 
intend to consider similar changes that affect advisers registered 
with the states, who are also required to complete Part 1B of Form 
ADV as part of their state registrations.
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    Several of the amendments to Form ADV relate to separately managed 
accounts. These amendments will require advisers to provide certain 
aggregate information about separately managed accounts that they 
advise. Other amendments to Form ADV that we are adopting are designed 
to improve the depth and quality of information that we collect on 
investment advisers, facilitate our risk monitoring initiatives and 
assist our staff in its risk-based examination program. Moreover, 
because Form ADV is available to the public on our Web site, these 
amendments also are intended to provide advisory clients and the public 
additional information regarding registered investment advisers.
    We are also adopting amendments to Part 1A that will provide a more 
efficient method for the registration on one Form ADV of multiple 
private fund adviser entities operating a single advisory business 
(``umbrella registration''). The staff has provided guidance to private 
fund advisers regarding umbrella registration,\5\ and the amendments to 
incorporate umbrella registration into Form ADV will make the 
availability of umbrella registration more widely known to advisers. 
Uniform filing requirements for umbrella registration in Form ADV will 
provide more consistent data about, and create a clearer picture of, 
groups of private fund advisers that operate as a single business.
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    \5\ 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 (``2012 ABA 
Letter'').
---------------------------------------------------------------------------

    The last set of amendments to Part 1A of Form ADV includes 
clarifying, technical and other amendments that are based on our 
staff's experience with the form and responding to inquiries from 
advisers and their service providers. These amendments should make it 
easier for advisers to understand and complete the form.
    Separate from Form ADV, we are adopting amendments to several 
Advisers Act rules. First, we are adopting amendments to the books and 
records rule, rule 204-2, to require advisers to make and keep 
supporting documentation that demonstrates performance calculations or 
rates of return in any written communications that the adviser 
circulates or distributes, directly or indirectly, to any person. 
Advisers also will be required to maintain originals of all written 
communications received and copies of written communications sent by 
them related to the performance or rate of return of any or all managed 
accounts or securities recommendations. As discussed in the Proposing 
Release, we believe that these amendments will better protect investors 
from fraudulent performance claims.\6\ Finally, we are adopting several 
technical amendments to rules under the Advisers Act to remove 
transition provisions that were adopted in conjunction with previous 
rulemaking initiatives, but that are no longer necessary.
---------------------------------------------------------------------------

    \6\ See Proposing Release, supra footnote 3 at Section I.
---------------------------------------------------------------------------

    We received 50 comment letters on our proposals, most of which were 
from investment advisers, trade or professional organizations, law 
firms and consultants.\7\ Commenters generally supported the goals of 
the proposal. The majority of comments focused on reporting of 
separately managed accounts and umbrella registration. Several 
commenters supported collection of information on separately managed 
account clients, but many raised concerns about the public availability 
of the information and reporting on derivatives and borrowings. A 
diverse group of commenters supported umbrella registration. Commenters 
also generally supported the amendments to certain Advisers Act rules. 
We are adopting the proposed amendments with several modifications to 
address commenters' concerns. We discuss these modifications and 
concerns below.
---------------------------------------------------------------------------

    \7\ Comment letters submitted in File No. S7-09-15 are available 
on the Commission's Web site at https://www.sec.gov/comments/s7-09-15/s70915.shtml. We also considered those comments submitted in File 
No. S7-08-15 (Investment Company Reporting Modernization, Investment 
Company Act Release No. 9776 (May 20, 2015) [80 FR 33589 (June 12, 
2015)]) that addressed the amendments adopted in this Release. Those 
comments are available on the Commission's Web site at https://www.sec.gov/comments/s7-08-15/s70815.shtml. We also note that in 
December 2014, the Financial Stability Oversight Council (``FSOC'') 
issued a notice requesting comment on aspects of the asset 
management industry, which includes, among other entities, 
registered investment advisers. Although this rulemaking is 
independent of FSOC, the notice included requests for comment on 
additional data or information that would be helpful to regulators 
and market participants. In response to the notice, several 
commenters discussed issues concerning data that are relevant to 
this rulemaking, including data regarding separately managed 
accounts that was cited and considered as part of the Proposing 
Release.
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II. Discussion

A. Amendments to Form ADV

1. Information Regarding Separately Managed Accounts
    Several of the amendments to Form ADV that we are adopting are 
designed to collect more specific information about advisers' 
separately managed accounts. For purposes of reporting on Form ADV, we 
consider advisory accounts other than those that are pooled investment 
vehicles (i.e., registered investment companies, business development 
companies and pooled investment vehicles that are not registered 
(including, but not limited to, private funds)) to be separately 
managed accounts. As we discussed in the Proposing Release, we 
currently collect detailed information about pooled investment vehicles 
that advisers manage, but little specific information about separately 
managed accounts.\8\ We believe that collecting additional information 
about separately managed accounts will enhance our staff's ability to 
effectively carry out our risk-based examination program and other risk 
assessment and monitoring activities. We discuss below the specific 
separate account reporting requirements. Commenters stated that they 
generally understood our interest in collecting additional data on 
separately managed accounts,\9\ but many raised concerns

[[Page 60420]]

regarding separately managed account reporting as proposed, and we 
discuss those concerns below.
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    \8\ See Proposing Release, supra footnote 3 at Section II.A.1.
    \9\ See, e.g., Comment Letter of Blackrock, Inc. (Aug. 11, 2015) 
(``BlackRock Letter''); Comment Letter of Dechert LLP (Aug. 11, 
2015) (``Dechert Letter''); Comment Letter of Investment Adviser 
Association (Aug. 11, 2015) (``IAA Letter''); Comment Letter of 
Investment Company Institute (Aug. 11, 2015) (``ICI Letter''); 
Comment Letter of Invesco Advisers, Inc. (Aug. 11, 2015) (``Invesco 
Letter''); Comment Letter of LPL Financial LLC (Aug. 11, 2015) 
(``LPL Letter''); Comment Letter of Managed Funds Association (Aug. 
11, 2015) (``MFA Letter''); Comment Letter of Money Management 
Institute (Aug. 11, 2015) (``MMI Letter''); Comment Letter of 
Morningstar, Inc. (Aug. 12, 2015) (``Morningstar Letter''); Comment 
Letter of North American Securities Administrators Association, Inc. 
(Aug. 11, 2015) (``NASAA Letter''); Comment Letter of National 
Regulatory Services (Aug. 11, 2015) (``NRS Letter''); Comment Letter 
of OppenheimerFunds, Inc. (Aug. 10, 2015) (``Oppenheimer Letter''); 
Comment Letter of Charles Schwab & Co., Inc. (Aug. 11, 2015) 
(``Schwab & Co. Letter''); Comment Letter of Securities Industry and 
Financial Markets Association, Asset Management Group and Asset 
Managers Forum (Aug. 11, 2015) (``SIFMA Letter''); Comment Letter of 
the Systemic Risk Council (Aug. 7, 2015) (``SRC Letter''); Comment 
Letter of T. Rowe Price Associates, Inc. (Aug. 11, 2015) (``T. Rowe 
Price Letter''). However, certain commenters expressed their 
disapproval of the collection this data. See Comment Letter of The 
Alternative Investment Management Association Limited (Aug. 6, 2015) 
(``AIMA Letter'') (stating that this data should not be collected 
unless kept confidential).
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a. Amendments to Item 5 of Part 1A and Section 5 of Schedule D
    Item 5 of Part 1A and Section 5 of Schedule D currently require 
advisers to provide information about their advisory business including 
percentages of types of clients and assets managed for those clients. 
We had proposed to collect information specifically about separately 
managed accounts, including types of assets held, and the use of 
derivatives and borrowings in the accounts.\10\ We are adopting the 
amendments to Item 5 of Part 1A and Section 5 of Schedule D largely as 
proposed, with some modifications in response to comments we received, 
as discussed below. We are amending Item 5 of Part 1A and Section 5 of 
Schedule D to require advisers to provide information on an aggregate 
level regarding separately managed accounts that they manage.\11\ 
Advisers will be required to report information about the types of 
assets held and the use of derivatives and borrowings in separately 
managed accounts. Advisers that report that they have regulatory assets 
under management attributable to separately managed accounts in 
response to new Item 5.K.(1) of Part 1A will be required to complete 
new Section 5.K.(1) of Schedule D, and may be required to complete new 
Sections 5.K.(2) and 5.K.(3) of Schedule D regarding those accounts.
---------------------------------------------------------------------------

    \10\ See Proposing Release, supra footnote 3 at Section II.A.1.
    \11\ See infra Section II.A.2.b. for a discussion of other 
amendments to Item 5 of Part 1A.
---------------------------------------------------------------------------

b. Section 5.K.(1) of Schedule D
    In Section 5.K.(1) of Schedule D advisers will be required to 
report the approximate percentage of separately managed account 
regulatory assets under management that are invested in twelve broad 
asset categories, modified from the ten that were proposed in response 
to comments received and discussed below. As proposed, advisers with at 
least $10 billion in regulatory assets under management attributable to 
separately managed accounts will report, on an annual basis, both mid-
year and end of year \12\ percentages while advisers with less than $10 
billion in regulatory assets under management attributable to 
separately managed accounts will report only end of year percentages. 
As we stated in the Proposing Release, we believe this information will 
allow us to better monitor this segment of the investment advisory 
industry and identify advisers that specialize in particular asset 
classes.\13\ We are adopting the amendments to Section 5.K.(1) of 
Schedule D largely as proposed, with some minor modifications in 
response to comments we received, as discussed below.
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    \12\ As stated in Amended Form ADV, Part 1A, Schedule D, Section 
5.K.(1), end of year refers to the date used by the adviser to 
calculate its regulatory assets under management, and mid-year is 
the date six months before the end of year date.
    \13\ See Proposing Release, supra footnote 3 at Section II.A.1.
---------------------------------------------------------------------------

    While some commenters generally supported the collection of this 
information,\14\ others suggested requiring a minimum regulatory assets 
under management or number of account threshold for reporting on this 
section to minimize burdens on small and mid-sized advisers.\15\ We 
recognize that this reporting will impose some burden on all advisers, 
including smaller advisers, but we believe that gathering this 
information for all registered advisers is important for us to gain a 
full understanding of assets held in separately managed accounts 
managed by investment advisers of different sizes. This section 
requires advisers, on an annual basis, to report aggregate separate 
account investments across twelve categories of investments. We believe 
that requiring all advisers to separately managed accounts to report 
this information will enable us to gain a more fulsome picture of 
assets held in separately managed accounts. We have also tailored and 
limited the scope of information to be reported and the frequency of 
such reporting.
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    \14\ See Schwab & Co. Letter (``We support the SEC's efforts to 
collect additional data seeking to minimize as much as possible the 
burden on regulated entities and the investors they service while 
helping the SEC to enhance their ability to conduct risk-based 
examinations of advisers.''); BlackRock Letter (``We believe this 
information will help the Commission identify which managers 
specialize in SMAs that invest in certain asset classes.'').
    \15\ Comment Letter of Advisor Solutions Group, Inc. (Aug. 11, 
2015) (``ASG Letter''); AIMA Letter (suggesting that advisers with a 
small number of separately managed account clients or a small amount 
of separately managed account assets under management be exempt from 
reporting on separately managed accounts).
---------------------------------------------------------------------------

    With respect to the categories of investments listed in Section 
5.K.(1), we proposed to require advisers to report the approximate 
percentage of separately managed account regulatory assets under 
management invested in ten broad asset categories.\16\ Several 
commenters sought clarification on how to classify assets in certain 
categories \17\ Another commenter suggested new categories, such as 
``private real estate'' and ``structured products.'' \18\ In response 
to that commenter's suggestion \19\ we have included a new category for 
``Cash and Cash Equivalents.'' \20\ We also believe that additional 
delineation of equity securities would be helpful for our staff and the 
public, and accordingly, we have added a ``Non-Exchange-Traded Equity 
Securities'' category in addition to the ``Exchange-Traded Equity 
Securities'' category, to clarify where to report equities that are not 
listed on a regulated securities exchange. This information will assist 
our examination staff in monitoring risks associated with advisers 
managing separately managed account assets in securities that are not 
exchange traded.
---------------------------------------------------------------------------

    \16\ Proposing Release, supra footnote 3 at Section II.A.1.
    \17\ LPL Letter; MMI Letter. See also Dechert Letter (stating 
that advisers may not maintain systems that permit them to 
efficiently categorize assets based on asset types in the proposed 
amendments); IAA Letter.
    \18\ BlackRock Letter. BlackRock also suggested removing 
``derivatives'' as a category, because derivatives information for 
some advisers will be collected in Section 5.K.(2). We have not 
removed ``derivatives'' as a category, because are collecting 
different information in Section 5.K.(2) than in Section 5.K.(1).
    \19\ BlackRock Letter; MMI Letter.
    \20\ Amended Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)-
(b). The text proceeding Section 5.K.(1) gives examples of cash and 
cash equivalents, including bank deposits, certificates of deposit, 
bankers' acceptances, and similar bank instruments. We also added an 
instruction to the text preceding Section 5.K.(1)(a) stating that 
advisers should round to the nearest percent when reporting this 
information.
---------------------------------------------------------------------------

    Some commenters also sought clarification about how to report 
assets that may be classified into multiple categories.\21\ Commenters 
also suggested that advisers be permitted to use reasonable and 
documented systems and methodologies for determining

[[Page 60421]]

appropriate asset categories.\22\ We acknowledge that some assets may 
be classified into more than one category or require advisers to apply 
discretion about which category applies to a particular asset, and 
agree that advisers should be permitted to use reasonable methodologies 
in selecting a category in which to report such an asset, but should 
not double count assets. Accordingly, in response to these comments, we 
are adding an instruction to Item 5.K.1 that advisers may use their own 
internal methodologies and the conventions of their service providers 
in determining how to categorize assets, so long as their methodologies 
are consistently applied and consistent with information the advisers 
report internally and to current and prospective clients, but should 
not double count assets. We believe that providing this flexibility, 
which we modeled after an instruction in Form PF, acknowledges that 
advisers may categorize the same or similar assets differently based on 
different methodologies.
---------------------------------------------------------------------------

    \21\ Comment Letter of Anonymous (Aug. 11, 2015) (``Anonymous 
Letter'') (``derivatives'' category may overlap with others); 
Comment Letter of JAG Capital Management LLC (June 24, 2015) (``JAG 
Letter'') (convertible bonds, TIPS and ETFs); MMI Letter 
(convertible bonds, fixed income securities, preferred securities); 
Comment Letter of Professional Compliance Assistance, Inc. (Aug. 11, 
2015) (``PCA Letter'') (balanced mutual funds). See also IAA Letter 
(U.S. government agency, corporate bonds, other).
    \22\ Dechert Letter; IAA Letter.
---------------------------------------------------------------------------

    Some commenters expressed concerns about the proposed reporting of 
``Corporate Bonds--Investment Grade'' and ``Corporate Bonds--Non-
Investment Grade,'' based on the proposed definitions of such terms, as 
they believed that this would require advisers to make subjective 
decisions about how to classify assets and could result in inconsistent 
reporting. These commenters requested that the Commission eliminate the 
reporting requirement, or either provide a more objective definition or 
permit an adviser to follow and rely on the classifications made by 
another investment adviser.\23\ Another commenter noted the reference 
to ``liquidity'' in the definition and requested that the Commission 
seek a consistent approach to liquidity-related concepts across 
reporting regimes.\24\
---------------------------------------------------------------------------

    \23\ LPL Letter; MMI Letter.
    \24\ IAA Letter.
---------------------------------------------------------------------------

    In response to these comments, we are removing the proposed 
definitions of these terms from Form ADV. Given the instruction we have 
added permitting advisers to use their own consistently applied 
methodologies to select asset categories, we believe that the 
definitions are no longer necessary. We recognize that an adviser might 
reasonably categorize the same or similar assets differently from 
another adviser. Even with such differences, we believe that this 
categorization will provide useful information, particularly given the 
Commission's intended purpose for requiring such reporting, which is to 
better understand how assets in separately managed accounts are 
invested across that industry, rather than to impose a standard of 
creditworthiness for such assets.
    Other commenters suggested we provide instructions as to whether 
advisers need to look through investments in funds or ETFs, for 
example, and report the underlying asset type.\25\ With respect to 
looking through an account's investments in funds, advisers should not 
do so and we have clarified this in the form.\26\ Advisers should not 
look through investments in funds because we want to understand the 
extent to which separately managed account assets are invested in funds 
as well as other types of investments.
---------------------------------------------------------------------------

    \25\ ASG Letter; MMI Letter; NRS Letter; Schwab & Co. Letter.
    \26\ We have added the following sentence to the text preceding 
Schedule D, Section 5.K.(1)(a): ``Investments in derivatives, 
registered investment companies, business development companies, and 
pooled investment vehicles should be reported in those categories. 
Do not report those investments based on related or underlying 
portfolio assets.''
---------------------------------------------------------------------------

c. Section 5.K.(2) of Schedule D
    We are also adopting amendments to add Section 5.K.(2) of Schedule 
D to Form ADV to require advisers to separately managed accounts to 
report information regarding the use of borrowings and derivatives in 
those accounts with modifications from the proposal in response to 
commenters. These amendments are designed to provide data to assist our 
staff in identifying and monitoring the use of borrowings and 
derivatives exposures in separately managed accounts as part of the 
staff's risk assessment and monitoring programs. Some commenters 
supported our proposal for the collection of that data.\27\ However, as 
discussed below, several other commenters expressed concern about the 
proposed reporting thresholds, the public disclosure of certain 
information,\28\ the use of gross notional metrics and the burden 
associated with reporting this information. The specific gross notional 
metrics used in Section 5.K.(2) are ``gross notional value'' and 
``gross notional exposure,'' as proposed. The calculation of gross 
notional exposure includes borrowings and the gross notional value of 
derivatives. The definition of ``gross notional value'' specifies how 
derivatives are measured when determining an account's gross notional 
exposure.\29\
---------------------------------------------------------------------------

    \27\ NASAA Letter; SRC Letter.
    \28\ We discuss public disclosure of separately managed account 
information in Section II.A.1.e.
    \29\ Gross notional exposure of an account is ``the percentage 
obtained by dividing (i) the sum of (a) the dollar amount of any 
borrowings and (b) the gross notional value of all derivatives, by 
(ii) the regulatory assets under management of the account.'' 
Amended Form ADV, Part 1A, Schedule D, Item 5.K.(2). Gross notional 
value is defined in the Glossary to Form ADV as ``The gross nominal 
or notional value of all transactions that have been entered into 
but not yet settled as of the reporting date. For contracts with 
variable nominal or notional principal amounts, the basis for 
reporting is the nominal or notional principal amounts as of the 
reporting date. For options, use delta adjusted notional value.''
---------------------------------------------------------------------------

    One commenter suggested requiring reporting on derivatives only if 
there is a minimum gross notional amount of derivatives.\30\ Another 
commenter suggested as an alternative requiring derivatives reporting 
only if the adviser uses leverage as part of its investment 
strategy.\31\ We disagree with these approaches as they would give us 
information only about a segment of the separately managed account 
industry that uses derivatives or borrowings, and because the line 
between advisers that use derivatives and borrowings strategically and 
those that do not can be fluid and difficult to define. While we are 
adopting Section 5.K.(2) largely as proposed, we have modified it in 
certain places in response to commenters' concerns, as discussed below.
---------------------------------------------------------------------------

    \30\ Anonymous Letter.
    \31\ JAG Letter.
---------------------------------------------------------------------------

    As proposed, advisers with at least $150 million but less than $10 
billion in regulatory assets under management attributable to 
separately managed accounts would have been required to annually report 
in Section 5.K.(2)(b) the number of accounts and average borrowings 
that corresponded to ranges of net asset values and gross notional 
exposures, as of the date the adviser used to calculate its regulatory 
assets under management for purposes of the adviser's annual updating 
amendment. Advisers with at least $10 billion in regulatory assets 
under management attributable to separately managed accounts would have 
been required to annually report in Section 5.K.(2)(a) the number of 
accounts, average borrowings, and average derivatives exposures across 
six categories of derivatives, based on the same ranges of net asset 
values and gross notional exposures in Section 5.K.(2)(b), as of the 
date used by the adviser to calculate its regulatory assets under 
management for purposes of its annual updating amendment, and six 
months before that date.
    We received a diversity of views about whether the proposed 
reporting thresholds of at least $150 million in regulatory assets 
under management attributable to separately managed

[[Page 60422]]

accounts, and at least $10 billion in regulatory assets under 
management attributable to separately managed accounts for additional 
reporting, were appropriate, and if not, what these thresholds should 
be.\32\ Certain commenters suggested thresholds based on number of 
accounts or the size of individual separately managed accounts. 
However, we believe establishing thresholds based on regulatory assets 
under management attributable to separately managed accounts better 
provides us with comparability across advisers and appropriately 
advances our regulatory goal of gaining a more complete understanding 
of advisers' separately managed account business as compared to the 
alternatives suggested by commenters. Several commenters recommended 
that we increase the $150 million threshold to $500 million on the 
basis that such a change would allow the Commission to collect 95% of 
the data that it would using the $150 million threshold, while 
relieving approximately 3,000 advisers from having to report 
derivatives and borrowings information.\33\ On balance, and based on 
our staff's experience with small advisers, we agree with commenters 
that this is a sensible accommodation that would allow us to meet our 
regulatory objectives while alleviating reporting burdens on smaller 
advisers. As a result, we have raised the minimum reporting threshold 
to $500 million. Advisers with at least $500 million but less than $10 
billion in separately managed account regulatory assets under 
management will be required to report on Section 5.K.(2)(b) the amount 
of separately managed account regulatory assets under management and 
the dollar amount (rather than the proposed average amount) of 
borrowings attributable to those assets that correspond to three levels 
of gross notional exposures rather than four levels as proposed. 
Advisers with at least $10 billion in separately managed account 
regulatory assets under management will be required to report on 
Section 5.K.(2)(a) the information required in Section 5.K.(2)(b) as 
well as the derivative exposures across the same six derivatives 
categories that were proposed. Also as proposed, advisers may limit 
their reporting for both (a) and (b) to individual accounts of at least 
$10 million.\34\
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    \32\ ASG agreed with the $150 million threshold. Oppenheimer 
agreed with the thresholds, but also suggested a threshold based on 
number of accounts, below which the adviser would not be required to 
respond to Section 5.K.(2), and permitting advisers to round number 
of accounts to the nearest five in a particular range. IAA 
recommended increasing the $150 million threshold to $500 million 
but supported the $10 billion threshold. SIFMA also agreed with the 
thresholds, but suggested changing the account-level reporting 
thresholds to minimize confidentiality concerns and permitting 
advisers to round to the nearest 5 accounts in a particular range. 
AIMA noted that the proposed thresholds at the adviser level and at 
the individual separately managed account level are low for advisers 
with institutional clients and recommended not requiring advisers 
with less than $150 million in separately managed account assets to 
report any separately managed account information, including in 
Sections 5.K.(1) and 5.K.(3). Anonymous suggested that the reporting 
threshold should be based on a minimum gross notional amount in 
relation to the adviser's total regulatory assets under management. 
BlackRock suggested that reporting thresholds should not be tied to 
aggregate adviser separately managed account regulatory assets under 
management, but rather only to individual separately managed account 
regulatory assets under management.
    \33\ IAA Letter; Comment Letter of the New York State Bar 
Association, Business Law Section, Securities Regulation Committee, 
Private Investment Funds Subcommittee (Aug. 12, 2015) (``NYSBA 
Committee Letter''); PCA Letter; Schwab & Co. Letter. IAA estimated 
that if the minimum threshold were $150 million, the Commission 
would collect data on approximately $37.8 trillion in separately 
managed account assets under management from 7,257 advisers. 
However, it estimated that if the threshold were raised to $500 
million, the Commission would collect data on approximately $36.8 
trillion in separately managed account assets under management from 
approximately 3,700 advisers. A recent analysis of Form ADV by 
Commission staff filings shows that over 2,800 advisers will be 
relieved from the filing requirement and we will receive information 
on 98% of the assets for which we would have received reporting 
under the proposed $150 million threshold. IARD system data as of 
May 16, 2016.
    \34\ Some commenters suggested making the exclusion of 
individual accounts under $10 million optional because excluding 
those accounts might, in some cases, be more costly to firms. See 
Dechert Letter; IAA Letter; NYSBA Committee Letter. We have revised 
the text in Section 5.K.(2) to read, ``You may, but are not required 
to, complete the table with respect to any separately managed 
account with regulatory assets under management of less than 
$10,000,000.''
---------------------------------------------------------------------------

    Another change we are making to Section 5.K.(2) in response to 
commenters is to base the reporting of borrowings and derivatives on 
regulatory assets under management in separately managed accounts, 
rather than net asset value as proposed. One commenter noted that 
advisers do not currently characterize their individual client accounts 
according to net asset values.\35\ We agree, and accordingly advisers 
will be required to report both the amount of regulatory assets under 
management and borrowings in their separately managed accounts that 
correspond to ranges of gross notional exposure of those accounts. 
Regulatory assets under management is already used throughout Form ADV, 
and should be available to advisers for purposes of Section 5.K.(2). 
Similarly, the reporting of borrowings in Section 5.K.(2) has been 
revised to require information about the total dollar amount of 
borrowings that correspond to different ranges of gross notional 
exposure, and not the weighted average amount (which is based on a 
percentage of net asset value).\36\ We believe these changes will 
reduce burdens for advisers completing this section, while providing 
our staff with additional information regarding borrowings and 
derivatives exposures in separately managed accounts.
---------------------------------------------------------------------------

    \35\ IAA Letter.
    \36\ One commenter suggested that reporting of borrowing is 
duplicative of reporting of margin by broker-dealer custodians to 
FINRA. JAG Letter. While we recognize that broker-dealers report 
this information, we note that parties other than broker-dealers may 
serve as custodians to separately managed accounts.
---------------------------------------------------------------------------

    Commenters presented a range of concerns and suggestions about the 
use of gross notional metrics in reporting on Section 5.K.(2). Some 
commenters supported the use of gross notional metrics for assessing 
the use of derivatives and borrowings in separately managed 
accounts,\37\ while others raised issues concerning the utility of 
gross notional metrics.\38\ Several commenters stated that gross 
notional metrics are not accurate measures of leverage or risk and 
argued that they provide little value without context, and they could 
be misleading or misunderstood.\39\ Some commenters suggested reporting 
derivatives and borrowings in Form ADV similar to how leverage is 
reported in Form PF or in the AIFMD framework.\40\ For example, one

[[Page 60423]]

commenter suggested reporting long and short dollar amounts, similar to 
Form PF.\41\ We acknowledge these commenters' concerns and recognize 
that gross notional metrics may not always reflect the way in which 
derivatives are used in a separately managed account and are not a risk 
measure.\42\ We also recognize that there are other measures or 
additional data points that could be used to evaluate the use of 
derivatives in a separately managed account, which may depend on 
various considerations, such as investment strategy, types of 
investments, and the specific risks that are being considered. The 
calculations of gross notional exposure and gross notional value that 
we proposed and are adopting today rely on measures common to all 
advisers: regulatory assets under management of an account; total 
amount of borrowings in an account; and the notional value of 
derivatives. As we noted in the Proposing Release, gross notional 
metrics are commonly used metrics and are comparable to the information 
collected on Form PF regarding private funds. On balance, therefore, we 
continue to believe that, for most types of derivatives the gross 
notional metrics generally provide a measure that is sufficient for 
this regulatory purpose, which is to collect information about the 
scale of an account's derivatives activities, rather than to collect 
specific risk metrics or more granular information regarding the ways 
in which derivatives are used in a separate account. Section 5.K.(2) 
also provides advisers the option of including a narrative description 
of the strategies and/or manner in which borrowings and derivatives are 
used in the management of separately managed accounts. To the extent 
that advisers are concerned that disclosure of gross notional metrics 
would be misleading, they could provide in the space provided in 
Section 5.K.(2) an additional narrative description regarding their use 
of derivatives in these accounts.
---------------------------------------------------------------------------

    \37\ Comment Letter of CFA Institute (Aug. 10, 2015) (``CFA 
Letter'') (observing that notional exposure metrics are valuable in 
conducting investment and operational analyses, but provide less 
value for risk management); NASAA Letter (stating that the proposal 
contemplates collecting commonly used metrics on the use of 
derivatives and borrowings, consistent with Form PF); and SRC Letter 
(suggesting that the collection of data relating to gross notional 
exposure, borrowings and gross notional value of derivatives would 
provide the Commission with ``invaluable insight into the use of 
derivatives and borrowings by advisers in separately managed 
accounts.'').
    \38\ See, e.g. NYSBA Committee Letter (stating that publicly 
reporting gross notional exposures without also reflecting actual 
exposure on the form would be misleading and potentially alarming to 
investors) and MFA Letter (asserting that gross notional disclosures 
provide an inaccurate representation of economic or market exposures 
and would not provide meaningful information, and thus should not be 
required).
    \39\ BlackRock Letter; Dechert Letter; IAA Letter; Invesco 
Letter.
    \40\ Dechert Letter (suggesting allowing additional data points, 
such as the ones required in Form PF, to better provide the 
Commission a more comprehensive understanding of the extent to which 
derivatives are used in separately managed accounts and the relevant 
risks associated with them); Blackrock Letter (providing an appendix 
containing a comprehensive framework for calculating leverage, 
similar to AIFMD's commitment leverage approach, under which 
derivatives used for hedging positions and offsetting long and short 
positions do not create leverage).
    \41\ AIMA Letter.
    \42\ For example, different derivatives transactions having the 
same notional amount but different underlying reference assets--for 
example, an interest rate swap and a credit default swap having the 
same notional amount--may expose a separately managed account to 
very different potential investment risks and potential payment 
obligations.
---------------------------------------------------------------------------

    Many commenters requested that the term ``derivatives'' be defined 
as part of this rulemaking.\43\ Several of these commenters suggested 
the Commission adopt a definition that provides flexibility to adapt to 
changing financial markets and instruments, such as the characteristic-
based definition of derivatives in FASB ASC 815.\44\ Another commenter, 
however, suggested that we should not define derivatives, similar to 
Form PF.\45\ We believe that Form ADV, which collects aggregate 
portfolio information, is similar to Form PF. Thus, consistent with 
adviser reporting on Form PF and the proposal, we have decided not to 
define the term at this time. Several commenters requested 
clarification on whether interest rate derivatives should be presented 
in terms of 10-year bond equivalents, consistent with Form PF.\46\ We 
have added a sentence to the definition of ``interest rate derivative'' 
in the Glossary that interest rate derivative information should be 
presented in terms of 10-year bond equivalents. Regarding the term 
``equity derivative,'' one commenter requested confirmation that the 
term ``listed'' as used in Form ADV has the same meaning as in Form PF. 
We confirm that the term ``listed equity derivatives'' refers to 
exposures to derivatives for which the underlying asset is listed 
equities.\47\
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    \43\ ASG Letter; Oppenheimer Letter; PCA Letter; SIFMA Letter; 
T. Rowe Price Letter.
    \44\ Oppenheimer Letter; SIFMA Letter; T. Rowe Price Letter.
    \45\ IAA Letter.
    \46\ AIMA Letter; IAA Letter; MFA Letter.
    \47\ We note that current staff guidance regarding this term in 
Form PF takes a similar approach. See Form PF, Frequently Asked 
Questions, Question 26.1.
---------------------------------------------------------------------------

    Finally, we are also revising the proposal in ways that should both 
alleviate concerns about confidentiality, which we discuss more fully 
below, and simplify reporting of separately managed account 
information. First, we reduced the number of categories of gross 
notional exposure that we proposed in the charts. As proposed, Section 
5.K.(2) included four categories of gross notional exposure by which 
accounts and borrowings were reported. This has been reduced to three 
categories of gross notional exposure: less than 10%, 10--149% and 150% 
or more. In addition to reducing the number of categories from four to 
three, we changed the highest threshold from 200% or more to 150% or 
more. After consideration of comments received regarding the potential 
burdens of providing this information, we believe that the use of three 
categories instead of four and changing the highest threshold from 200% 
or more to 150% or more will reduce the reporting burden on advisers 
while providing us with sufficient information regarding the use of 
derivatives and borrowings by investment advisers in separately managed 
accounts. In addition, we believe that these modifications provide less 
granular information than proposed, thereby mitigating some concerns 
commenters raised regarding confidentiality. We also modified Section 
5.K.(2) to remove reporting of the number of separately managed 
accounts. As proposed, Section 5.K.(2) would have required advisers to 
report the number of accounts that corresponded to the accounts' net 
asset value and gross notional exposure. Section 5.K.(2)(a) and (b) now 
require reporting of regulatory assets under management based on ranges 
of gross notional exposure of accounts.\48\
---------------------------------------------------------------------------

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

d. Section 5.K.(3) of Schedule D
    As proposed, we are amending Form ADV to require advisers to 
identify any custodians that account for at least ten percent of 
separately managed account regulatory assets under management, and the 
amount of the adviser's regulatory assets under management attributable 
to separately managed accounts held at the custodian.\49\ This 
information will allow our examination staff to identify advisers whose 
clients use the same custodian in the event, for example, a concern is 
raised about a particular custodian. As we discussed in the Proposing 
Release, similar disclosures are required for custodians to pooled 
investment vehicles \50\ and registered investment companies.\51\
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    \49\ Amended Form ADV, Part 1A, Schedule D, Section 5.K.(3). We 
added ``aggregate'' before ``separately managed account regulatory 
assets under management'' to the text preceding the section for 
clarity.
    \50\ Amended Form ADV, Part 1A, Schedule D, Section 7.B.(1), 
Question 25.
    \51\ Form N-1A, Item 19(h)(3).
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    We received several comments on this aspect of the proposal. For 
example, a commenter suggested that we obtain this information from 
other parties, including custodians.\52\ However, we do not directly 
regulate all separately managed account custodians and we believe this 
information is available to advisers because advisers interact with 
custodians when placing trades on behalf of separately managed account 
clients. Some commenters agreed with the ten percent of regulatory 
assets under management threshold for reporting custodians of the 
adviser's separately managed account client

[[Page 60424]]

assets.\53\ Other commenters recommended that the Commission modify the 
threshold, and raised concerns about this reporting for smaller 
advisers.\54\ We agree with the commenters who believe that the ten 
percent threshold is appropriate. We recognize that this reporting will 
impose some burdens on all advisers, including smaller advisers. 
However, we are adopting the ten percent threshold as proposed because 
we continue to believe it, rather than a higher threshold, most 
appropriately advances our regulatory goal of identifying and obtaining 
a more complete picture regarding the custodians serving a significant 
proportion of an adviser's separately managed account clients. 
Moreover, we believe we have appropriately tailored and limited the 
scope of information to be reported since this requirement at most will 
require advisers to identify ten custodians.
---------------------------------------------------------------------------

    \52\ BlackRock Letter. See also Comment Letter of Financial 
Engines Advisors, LLC (Aug. 11, 2015) (``Financial Engines Letter'') 
(suggesting identification of recordkeeper, rather than custodian, 
where advised assets are associated with a 401(k) plan).
    \53\ Anonymous Letter; CFA Letter; PCA Letter.
    \54\ AIMA Letter (suggested a twenty percent threshold); 
BlackRock Letter; IAA Letter; MMI Letter; NRS Letter (suggested a 
minimum separately managed account regulatory assets under 
management threshold in lieu of or in addition to the ten percent 
threshold).
---------------------------------------------------------------------------

    In addition, some commenters recommended deleting or clarifying the 
requirement to identify the location of the custodian's office.\55\ 
These commenters reasoned that because of the electronic nature of 
custodian records, and the current advisers' practice of not 
maintaining this physical location information as a matter of course, 
disclosure of the identity of the custodian, rather than the location 
of the office, would be of primary benefit to the Commission. This 
information is consistent with similar questions we ask about 
custodians in Schedule D, Section 7.B.(1), Question 25 of Form ADV. 
Location information allows us to identify the appropriate contacts 
when a custodian is part of a large organization with multiple 
offices.\56\ Therefore, we are adopting these requirements as proposed.
---------------------------------------------------------------------------

    \55\ ASG Letter; IAA Letter; MMI Letter; Oppenheimer Letter; PCA 
Letter; SIFMA Letter.
    \56\ One commenter also sought clarification about reporting 
custodians who have multiple legal entities. IAA Letter. Advisers do 
not have to determine affiliations of related custodians for 
purposes of this item, but rather should report the particular legal 
entity that is custodian for the adviser's separately managed 
account assets.
---------------------------------------------------------------------------

e. Public Disclosure of Separately Managed Account Information
    While commenters understood our reasons for collecting information 
on separately managed accounts, many expressed concerns that the new 
reporting would lead to disclosure of client-identifying information or 
confidential or proprietary information about investment strategy.\57\ 
Commenters also expressed concern that public disclosure of separately 
managed account information could put advisers with a small number of 
separately managed account clients at a competitive disadvantage if 
clients were concerned about the reporting on Form ADV being linked or 
attributable to their separately managed accounts.\58\ We address these 
concerns below.
---------------------------------------------------------------------------

    \57\ Comment Letter of the American Bar Association, Section of 
Business Law, Federal Regulation of Securities Committee (Sept. 3, 
2015) (``ABA Committee Letter''); AIMA Letter; Anonymous Letter; ASG 
Letter; BlackRock Letter; Dechert Letter; IAA Letter; Invesco 
Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; 
Comment Letter of Schulte Roth & Zabel LLP (Aug. 11, 2015) 
(``Schulte Letter''); Comment Letter of Shearman & Sterling LLP 
(Aug. 11, 2015) (``Shearman Letter''); SIFMA Letter; Comment Letter 
of Securities Industry and Financial Markets Association Asset 
Management Group and Asset Managers Forum (Jan. 13, 2016) (``SIFMA 
II Letter''). See also Comment Letter of Private Equity Growth 
Capital Council (Aug. 11, 2015) (``PEGCC Letter'').
    \58\ ABA Committee Letter; AIMA Letter; Anonymous Letter; 
BlackRock Letter; Dechert Letter; IAA Letter; MFA Letter; NYSBA 
Committee Letter; Oppenheimer Letter; Schulte Letter; Shearman 
Letter; SIFMA Letter; SIFMA II Letter.
---------------------------------------------------------------------------

    Section 210(a) of the Advisers Act requires information in Form ADV 
to be publicly disclosed, unless we find that public disclosure is 
neither necessary nor appropriate in the public interest or for the 
protection of investors.\59\ As discussed in the Proposing Release, we 
believe these amendments will enhance our staff's risk assessment and 
monitoring activities, which also serve to benefit investors.\60\ We 
also believe that aggregate information about separately managed 
accounts may assist the public in better understanding advisers' 
management of separately managed account clients.\61\ This information 
may directly improve the ability of clients and potential clients of 
investment advisers to make more informed decisions about the selection 
and retention of investment advisers, which, in turn, may also benefit 
the public by increasing competition among investment advisers for 
clients. For these reasons, we continue to believe that public 
disclosure of information about separately managed accounts on Form ADV 
is appropriate in the public interest as well as for the protection of 
investors. We have, however, made several modifications to our 
proposal, discussed below, in response to commenters.
---------------------------------------------------------------------------

    \59\ Advisers Act section 210(a). Certain commenters suggested 
that this information be filed in a nonpublic manner, similar to 
Form PF. See ABA Committee Letter; PEGCC Letter. We note that Form 
PF is filed on a confidential basis under Advisers Act section 
204(b), which prohibits the Commission from disclosing Form PF 
information unless those disclosures are made to Congress, other 
Federal agencies, or courts under certain conditions. Advisers Act 
section 204(b)(8).
    \60\ Proposing Release, supra footnote 3 at Section II.A.1.
    \61\ C.f., NASAA Letter (``These amendments would provide 
additional necessary information to the SEC and state regulators, as 
well as members of the public, far outweighing any regulatory burden 
the proposal creates.'').
---------------------------------------------------------------------------

    Some commenters also expressed broader concerns that public 
disclosure of separately managed account holdings or borrowings and 
derivatives information would reveal proprietary investment 
strategies.\62\ We do not believe that public disclosure of aggregate 
information in Schedule D, Sections 5.K.(1) or (2) would lead to the 
revelation of proprietary investment strategies. This information would 
be reported for one or two data points per year,\63\ depending on the 
amount of regulatory assets under management attributable to separately 
managed accounts, ninety days after the end of the adviser's fiscal 
year,\64\ and only on an aggregate basis for all the separately managed 
account clients that an adviser manages. Given the limited number of 
data points that advisers to separately managed accounts must report 
on, the fact that the information is reported both in aggregate and in 
broad categories across an adviser's separately managed accounts, and 
the time lag between those data points and any public reporting, we 
disagree that this reporting could compromise trading

[[Page 60425]]

strategies. In addition, as discussed above, we reduced the number of 
categories of gross notional exposures in Section 5.K.(2), which means 
advisers will be required to report less granular information.\65\
---------------------------------------------------------------------------

    \62\ See, e.g., ABA Committee Letter (``While individual types 
of securities would not be disclosed, the percentage of the 
portfolio in ten different asset categories would be subject to 
unprecedented public scrutiny, as would be detailed breakdowns of 
derivatives exposures and borrowings.''); BlackRock Letter; Dechert 
Letter; MFA Letter.
    \63\ Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and 
(2). Although two commenters recommended against larger advisers 
providing both mid-year and end of year separately managed account 
information, we believe this information is important to 
understanding advisers to the largest separately managed accounts. 
LPL Letter; NRS Letter.
    \64\ Advisers are required to update the derivatives and 
borrowings information annually, when filing their annual updating 
amendment to Form ADV, which is consistent with the requirement for 
updating other information in Item 5 of Form ADV. Advisers with at 
least $10 billion in separately managed account regulatory assets 
under management would be required to report both mid-year and end 
of year information as part of their annual filing. Many commenters 
supported the annual reporting and recommended against more frequent 
reporting. Anonymous Letter; ASG Letter; CFA Letter; Comment Letter 
of Capital Research and Management Company (Aug. 11, 2015) 
(``Capital Research Letter''); MMI Letter; Morningstar Letter; NRS 
Letter; PCA Letter; Shearman Letter. Form ADV is required to be 
amended at least annually, within 90 days of the end of the 
adviser's fiscal year. See rule 204-1.
    \65\ Supra Section II.A.1.c.
---------------------------------------------------------------------------

    We are mindful of commenters' concerns regarding disclosure of 
client-specific information and related competition concerns.\66\ 
Accordingly, we revised Item 5.D., which lists the number of advisory 
clients in categories, to include a ``fewer than 5 clients'' 
column.\67\ We also have modified Section 5.K.(2) to remove reporting 
of the number of accounts. As proposed, Section 5.K.(2) would have 
required reporting of the number of accounts that correspond to the 
accounts' net asset value and gross notional exposure. As adopted, 
Section 5.K.(2)(a) and (b) will require reporting solely by ranges of 
gross notional exposure of accounts.\68\ We believe that these changes 
mitigate the risk of any client-specific information being disclosed in 
Item 5.D. and Sections 5.K.(1) and (2).
---------------------------------------------------------------------------

    \66\ See, e.g., ABA Committee Letter; AIMA Letter; BlackRock 
Letter (``For a particular adviser, there may be only one or two 
accounts in a particular category, potentially making this client 
identifiable and its RAUM with an adviser public information.''); 
Dechert Letter; IAA Letter; MFA Letter (``[A] fund manager may need 
to report data of a single SMA client, which is not suitable for 
public disclosure.''); NYSBA Committee Letter (``In addition, if an 
adviser has a small number of accounts, the disclosure of any of the 
information would be particularly problematic as others may be in a 
position to determine the identity of the clients in any such 
account.''); Oppenheimer Letter; SIFMA Letter.
    \67\ Several commenters suggested limiting reporting for five or 
fewer clients, or rounding to the nearest five clients. IAA Letter; 
NYSBA Committee Letter; Oppenheimer Letter; SIFMA Letter. Other 
commenters suggested that advisers with a small number of separately 
managed account clients be excluded from reporting on separately 
managed accounts. See, e.g., AIMA Letter; SIFMA Letter. However, a 
small number of accounts could still include a large amount of 
assets or significant use of borrowings and derivatives. For that 
reason, reporting will be required on these accounts. We believe 
that the modifications in Item 5.D. and Schedule D, Section 5.K.(2) 
will address confidentiality concerns related to those accounts.
    \68\ Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2).
---------------------------------------------------------------------------

f. Additional Comments About Reporting of Separately Managed Accounts
    Additional comments regarding separately managed account reporting 
in Schedule D included comments about the definition of separately 
managed account, the treatment of subadvisers, and the reporting 
requirements when both the registered investment adviser and the 
separately managed account owner are not United States persons.
    First, several commenters sought clarification of the definition of 
the term ``separately managed account'' as used in Form ADV.\69\ We do 
not believe that a formal definition of this term is required because 
we have included instructions in the text preceding Sections 5.K.(1) 
and (2) to clarify that any regulatory assets under management reported 
in Item 5.D.(3)(d) (investment companies), (e) (business development 
companies), and (f) (other pooled investment vehicles) should not be 
reported in Schedule D, Sections 5.K.(1) or (2). Thus, regulatory 
assets under management reported for those types of clients in Item 
5.D.(3) should not be considered separately managed account assets and 
should not be reported in Sections 5.K.(1) or (2).
---------------------------------------------------------------------------

    \69\ See, e.g., IAA Letter (noting the term has not been defined 
in the Advisers Act); Financial Engines Letter (seeking the 
exclusion of assets within defined contribution plans from 
separately managed accounts); MMI Letter (seeking clarification for 
sponsors, overlay managers, portfolio managers and model providers). 
Commenters also sought clarification of the treatment of pooled 
investment vehicles that are not private funds. See PEGCC Letter. 
See also IAA Letter. Pooled investment vehicles include, but are not 
limited to, private funds.
---------------------------------------------------------------------------

    Second, several commenters requested clarification about how to 
treat subadviser relationships in reporting separately managed account 
information, including suggestions that only advisers with 
discretionary authority report information in these sections.\70\ In 
response to these concerns, we are clarifying the instructions in the 
text preceding Section 5.K.(1)(a) to expressly state, as they already 
do for Section 5.K.(2), that a subadviser to a separately managed 
account should provide information only about the portion of the 
account that it subadvises.\71\ We recognize that these instructions 
may require both advisers and subadvisers to report on the same 
regulatory assets under management (i.e., the assets that they both 
manage in an account) in Sections 5.K.(1) and (2) of their separate 
Form ADVs, which is consistent with the current reporting structure of 
regulatory assets under management in Form ADV.
---------------------------------------------------------------------------

    \70\ Comment Letter of JG Advisory Services LLC (Jul. 22, 2015) 
(``JGAS Letter''); LPL Letter; MMI Letter; NYSBA Committee Letter; 
SIFMA Letter. See also Dechert Letter; IAA Letter.
    \71\ Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1) and 
(2).
---------------------------------------------------------------------------

    Further, in response to suggestions that only advisers with 
discretionary authority should be required to report information in 
Sections 5.K.(1) and (2), we note that these sections both require 
responses based on the regulatory assets under management an adviser 
reports in Item 5.F. Per the instructions to Item 5.F., advisers are 
already required to consider the role of discretionary authority when 
calculating regulatory assets under management. Those instructions 
require that the calculation include only assets over which advisers 
provide continuous and regular supervisory or management service.\72\ 
The instructions further state that an adviser ``provide[s] continuous 
and regular supervisory or management services with respect to an 
account'' if: (a) The adviser has discretionary authority over and 
provides ongoing supervisory or management services with respect to the 
account; or (b) the adviser does not have discretionary authority over 
the account, but has ongoing responsibility to select or make 
recommendations, based upon the needs of the client, as to specific 
securities or other investments the account may purchase or sell and, 
if such recommendations are accepted by the client, the adviser is 
responsible for arranging or effecting the purchase or sale.\73\ Thus, 
if an adviser does not provide continuous and regular supervisory or 
management services with respect to an account, those account's assets 
should not be reported as regulatory assets under management in Item 
5.F, and would not be reported in Sections 5.K.(1) and (2).
---------------------------------------------------------------------------

    \72\ See Form ADV, Instructions to Part 1A, Item 5.F.
    \73\ Id.
---------------------------------------------------------------------------

    A final suggestion from commenters was to exclude from the 
reporting requirements any separately managed account held by a non-
United States person and managed by an investment adviser whose 
principal office and place of business is outside the United 
States.\74\ As proposed, and consistent with the reporting of 
regulatory assets under management generally, we are requiring each 
adviser whose principal office and place of business is outside the 
United States to report information regarding separately managed 
accounts for all of their clients, including clients who are not United 
States persons.\75\ We believe that the consistent reporting of 
information in Item 5 will be valuable in our and the public's 
understanding of the new separately managed account items as they are a 
subset of the regulatory assets under management

[[Page 60426]]

already being reported by registered investment advisers.
---------------------------------------------------------------------------

    \74\ AIMA Letter; PEGCC Letter; Shearman Letter. ``United States 
person'' is defined in the Glossary to Form ADV.
    \75\ The Form ADV Instructions to Part 1A, Item 5 that specify 
how regulatory assets under management must be calculated provides 
that accounts of clients who are not United States persons are 
accounts that must be included in the adviser's securities 
portfolios.
---------------------------------------------------------------------------

    Commenters suggested that we not require reporting of accounts 
beneficially owned by those who are not United States persons and 
managed by advisers whose principal offices and places of business are 
outside the United States. These commenters noted Item 7.B. of Form ADV 
and Form PF generally allow advisers whose principal offices and places 
of business are outside the United States to exclude reporting on funds 
that are not United States persons, are not offered in the United 
States, and are not beneficially owned by any United States 
persons.\76\ As noted above, there is not a similar exclusion in Item 5 
regarding funds that are not United States persons advised by any 
advisers, and advisers must include those clients in response to Item 
5, including their regulatory assets under management and client types. 
An exception like the one suggested by commenters would hamper the 
utility of the data collection in Item 5, which collects aggregate, 
census-type information regarding the adviser's total business. We are 
collecting this information to better inform Commission staff and the 
public about this segment of the investment adviser industry.\77\
---------------------------------------------------------------------------

    \76\ AIMA Letter; PEGCC Letter; Shearman Letter.
    \77\ See infra Section II.A.3 for a discussion of the 
application of the Advisers Act to non-U.S. advisers.
---------------------------------------------------------------------------

    In the Proposing Release, we requested comment on whether to 
require advisers to report on securities lending and repurchase 
agreements in separately managed accounts.\78\ While some commenters 
supported collection of this information,\79\ others noted that 
advisers may not be aware of or directly involved in securities lending 
activity in separately managed accounts,\80\ and several commenters 
objected to the disclosure.\81\ In response to the comments we 
received, we are not requiring disclosure regarding securities lending 
or repurchase agreements at this time.
---------------------------------------------------------------------------

    \78\ Proposing Release, supra footnote 3 at Section II.A.1.
    \79\ CFA Letter; SRC Letter.
    \80\ JAG Letter; NRS Letter; Comment Letter of The Risk 
Management Association, Committee on Securities Lending (Aug. 10, 
2015) (``RMA Committee Letter''); Comment Letter of State Street 
Corporation (Aug. 11, 2015) (``State Street Letter'').
    \81\ MFA Letter: PCA Letter. See also ASG Letter.
---------------------------------------------------------------------------

2. Additional Information Regarding Investment Advisers
    In addition to the amendments outlined above regarding separately 
managed accounts, we are adopting, largely as proposed, several new 
questions and amending existing questions on Form ADV regarding 
identifying information, an adviser's advisory business, and 
affiliations. As discussed in the Proposing Release, these items were 
developed through our staff's experience in examining and monitoring 
investment advisers, and are designed to enhance our understanding and 
oversight of investment advisers and to assist our staff in its risk-
based examination program.
a. Additional Identifying Information
    We are adopting several amendments to Item 1 of Part 1A of Form ADV 
as proposed to improve certain identifying information that we obtain 
about advisers. Item 1 currently requires an adviser to provide a 
Central Index Key number (``CIK Number'') in Item 1.N. only if the 
adviser is a public reporting company under Sections 12 or 15(d) of the 
Securities Exchange Act of 1934.\82\ We are removing this question from 
Item 1.N. and adding a question to Item 1.D. that requires an adviser 
to provide all of its CIK Numbers if it has one or more such numbers 
assigned,\83\ regardless of public reporting company status.\84\ As we 
explained in the Proposing Release, requiring registrants to provide 
all of their assigned CIK Numbers, if any, will improve our staff's 
ability to use and coordinate Form ADV information with information 
from other sources.\85\ The commenter who weighed in on the reporting 
of CIK Numbers did not object to this amendment, which we are adopting 
as proposed.
---------------------------------------------------------------------------

    \82\ Form ADV, Part 1A, Item 1.N.
    \83\ The SEC assigns CIK Numbers in EDGAR not only to identify 
entities as public reporting companies, but also when an entity is 
registered with the SEC in certain other capacities, such as a 
transfer agent.
    \84\ Amended Form ADV, Part 1A, Item 1.D.(3).
    \85\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    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 
addresses of each Web site. We are amending Item 1.I. largely as 
proposed to also ask whether the adviser has one or more accounts on 
social media platforms, such as Twitter, Facebook or LinkedIn, and 
requesting the address of each of the adviser's social media pages in 
addition to the address of each of the adviser's Web sites in Section 
1.I. of Schedule D.\86\ As discussed in the Proposing Release, our 
staff may use this information to help prepare for examinations of 
investment advisers and compare information that advisers disseminate 
across different social media platforms, as well as to identify and 
monitor new platforms. Current and prospective clients may use this 
information to learn more about advisers and make more informed 
decisions regarding the selection of advisers.\87\
---------------------------------------------------------------------------

    \86\ Amended Form ADV, Part 1A, Item 1.I. and Section 1.I. of 
Schedule D.
    \87\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    Several commenters were generally supportive of our proposed 
approach to social media reporting,\88\ but some commenters were 
concerned that it would be too burdensome for advisers and not useful 
to investors.\89\ Several commenters requested clarification on the 
types of social media platforms that trigger the reporting 
requirement,\90\ and some commenters recommended that we limit required 
reporting to accounts on social media platforms where the adviser 
controls the content.\91\ These commenters pointed out that there may 
be social media platforms that reference an adviser over which the 
adviser has no control and of which the adviser may not even be 
aware.\92\ We agree, and we have revised Item 1.I. of Part 1A and 
Section 1.I. of Schedule D to note that the required reporting is 
limited to accounts on social media platforms where the adviser 
controls the content.\93\ Commenters generally agreed with the 
proposal's approach of not requiring information about the social media 
accounts of an adviser's employees.\94\
---------------------------------------------------------------------------

    \88\ CFA Letter; IAA Letter; LPL Letter; Morningstar Letter; 
NASAA Letter. See also BlackRock Letter (understood our rationale 
for requesting this information).
    \89\ Comment Letter of TMorgan Advisers, LLC (June 28, 2015) 
(``Morgan Letter''); NRS Letter; NYSBA Committee Letter; Oppenheimer 
Letter.
    \90\ ASG Letter; IAA Letter; MMI Letter; SIFMA Letter.
    \91\ ASG Letter; MMI Letter; SIFMA Letter.
    \92\ MMI Letter. See also ASG Letter.
    \93\ An adviser may control its social media content, 
notwithstanding the fact that a social media platform has a policy 
to edit or remove content (such as offensive content) across the 
platform.
    \94\ ASG Letter; MFA Letter; MMI Letter; Morgan Letter; 
Morningstar Letter; NRS Letter; NYSBA Committee Letter.
---------------------------------------------------------------------------

    A commenter requested that we limit required reporting to accounts 
on public-facing social media platforms used to promote the adviser's 
business.\95\ We did not intend to require reporting on information 
posted on an adviser's internal social media platform or information 
not intended to promote the adviser's business to potential clients 
(e.g., information posted on a job board intended to attract job 
applicants). We have revised the text preceding Item 1.I. of Part 1A 
and Section 1.I. of

[[Page 60427]]

Schedule D to clarify that the required reporting is limited to 
accounts on publicly available social media platforms.
---------------------------------------------------------------------------

    \95\ IAA Letter.
---------------------------------------------------------------------------

    Another commenter requested that we limit required reporting to 
accounts on social media platforms that promote the adviser's business 
in the United States or are targeted towards the adviser's U.S. 
clients.\96\ The commenter pointed out that there are circumstances in 
which an adviser might have additional accounts on social media 
platforms that are not used to promote the adviser's business in the 
United States or are targeted towards the adviser's non-U.S. clients 
and that reporting on such accounts would provide little value to the 
Commission and could be confusing to clients or potential clients 
seeking information about an adviser.\97\ We believe that, to the 
extent an account on a social media platform is used to promote the 
business of an adviser registered with the Commission, the account 
should be disclosed in order to better inform our staff about the 
adviser's use of social media. However, if an account on a social media 
platform is used solely to promote the business of an affiliate or 
affiliates that are not advisers registered with the Commission, the 
account does not need to be disclosed on Form ADV.
---------------------------------------------------------------------------

    \96\ SIFMA Letter.
    \97\ Id. The commenter also mentioned that a large advisory 
complex that includes multiple affiliated advisers may maintain an 
account on a social media platform on behalf of a parent company or 
another affiliate that is not designed to promote the reporting 
adviser's services and/or is targeted towards non-U.S. clients, 
perhaps in a language other than English.
---------------------------------------------------------------------------

    A few commenters were concerned that the burden on advisers of 
updating social media information on Form ADV promptly if the 
information becomes inaccurate in any way would be great, given the 
frequency of changes in social media platforms and accounts.\98\ We 
believe that, by limiting the social media information required on Form 
ADV to an adviser's accounts on publicly available social media 
platforms where the adviser controls the content, the burden associated 
with reporting and updating that information should be limited. Because 
the social media environment is rapidly evolving, we think it will be 
useful to the Commission and investors to have current information on 
an adviser's use of social media on Form ADV. Additionally, this 
approach to updating social media reporting is consistent with our 
current approach to updating the other information required in Item 1 
of Part 1A, including information on advisers' Web sites.
---------------------------------------------------------------------------

    \98\ BlackRock Letter; Oppenheimer Letter; SIFMA Letter.
---------------------------------------------------------------------------

    Several commenters questioned the utility for investors of social 
media reporting in Part 1A of Form ADV.\99\ Commenters stated that 
investors who are interested in an adviser's social media presence will 
most likely look to the adviser's Web site or conduct an internet 
search to find the adviser's accounts on various social media 
platforms.\100\ We recognize that this is most likely the case. 
However, we believe that having current information on an adviser's 
social media presence collected in one place on Form ADV may be helpful 
to investors. Two commenters stated that investors generally do not 
read Part 1A of Form ADV and recommended that we consider including 
social media reporting in Part 2A of Form ADV instead.\101\ We 
recognize that investors may not look to Form ADV for information on an 
adviser's social media presence, but if they do, they will likely look 
to Item 1.I. of Part 1A and Section 1.I. of Schedule D because those 
are where we currently collect identifying information about an 
adviser, including information on an adviser's Web site or Web sites. 
In addition, a primary purpose of this item is to provide the 
Commission and our staff with information that may be used in our 
examination program and for other regulatory purposes. Accordingly, we 
believe it will be useful to the Commission to have information on an 
adviser's use of social media on Form ADV, and this placement in the 
form is an efficient and readily identifiable location for such 
information that appropriately serves our regulatory purposes.
---------------------------------------------------------------------------

    \99\ Comment Letter of the Association for Corporate Growth 
(Aug. 11, 2015) (``ACG Letter''); ASG Letter; JAG Letter; 
Morningstar Letter; PCA Letter.
    \100\ ASG Letter; JAG Letter; Morningstar Letter; Oppenheimer 
Letter; PCA Letter.
    \101\ Morningstar Letter; PCA Letter. See also Comment Letter of 
Jeff J. Diercks (May 22, 2015) (``Diercks Letter'').
---------------------------------------------------------------------------

    We are amending Item 1.F. of Part 1A of Form ADV and Section 1.F. 
of Schedule D largely as proposed to expand the information provided 
about an adviser's offices other than its principal office and place of 
business. We currently require an adviser to provide contact and other 
information about its principal office and place of business, and, if 
an adviser conducts advisory activities from more than one location, 
about its largest five offices in terms of number of employees.\102\ In 
order to help Commission examination staff learn more about an 
investment adviser's business and identify locations to conduct 
examinations, we are now requiring that advisers provide us with the 
total number of offices at which they conduct investment advisory 
business and provide information in Schedule D about their 25 largest 
offices in terms of number of employees.\103\ As discussed in the 
Proposing Release, we chose 25 offices as the number to be reported 
because it will provide a complete listing of offices for the vast 
majority of investment advisers, and provide valuable information about 
the main business locations for the few advisers that have a very large 
number of offices.\104\
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    \102\ Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule 
D.
    \103\ Amended Form ADV, Part 1A, Item 1.F. and Section 1.F. of 
Schedule D.
    \104\ See Proposing Release, supra footnote 3 at Section II.A.2. 
IAPD Investment Adviser Registered Representative State Data as of 
May 2, 2016 shows that a majority of SEC-registered advisers 
(approximately 98%) have 25 or fewer offices, but that many of the 
remaining two percent have many multiples of 25 offices.
---------------------------------------------------------------------------

    In addition to providing contact information for the 25 largest 
offices in terms of number of employees, we are amending Section 1.F. 
of Schedule D as proposed to require advisers to report each office's 
CRD branch number (if applicable) and the number of employees who 
perform advisory functions from each office, identify from a list of 
securities-related activities the business activities conducted from 
each office, and describe any other investment-related business 
conducted from each office. This information will help our staff assess 
risk, because it provides a better understanding of an investment 
adviser's operations and the nature of activities conducted in its top 
25 offices. This information also will assist our staff in assessing 
offices that conduct a combination of activities.
    Two commenters provided general support for our proposed enhanced 
reporting of adviser offices.\105\ However, several commenters 
expressed concern that our approach would impose a significant burden 
on advisers with little or no benefit to either the Commission or 
investors.\106\ Another commenter noted the substantial burden on 
advisers required to report additional offices, but acknowledged that 
burden would ease after the initial reporting period.\107\ We recognize 
that the burden on some large advisers might be significant, especially 
in the initial reporting cycle when they are required to report their 
additional offices for the

[[Page 60428]]

first time. However, we believe that the burden will decrease after the 
initial filing because in subsequent filings, advisers will only be 
reporting changes to their previously reported additional office 
information. Two commenters requested clarification on how often the 
additional office information should be updated.\108\ One commenter 
felt that annual updating of office locations would not be unduly 
burdensome but more frequent than annual updates would be 
burdensome.\109\ We agree and are requiring that Section 1.F. of 
Schedule D be updated as part of an adviser's annual updating amendment 
and not more frequently.\110\
---------------------------------------------------------------------------

    \105\ LPL Letter; NASAA Letter.
    \106\ ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; 
NYSBA Committee Letter.
    \107\ Morningstar Letter.
    \108\ ASG Letter; Morningstar Letter.
    \109\ ASG Letter.
    \110\ Amended Form ADV, General Instruction 4.
---------------------------------------------------------------------------

    One commenter expressed concern about our proposal's impact on 
smaller advisers and suggested that, as an alternative, we require 
advisers to (a) continue to provide information about their five 
largest additional offices, (b) report their total number of additional 
offices, and (c) report additional information only for their 
additional offices that meet a certain threshold of regulatory assets 
under management or that engage in certain enumerated practices of 
interest to the Commission.\111\ We currently require advisers to track 
their additional offices based upon number of employees.\112\ We 
understand that many advisers do not currently track their additional 
offices based upon the amount of regulatory assets under management 
attributable to each office and we believe that requiring them to do so 
would place an additional burden on advisers. For this reason, we are 
not changing our approach to additional office reporting.
---------------------------------------------------------------------------

    \111\ NRS Letter.
    \112\ Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule 
D.
---------------------------------------------------------------------------

    One commenter requested that we simplify the reporting of 
information about additional offices for firms that are dually 
registered as investment advisers with the Commission and as broker-
dealers with FINRA by allowing them to cross-reference to information 
submitted on their Uniform Branch Office Registration Form filed with 
FINRA.\113\ We agree and we are updating the IAPD system so that by 
entering a branch's CRD number, the address, phone number, and 
facsimile number of all additional offices will automatically populate 
on Section 1.F. of Schedule D.
---------------------------------------------------------------------------

    \113\ MMI Letter.
---------------------------------------------------------------------------

    Item 1.J. of Form ADV currently requires each adviser to provide 
the name and contact information for the adviser's chief compliance 
officer. We proposed amending Item 1.J. to require an adviser to report 
whether its chief compliance officer is compensated or employed by any 
person other than the adviser (or a related person of the adviser) for 
providing chief compliance officer services to the adviser, and if so, 
to report the name and IRS Employer Identification Number (if any) of 
that other person. We are adopting the amendments to Item 1.J. largely 
as proposed, but in addition to related persons of the adviser, as 
discussed below, advisers will not be required to disclose the identity 
of the other person compensating or employing the chief compliance 
officer if that other person is an investment company registered under 
the Investment Company Act of 1940 advised by the adviser.\114\
---------------------------------------------------------------------------

    \114\ Amended Form ADV, Part 1A, Item 1.J.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, our examination staff has 
observed a wide spectrum of both quality and effectiveness of 
outsourced chief compliance officers and firms.\115\ Identifying 
information for these third-party service providers, like others on 
Form ADV,\116\ will allow us to identify all advisers relying on a 
particular service provider and could be used to improve our ability to 
assess potential risks.
---------------------------------------------------------------------------

    \115\ Proposing Release, supra footnote 3 at Section II.A.2.
    \116\ For example, advisers provide the names and addresses of 
independent public accountants that perform audits or surprise 
examinations and that prepare internal control reports on Form ADV, 
Part 1A, Schedule D, Section 9.C.
---------------------------------------------------------------------------

    Two commenters expressed general support for our proposal to 
identify if chief compliance officers are compensated or employed by 
other parties for providing chief compliance officer services,\117\ and 
others expressed concern that the requirement would be unduly 
burdensome on advisers or that the information would be of little or no 
use to the Commission or investors.\118\ We are not persuaded that this 
requirement would be unduly burdensome because the adviser should have 
or be able to easily obtain the necessary information, and we continue 
to believe that this information will be valuable for the reasons 
discussed above.
---------------------------------------------------------------------------

    \117\ CFA Letter; NASAA Letter.
    \118\ ACG Letter; Comment Letter of L.A. Schnase (Jul. 2, 2015) 
(``Schnase Letter'') (would be duplicative of already reported 
information, raises privacy concerns with the chief compliance 
officer's other clients, would become inaccurate or out-of-date 
quickly, and would miss the situation of firms hiring comprehensive 
external compliance support with an in-house chief compliance 
officer in name only). See also NRS Letter (adviser may not have 
access to this information).
---------------------------------------------------------------------------

    One commenter felt that our inquiry should focus not on the chief 
compliance officer's other employment and/or compensation, but rather 
on the details of the compliance program and resources committed to 
address compliance risk (e.g., the chief compliance officer's education 
and professional designations, the number of other compliance 
employees, the estimated total hours spent on compliance, and the other 
duties of the chief compliance officer).\119\ We agree with the 
commenter's suggestion that evaluating the overall effectiveness of an 
adviser's compliance program relies heavily on the facts and 
circumstances specific to that adviser.\120\ However, we are adopting 
the amendments to Item 1.J. largely as proposed, because we believe 
that they meet our regulatory objective of identifying all advisers 
relying on particular service providers and may improve our ability to 
assess potential risks related to outsourced chief compliance officers 
and firms.
---------------------------------------------------------------------------

    \119\ Morgan Letter.
    \120\ Id.
---------------------------------------------------------------------------

    One commenter expressed concern that identifying outsourced chief 
compliance officers would invite additional scrutiny about an adviser's 
judgment in hiring externally versus internally.\121\ While we 
understand the commenter's concerns, we continue to believe that 
identifying information for these third-party service providers, like 
others on Form ADV, will allow us to identify all advisers relying on a 
particular service provider and to address potential risks associated 
with that service provider.
---------------------------------------------------------------------------

    \121\ Shearman Letter.
---------------------------------------------------------------------------

    Two commenters agreed with our proposal to specifically exclude 
situations where the chief compliance officer is paid or employed by a 
related person of the adviser.\122\ Two other commenters recommended 
that we specify that a related person includes a registered investment 
company advised by the adviser.\123\ These commenters noted that in 
many instances an individual may serve as the chief compliance officer 
of both an adviser and a registered investment company advised by the 
adviser and receive compensation from both the adviser and the 
registered investment company.\124\ These commenters stated that 
requiring advisers to disclose these arrangements does not further our 
objective of assessing the use of third party service

[[Page 60429]]

providers.\125\ We agree and we have updated Item 1.J.(2) to exclude 
chief compliance officers compensated or employed by an investment 
company registered under the Investment Company Act of 1940 advised by 
the adviser.
---------------------------------------------------------------------------

    \122\ MMI Letter; Morningstar Letter.
    \123\ Dechert Letter; IAA Letter.
    \124\ Id.
    \125\ Id.
---------------------------------------------------------------------------

    In the Proposing Release, we asked whether we should require 
information about an adviser's use of third-party compliance auditors. 
Two commenters supported such disclosure,\126\ but several commenters 
felt the disclosure would either not be useful or lead to incorrect 
inferences about the decision to use, or not use, external compliance 
support.\127\ Several commenters expressed concern that, due to the 
diversity of services provided by third-party compliance auditors, 
requiring an adviser to state whether or not it uses them would not be 
useful to the Commission from a risk monitoring perspective.\128\ 
Commenters also expressed concern that requiring an adviser to report 
on its use of third-party compliance auditors could lead to incorrect 
inferences about the adviser's compliance program. For example, 
advisers hiring third-party compliance auditors might be viewed as 
signaling a compliance issue, whereas advisers not hiring them might be 
viewed as not sufficiently focused on compliance.\129\ Two commenters 
expressed concern about confidentiality issues implicated by third-
party compliance auditor reporting.\130\ We are not requiring advisers 
to report information on Form ADV regarding third-party compliance 
auditors at this time.
---------------------------------------------------------------------------

    \126\ Comment Letter of Brown & Associates LLC (Aug. 10, 2015) 
(``Brown Letter''); NASAA Letter.
    \127\ ASG Letter; IAA Letter; MFA Letter; MMI Letter; NRS 
Letter; NYSBA Committee Letter; PEGCC Letter.
    \128\ IAA Letter; MFA Letter; NRS Letter; PEGCC Letter. See also 
ASG Letter (requested that we more clearly define ``auditor''); JGAS 
Letter; MMI Letter.
    \129\ IAA Letter; NYSBA Committee Letter; PEGCC Letter.
    \130\ Anonymous Letter; MMI Letter (these relationships are 
often confidential, such as where law firms are involved).
---------------------------------------------------------------------------

    We are amending Item 1.O. as proposed to require advisers with 
assets of $1 billion or more to report their assets within three 
ranges: (1) $1 billion to less than $10 billion; (2) $10 billion to 
less than $50 billion; and (3) $50 billion or more.\131\ We added Item 
1.O. in 2011 in connection with the Dodd-Frank Act's \132\ requirements 
concerning certain incentive-based compensation arrangements.\133\ 
Advisers are currently required to check a box to indicate if they have 
assets of $1 billion or more. Requiring advisers to report their assets 
within one of the three specified ranges will provide more precise data 
for use in Commission rulemaking arising from ongoing Dodd-Frank Act 
implementation.\134\
---------------------------------------------------------------------------

    \131\ Amended Form ADV, Part 1A, Item 1.O.
    \132\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \133\ See Rules Implementing Amendments to the Investment 
Advisers Act of 1940, Investment Advisers Act Release No. 3221 (June 
22, 2011) [76 FR 42950 (Jul. 19, 2011)] (``Implementing Release'') 
at Section II.C.6; section 956 of the Dodd-Frank Act. We are also 
moving the instruction for how to report ``assets'' for the purpose 
of Item 1.O. from the Instructions for Part 1A to Form ADV to Item 
1.O. in order to emphasize this instruction.
    \134\ See, e.g., section 165(i) of the Dodd-Frank Act (requires 
the Commission and other financial regulators to establish 
methodologies for the conduct of stress tests by financial companies 
with consolidated assets of over $10 billion); Incentive-based 
Compensation Arrangements, Exchange Act Release No. 34-77776 (May 6, 
2016) (identifies three categories of covered institutions based on 
average total consolidated assets, ranging from $1 billion to $250 
billion) (re-proposal of Exchange Act Release No. 34-64140); 
Incentive-Based Compensation Arrangements, Exchange Act Release No. 
34-64140 (Mar. 29, 2011) [76 FR 21170 (Apr. 14, 2011)].
---------------------------------------------------------------------------

    Two commenters expressed general support for our proposal to 
require advisers to report their own assets within specified 
ranges.\135\ Two commenters did not believe that the information would 
be useful.\136\ However, we continue to believe that requiring advisers 
to report their assets as described above will provide more accurate 
data for use in Commission rulemaking arising from ongoing Dodd-Frank 
Act implementation. Another commenter felt our proposal raised privacy 
issues for investors in an adviser where the adviser is privately 
held.\137\ While we are sensitive to privacy concerns, we believe that 
we have narrowly tailored our proposal to address these concerns. We 
are only requiring that advisers with significant assets (at least $1 
billion) report them and even then only within one of the three 
specified ranges. One commenter asked for clarification on the timing 
of the calculation of assets.\138\ The item, as proposed and adopted 
today, specifies that an adviser should use the total assets shown on 
the adviser's balance sheet for the most recent fiscal year end.\139\ 
We did not receive comments on the specific asset ranges.
---------------------------------------------------------------------------

    \135\ CFA Letter; PCA Letter.
    \136\ NRS Letter; NYSBA Committee Letter.
    \137\ Anonymous Letter.
    \138\ PEGCC Letter.
    \139\ Amended Form ADV, Part 1A, Item 1.O.
---------------------------------------------------------------------------

b. Additional Information About Advisory Business
    In addition to the amendments to Item 5 regarding separately 
managed accounts discussed above, we are adopting a number of other 
amendments to Item 5. Item 5 currently requires an adviser to provide 
approximate ranges for three data points concerning the adviser's 
business--the number of advisory clients, the types of advisory 
clients, and regulatory assets under management attributable to client 
types.\140\ As proposed, we are amending these items to require an 
adviser to report the number of clients \141\ and amount of regulatory 
assets under management attributable to each category of clients as of 
the date the adviser determines its regulatory assets under 
management.\142\ As we discussed in the Proposing Release, replacing 
ranges with more precise information will provide more accurate 
information about investment advisers and will significantly enhance 
our ability to analyze data across investment advisers because 
providing actual numbers of clients and regulatory assets under 
management will allow us to see the scale and concentration of assets 
by client type.\143\ It will also allow us to determine the regulatory 
assets under management attributable to separately managed accounts. We 
believe that the information needed for providing the number of clients 
and amount of regulatory assets under management by client type should 
be readily available to advisers because advisers are producing this 
data to answer the current iterations of these questions on Form ADV 
and advisers typically base their advisory fees on client assets under 
management.
---------------------------------------------------------------------------

    \140\ Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)-(2).
    \141\ Amended Form ADV, Part 1A, Item 5.D.(1)-(2). Advisers with 
fewer than five clients in a particular category (other than 
investment companies, business development companies and other 
pooled investment vehicles) may check Item 5.D.(2) indicating that 
fact rather than report the actual number of clients in the 
particular category in Item 5.D.(1).
    \142\ Amended Form ADV, Part 1A, Item 5.D.(3). The categories of 
clients are the same as those in Item 5.D. of the current Form ADV, 
except that we are adding ``sovereign wealth funds and foreign 
official institutions'' as a client category, and specifying that 
state or municipal government entities include government pension 
plans, and that government pension plans should not be counted as 
pension and profit sharing plans.
    \143\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    We also are adding to Item 5 as proposed a requirement for advisers 
to report the number of clients for whom they provided advisory 
services but do not have regulatory assets under management in order to 
obtain a more complete understanding of each

[[Page 60430]]

adviser's advisory business.\144\ As we explained in the Proposing 
Release, this information will assist in our risk assessment process 
and increase the effectiveness of our examinations.\145\
---------------------------------------------------------------------------

    \144\ Amended Form ADV, Part 1A, Item 5.C.(1). An example of a 
situation where an adviser provides investment advice but does not 
have regulatory assets under management is a nondiscretionary 
account or a one-time financial plan, depending on the facts and 
circumstances.
    \145\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    Some commenters were generally supportive of our proposal to 
replace ranges with more precise information.\146\ Several commenters 
stated that advisers would need to update computer systems to obtain 
this data, and raised concerns about the increased burden that our 
proposal would place on advisers.\147\ One commenter felt that removing 
an adviser's ability to rely on estimates of the amount of regulatory 
assets under management would increase the time required to prepare 
Item 5.D.\148\ We are not convinced that the burden placed on advisers 
by the requirement to report precise information will be significant. 
We continue to believe that the required information should be readily 
available to advisers because advisers are producing this data to 
answer the current iterations of these questions on Form ADV and 
advisers typically base their advisory fees on client assets under 
management.
---------------------------------------------------------------------------

    \146\ NRS Letter; PCA Letter; CFA Letter (generally supportive 
but questions the usefulness of actual numbers rather than ranges); 
NASAA Letter (supports reporting the number of clients for whom an 
adviser provides advisory services but does not have regulatory 
assets under management).
    \147\ ASG Letter; MMI Letter. See LPL Letter.
    \148\ ASG Letter.
---------------------------------------------------------------------------

    Some commenters suggested that our proposal to replace ranges with 
more precise information would heighten the risk of inaccurate 
reporting on Form ADV.\149\ Commenters suggested that instead of 
requiring more precise information, we require advisers to report only 
an approximate number of clients and regulatory assets under management 
so as not to penalize advisers for ``minor or inadvertent 
inaccuracies'' \150\ and one commenter suggested using narrower 
ranges.\151\ Our goal in collecting more precise information is not to 
penalize advisers for minor inaccuracies but to enhance our ability to 
analyze data across investment advisers and allow us to see the scale 
and concentration of assets by client type. We collect numerical data 
throughout Form ADV, and we believe that advisers have access to the 
information required to accurately complete Item 5.
---------------------------------------------------------------------------

    \149\ ASG Letter; LPL Letter; MMI Letter.
    \150\ LPL Letter. See also IAA Letter.
    \151\ MMI Letter.
---------------------------------------------------------------------------

    One commenter expressed skepticism that the amendments would 
provide new, meaningful information to investors.\152\ However, we 
believe that investors potentially will benefit from having a more 
complete understanding of an investment adviser's business. In 
addition, we believe that investors will indirectly benefit from our 
enhanced ability to analyze data across investment advisers, including 
the scale and concentration of assets by client type.
---------------------------------------------------------------------------

    \152\ ACG Letter.
---------------------------------------------------------------------------

    One commenter expressed concern that the reporting of precise 
numbers might reveal confidential client relationships or the amount of 
regulatory assets under management attributable to specific 
clients.\153\ We are sensitive to these privacy concerns, and, as noted 
above, we are revising Form ADV, Part 1A, Item 5.D. to allow advisers 
with fewer than five clients in a particular category (other than 
investment companies, business development companies and other pooled 
investment vehicles) to check Item 5.D.(2) indicating that fact rather 
than report the actual number of clients in the particular category in 
Item 5.D.(1).\154\
---------------------------------------------------------------------------

    \153\ Anonymous Letter.
    \154\ Amended Form ADV, Part 1A, Item 5.D.(1)-(2).
---------------------------------------------------------------------------

    Several commenters requested clarification in situations where a 
client fits into more than one client category.\155\ Specifically, two 
commenters requested that the Commission clarify whether an adviser 
that has contracts with other advisers to sub-advise registered 
investment companies, business development companies or pooled 
investment vehicles should categorize those clients as either (1) 
``other investment advisers'' because other investment advisers hold 
the contracts, or as (2) ``investment companies,'' ``business 
development companies,'' or ``pooled investment vehicles,'' as 
applicable, because those entities hold the regulatory assets under 
management.\156\ We are updating the instructions to Item 5.D. to state 
that, to the extent that the adviser advises a registered investment 
company, business development company, or pooled investment vehicle, 
the adviser should report those sub-advised assets in categories (d), 
(e), or (f) as applicable.\157\ We also are amending the instructions 
in the text preceding Item 5.D., in response to a comment that we 
received,\158\ to state that if a client fits into more than one 
category, then the adviser should select the category that most 
accurately represents the client in order to avoid double counting 
clients and assets.\159\
---------------------------------------------------------------------------

    \155\ Anonymous Letter; ASG Letter; IAA Letter; SIFMA Letter.
    \156\ ASG Letter; IAA Letter.
    \157\ Amended Form ADV, Part 1A, Item 5.D.
    \158\ SIFMA Letter.
    \159\ Amended Form ADV, Part 1A, Item 5.D.
---------------------------------------------------------------------------

    Some commenters requested more specific definitions for the 
categories of clients.\160\ However, most of the categories have not 
changed from current Form ADV and, based upon our experience with Form 
ADV, we believe that they are sufficiently clear. At the suggestion of 
two commenters,\161\ we are moving the category labeled ``Corporations 
or other businesses not listed above'' down in the table so that it 
appears just above the category labeled ``Other.'' \162\
---------------------------------------------------------------------------

    \160\ IAA Letter (Commission should clarify whether a 
``sovereign wealth fund and foreign official institution'' includes 
the account of any government or quasi-government entity). 
Morningstar Letter (Commission should add definitions for 
categories, including ``other,'' and provide a list of common 
custodian account types and how they map to the client categories).
    \161\ IAA Letter; SIFMA Letter.
    \162\ Amended Form ADV, Part 1A, Item 5.D.
---------------------------------------------------------------------------

    We are adopting, largely as proposed, several targeted additions to 
Item 5 and Section 5 of Schedule D to inform our risk-based exam 
program and other risk monitoring initiatives. An adviser that elects 
to report client assets in Part 2A of Form ADV differently from the 
regulatory assets under management it reports in Part 1A of Form ADV is 
now required to check a box noting that election.\163\ As discussed in 
the Proposing Release, this information will allow our examination 
staff to review across advisers the extent to which advisers report 
assets under management in Part 2A that differ from the regulatory 
assets under management reported in Part 1A of Form ADV.\164\ Having 
this information will allow our staff to better understand the 
situations

[[Page 60431]]

in which the calculations differ, and assist us in analyzing whether 
those differences require a regulatory response.
---------------------------------------------------------------------------

    \163\ Amended Form ADV, Part 1A, Item 5.J.(2). Form ADV, Part 
2A, Item 4.E. requires an investment adviser to disclose the amount 
of client assets it manages on a discretionary basis and on a non-
discretionary basis. The method used by an adviser to compute the 
amount of client assets it manages can be different from the method 
used to compute regulatory assets under management required for Item 
5.F. in Part 1A. As discussed in the proposing release for Part 2, 
the regulatory assets under management calculation for Part 1A is 
designed for a particular purpose (i.e., for making a bright line 
determination about whether an adviser should register with the 
Commission or with the states) and permitting a different 
calculation for Part 2 disclosure may be appropriate to enable 
advisers to make disclosure that is more indicative to clients about 
the nature of their business. See Amendments to Form ADV, Investment 
Advisers Act Release No. 2711 (Mar. 3, 2008) [73 FR 13958 (Mar. 14, 
2008)].
    \164\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    One commenter asserted that this information would not be 
meaningful to investors.\165\ Another commenter noted that advisers may 
report additional assets in Part 2A of Form ADV, rather than calculate 
regulatory assets under management differently than they do in Part 1A 
of Form ADV.\166\ We continue to believe that Item 5.J.(2) will provide 
the staff with helpful information regarding these calculations.
---------------------------------------------------------------------------

    \165\ ACG Letter.
    \166\ PCA Letter (stating that when advisers report different 
client assets in Part 2A than regulatory assets under management in 
Part 1A of Form ADV, it is frequently due to additional assets being 
included in the Part 2A calculation, such as non-discretionary 
assets that are under ``advisement,'' rather than a different method 
of calculating assets under management).
---------------------------------------------------------------------------

    In addition, largely as proposed, we are adding a question asking 
the approximate amount of an adviser's total regulatory assets under 
management that is attributable to clients that are non-United States 
persons \167\ to complement the current requirement that each adviser 
report the percentage of its clients that are non-United States 
persons, which, based on our experience, is not always a reliable 
indicator of an adviser's relationships with non-U.S. clients.\168\ As 
noted in the Proposing Release, our examination staff can use this 
information to better understand the extent of investment advice 
provided to non-U.S. clients which will assist in our risk assessment 
process.\169\ In our proposal, we used the term ``non-U.S. client'' and 
commenters sought clarification of the definition of ``non-U.S. 
client.'' \170\ In response, the amendments that we are adopting today 
use the term ``non-United States person'' in Item 5.F.(3). The Glossary 
to Form ADV provides that ``United States person'' has the same meaning 
as in rule 203(m)-1 under the Advisers Act, which includes any natural 
person that is resident in the United States.
---------------------------------------------------------------------------

    \167\ Amended Form ADV, Part 1A, Item 5.F.(3).
    \168\ Form ADV, Part 1A, Item 5.C.(2). For example, an adviser 
may report a significant percentage of clients that are non-United 
States persons, but the regulatory assets under management 
attributable to those clients is a small percentage of the adviser's 
regulatory assets under management.
    \169\ Proposing Release, supra footnote 3 at Section II.A.2.
    \170\ Oppenheimer Letter; SIFMA Letter.
---------------------------------------------------------------------------

    Section 5.G.(3) of Schedule D currently requires advisers to report 
the SEC File Number for registered investment companies and business 
development companies that they advise. Largely as proposed, we are 
adding to Section 5.G.(3) a requirement that advisers report the 
regulatory assets under management of all parallel managed accounts 
related to a registered investment company (or series thereof) or 
business development company that they advise.\171\ As described in the 
Proposing Release, this information will permit our staff to assess the 
accounts and consider how an adviser manages conflicts of interest 
between parallel managed accounts and registered investment companies 
or business development companies advised by the adviser.\172\ This 
information also will show the extent of any shift in assets between 
parallel managed accounts and registered investment companies or 
business development companies.
---------------------------------------------------------------------------

    \171\ Amended Form ADV, Part 1A, Section 5.G.(3) of Schedule D. 
The Glossary to Amended Form ADV includes ``parallel managed 
account,'' which is defined as: ``With respect to any registered 
investment company or series thereof or business development 
company, a parallel managed account is any managed account or other 
pool of assets that you advise and that pursues substantially the 
same investment objective and strategy and invests side by side in 
substantially the same positions as the identified investment 
company or series thereof or business development company that you 
advise.''
    \172\ Proposing Release, supra footnote 3 at Section II.A.2.
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    Some commenters questioned the usefulness of collecting information 
on parallel managed accounts \173\ or thought that disclosures about 
parallel managed accounts would not produce meaningful results or could 
be misleading.\174\ We recognize that there may be different reasons 
for assets to shift between parallel managed accounts and registered 
investment companies or business development companies, but that does 
not make the additional information less useful to the staff in 
considering how advisers manage conflicts of interest and assessing the 
extent of any shift in assets for risk monitoring purposes.
---------------------------------------------------------------------------

    \173\ BlackRock Letter (suggesting that asking during 
examinations for an adviser's policies related to fair treatment of 
all accounts, and testing of compliance with those policies, would 
better achieve the objective); IAA Letter; Comment Letter of Small 
Business Investor Alliance (Aug. 11, 2015) (``SBIA Letter'') 
(opining that the proposal adds unnecessary reporting for advisers 
of business development companies and is duplicative of Form N-2). 
We believe the information to be collected in Section 5.G.(3) is 
different from the information collected on Form N-2 regarding 
closed-end funds and business development companies because the 
information collected on Form N-2 regarding management of other 
accounts focuses on individual portfolio managers, while the 
information collected on Form ADV is reported at the adviser level.
    \174\ Anonymous Letter (stating there are many reasons assets 
could shift between parallel managed accounts and registered 
investment companies or business development companies); BlackRock 
Letter.
---------------------------------------------------------------------------

    Some commenters noted that registered investment companies often 
have multiple series, each with its own portfolio manager, investment 
strategy, and holdings; and that the concept of a parallel managed 
account could only be applied in the registered investment company 
context on a series-by-series basis.\175\ In response, we have updated 
Section 5.G.(3) to clarify that parallel managed accounts related to a 
registered investment company (or a series thereof) should be reported.
---------------------------------------------------------------------------

    \175\ IAA Letter; Oppenheimer Letter; SIFMA Letter.
---------------------------------------------------------------------------

    One commenter felt that advisers would have difficulty interpreting 
the requirement that a parallel managed account pursue ``substantially 
the same investment objective and strategy'' as the relevant investment 
company or business development company.\176\ Advisers should use their 
best judgment and make a good faith determination as to whether the 
investment objectives and strategies in question are ``substantially 
the same.'' We note that many private fund advisers already make this 
determination when filling out Form PF.\177\
---------------------------------------------------------------------------

    \176\ PCA Letter.
    \177\ The definition of ``parallel managed account,'' supra 
footnote 171, is consistent with the Form PF definition of 
``parallel managed account.'' Form PF, Glossary of Terms.
---------------------------------------------------------------------------

    One commenter asked for confirmation that the value of derivatives 
held in a parallel managed account should be calculated using the 
market value of the derivatives rather than the gross notional value, 
if that is how the value of the account is reported to the account 
holder.\178\ We agree that market value should be used in such a 
case.\179\
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    \178\ IAA Letter.
    \179\ This approach is consistent with the staff's view on how 
the value of a parallel managed account should be calculated on Form 
PF. See Form PF, Frequently Asked Questions. The staff's response to 
Question 11 on reporting value states that ``When calculating the 
value of a parallel managed account for purposes of either 
determining whether it is a dependent parallel managed account that 
is aggregated with the reporting fund or reporting its value in 
Question 11, you should use the market value of the derivatives held 
in the parallel managed account, instead of the gross notional 
value, if that is how the value of the account is reported to the 
account holder.''
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    Finally, we are amending Item 5, largely as proposed, to obtain 
additional information concerning wrap fee programs.\180\ Item 5.I. of 
Part 1A currently requires an adviser to indicate whether it serves as 
a sponsor of or portfolio manager for a wrap fee

[[Page 60432]]

program. We are amending Item 5.I. to ask whether the adviser 
participates in a wrap fee program, and if so, the total amount of 
regulatory assets under management attributable to acting as a sponsor 
to or portfolio manager for a wrap fee program.\181\ One commenter 
noted that many advisers act as both the sponsor of and a portfolio 
manager for the same wrap fee program and that this could cause those 
advisers to double count their regulatory assets under management 
attributable to wrap fee programs in Item 5.I.\182\ We agree and have 
added a question to Item 5.I. that asks for the total amount of 
regulatory assets under management attributable to the adviser acting 
as both sponsor to and portfolio manager for the same wrap fee program. 
To prevent advisers from double-counting assets, we added an 
instruction that assets reported in this new category should not be 
reported elsewhere in Item 5.I.(2).
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    \180\ The Glossary to Form ADV defines a wrap fee program as 
``[a]ny advisory program under which a specified fee or fees not 
based directly upon transactions in a client's account is charged 
for investment advisory services (which may include portfolio 
management or advice concerning the selection of other investment 
advisers) and the execution of client transactions.'' We are not 
amending this definition.
    \181\ Amended Form ADV, Part 1A, Item 5.I.
    \182\ MMI Letter.
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    Section 5.I.(2) of Schedule D currently requires an adviser to list 
the name and sponsor of each wrap fee program for which the adviser 
serves as portfolio manager. We are amending Section 5.I.(2), as 
proposed, to add questions that require an adviser to provide any SEC 
File Number and CRD Number for sponsors to those wrap fee 
programs.\183\ As discussed in the Proposing Release, this information 
will help us better understand a particular adviser's business and 
assist in our risk assessment and examination process by making it 
easier for our staff to identify the extent to which the firm acts as 
sponsor or portfolio manager of wrap fee programs and collect 
information across investment advisers involved in a particular wrap 
fee program.\184\
---------------------------------------------------------------------------

    \183\ Amended Form ADV, Part 1A, Section 5.I.(2) of Schedule D.
    \184\ Proposing Release, supra footnote 3 at Section II.A.2.
---------------------------------------------------------------------------

    One commenter was generally supportive of our proposed reporting on 
wrap fee programs, but questioned its usefulness to investors and 
market participants.\185\ As discussed above, our enhanced wrap fee 
reporting is designed to assist our staff in its risk assessment and 
examination process. Three commenters requested further clarification 
regarding the existing definition of a wrap fee program.\186\ We are 
not changing or clarifying the existing definition of a ``wrap fee 
program'' that is included in Form ADV because, based on our experience 
with the Form, we believe it has been sufficiently clear.
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    \185\ CFA Letter.
    \186\ ASG Letter (asking whether an adviser will be deemed to 
participate in a wrap fee program if the adviser negotiates an 
asset-based fee with a broker and pays that fee rather than having 
the client pay that fee); PCA Letter (asking whether an adviser will 
be deemed to ``participate'' in a wrap fee program as a result of 
placing client funds (or recommending that clients place non-
discretionary funds) in one or more programs sponsored by 
unaffiliated third parties, but in which the adviser does not serve 
as the sponsor or a portfolio manager). See also NRS Letter 
(suggesting that we require wrap fee program sponsors to report the 
combined regulatory assets under management for themselves and any 
independent portfolio managers in their program).
---------------------------------------------------------------------------

c. Additional Information About Financial Industry Affiliations and 
Private Fund Reporting
    Part 1A, Section 7.A. of Schedule D requires information on an 
adviser's financial industry affiliations and Section 7.B.(1) of 
Schedule D requires information on private funds managed by the 
adviser. We are adopting as proposed amendments to Sections 7.A. and 
7.B.(1) of Schedule D that require an adviser to provide identifying 
numbers (i.e., Public Company Accounting Oversight Board (``PCAOB'')-
assigned numbers \187\ and CIK Numbers \188\) in response to two 
questions to allow us to better compare information across data sets 
and understand the relationships of advisers to other financial service 
providers.
---------------------------------------------------------------------------

    \187\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23(e).
    \188\ Amended Form ADV, Part 1A, Section 7.A of Schedule D, 
Question 4(b).
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    Two commenters were concerned that, by requiring an adviser to 
report the PCAOB-assigned number of its auditing firm (if applicable), 
we are suggesting that using a PCAOB-registered auditing firm is 
required by the Commission.\189\ This is not our intent. An auditing 
firm performing a surprise examination is not required to be registered 
with the PCAOB unless the adviser or its related person is serving as 
qualified custodian.\190\
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    \189\ Shearman Letter. See Comment Letter of American Institute 
of Certified Public Accountants, Financial Reporting Executive 
Committee (Aug. 17, 2015) (``AICPA Letter'').
    \190\ Rules 206(4)-2(a)(4) and 206(4)-2(a)(6)(i).
---------------------------------------------------------------------------

    In addition, we are adding a question to Section 7.B.(1) of 
Schedule D to require an adviser to a private fund that qualifies for 
the exclusion from the definition of investment company under section 
3(c)(1) of the Investment Company Act of 1940 (a ``3(c)(1) fund'') to 
report whether it limits sales of the fund to qualified clients, as 
defined in rule 205-3 under the Advisers Act.\191\ As proposed, the 
question would have required an adviser to report, for every private 
fund that it advises (including any private fund that qualifies for the 
exclusion from the definition of ``investment company'' under section 
3(c)(7) of the Investment Company Act of 1940 (``3(c)(7) fund''), the 
approximate percentage of the private fund beneficially owned (in the 
aggregate) by qualified clients.\192\ One commenter supported the 
rationale for our proposal; \193\ however other commenters questioned 
the value of the question and were concerned about situations where the 
qualified client status of an investor is not known, or does not need 
to be determined.\194\ We continue to believe that this information 
will give us a better sense of the financial sophistication and nature 
of investors in private funds, but in response to comments, we are 
making two changes from our proposal.
---------------------------------------------------------------------------

    \191\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 15(b). Current Question 15 will become Question 15(a).
    \192\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 15(b).
    \193\ CFA Letter.
    \194\ ACG Letter; Anonymous Letter; SBIA Letter.
---------------------------------------------------------------------------

    First, we are limiting the question to 3(c)(1) funds because each 
investor in a 3(c)(7) fund is required to meet the higher ``qualified 
purchaser'' standard.\195\ Second, we are revising the question to 
require a simple yes or no response as to whether the adviser limits 
sales of a fund to qualified clients instead of requiring advisers to 
report the percentage of ownership of the fund by qualified clients. 
Commenters noted that many advisers that are not registered with the 
Commission (e.g., exempt reporting advisers \196\) are not required to 
determine whether the fund's investors are qualified clients.\197\ 
These advisers may simply respond ``No'' to the revised question. Other 
commenters asked us to clarify whether advisers must re-certify the 
qualified client status of their investors annually.\198\ As long as an 
investor met

[[Page 60433]]

the definition of a ``qualified client'' when it entered into the 
advisory contract with the adviser, then the investor is considered a 
``qualified client'' even if it no longer meets the dollar amount 
thresholds of the rule. This is consistent with our existing approach 
to the definition of qualified client.\199\
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    \195\ ``Qualified purchaser'' is defined in Section 2(a)(51) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)).
    \196\ An exempt reporting adviser is an investment adviser that 
qualifies for the exemption from registration under section 203(l) 
of the Advisers Act because it is an adviser solely to one or more 
venture capital funds, or under rule 203(m)-1 under the Advisers Act 
because it is an adviser solely to private funds and has assets 
under management in the United States of less than $150 million. See 
Form ADV, Glossary.
    \197\ ACG Letter; SBIA Letter. See also Anonymous Letter. 
Section 205(a) of the Advisers Act only applies to advisers who are 
registered or required to be registered with the Commission and 
generally restricts advisers from entering into, extending, 
renewing, or performing any advisory contract that provides for 
performance-based compensation. Rule 205-3 permits advisers to 
charge performance-based compensation to ``qualified clients,'' as 
defined in the rule. Advisers who are registered or required to be 
registered with the Commission are otherwise prohibited from 
charging performance-based compensation.
    \198\ JGAS Letter; SBIA Letter. See also PCA Letter.
    \199\ See Investment Adviser Performance Compensation, 
Investment Advisers Act Release No. 3372 (Feb. 15, 2012) [77 FR 
10358 (Feb. 22, 2012)].
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3. Umbrella Registration
    We are adopting, as proposed, amendments to Form ADV that codify 
umbrella registration for certain advisers to private funds. We are 
adopting the amendments today because we believe that umbrella 
registration should be made available to those private fund advisers 
that are registered with us and operate a single advisory business 
through multiple legal entities. Umbrella registration is not 
mandatory, but we believe it will simplify the registration process for 
these advisers, and provide additional and more consistent data about, 
and create a clearer picture of, groups of private fund advisers that 
operate a single advisory business through multiple legal entities. The 
amendments also will allow for greater comparability across private 
fund advisers.
    As we discussed in the Proposing Release, the Dodd-Frank Act 
repealed the private adviser exemption that used to be in section 
203(b)(3) of the Advisers Act.\200\ As a result, many previously 
unregistered advisers to private funds,\201\ including hedge funds and 
private equity funds, were required to register under the Advisers Act. 
Today, about 4,469 registered investment advisers provide advice on 
approximately $10.5 trillion in assets to approximately 30,896 private 
funds clients.\202\
---------------------------------------------------------------------------

    \200\ Section 403 of the Dodd-Frank Act. Section 203(b)(3) of 
the Advisers Act (the ``private adviser exemption'') previously 
exempted any investment adviser from registration if the investment 
adviser (i) had fewer than 15 clients in the preceding 12 months, 
(ii) did not hold itself out to the public as an investment adviser 
and (iii) did not act as an investment adviser to a registered 
investment company or a company that elected to be a business 
development company.
    \201\ Section 202(a)(29) of the Advisers Act defines the term 
``private fund'' as ``an issuer that would be an investment company, 
as defined in section 3 of the Investment Company Act of 1940 (15 
U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act.''
    \202\ Based on IARD system data as of May 16, 2016.
---------------------------------------------------------------------------

    For a variety of tax, legal and regulatory reasons, advisers to 
private funds may be organized as a group of related advisers that are 
separate legal entities but effectively operate as--and appear to 
investors and regulators to be--a single advisory business. Although 
these separate legal entities effectively operate as a single advisory 
business,\203\ Form ADV was designed to accommodate the registration 
request of an adviser structured as a single legal entity. As a result, 
private fund advisers that operated as a single advisory business but 
were organized as separate legal entities may have had to file multiple 
registration forms, even though the registration effectively was for 
the same 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.
---------------------------------------------------------------------------

    \203\ We treat as a single adviser two or more affiliated 
advisers that are separate legal entities but are operationally 
integrated, which could result in a requirement for one or both 
advisers to register. See Exemptions for Advisers to Venture Capital 
Funds, Private Fund Advisers With Less Than $150 Million in Assets 
Under Management, and Foreign Private Advisers, Investment Advisers 
Act Release No. 3222 (June 22, 2011) [76 FR 39646 (Jul. 6, 2011)] 
(``Exemptions Release''). See also In the Matter of TL Ventures 
Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) 
(settled action).
---------------------------------------------------------------------------

    Our staff provided guidance to private fund advisers before the 
compliance date of the Dodd-Frank Act private fund adviser registration 
requirements designed to address concerns raised by advisers.\204\ The 
guidance provided conditions under which the staff believed one adviser 
(the ``filing adviser'') could file a single Form ADV on behalf of 
itself and other advisers that were controlled by or under common 
control with the filing adviser (each, a ``relying adviser''), provided 
that they conducted a single advisory business (collectively an 
``umbrella registration'').
---------------------------------------------------------------------------

    \204\ See 2012 ABA Letter, supra footnote 5. The Division of 
Investment Management previously provided no-action relief to enable 
a special purpose vehicle (``SPV'') that acts as a private fund's 
general partner or managing member to essentially rely upon its 
parent adviser's registration with the Commission rather than 
separately register. See American Bar Association Subcommittee on 
Private Investment Entities, SEC Staff Letter (Dec. 8, 2005), 
available at https://www.sec.gov/divisions/investment/noaction/aba120805.htm (``2005 ABA Letter'') at Question G1.
---------------------------------------------------------------------------

    We believe that most advisers that can rely on umbrella 
registration are doing so, with approximately 743 filing advisers and 
approximately 2,587 relying advisers filing umbrella 
registrations.\205\ However, the method outlined in the staff guidance 
for filing an umbrella registration was limited by the fact that the 
form was designed for a single legal entity. This created confusion for 
filers and the public. It also complicated our staff's data collection 
and analysis on umbrella registrants.\206\ Today's amendments are 
designed to ameliorate these issues.
---------------------------------------------------------------------------

    \205\ Based on IARD system data as of May 16, 2016.
    \206\ Under the guidance provided by the staff, for example, 
umbrella registration was appropriate where a relying adviser was 
not prohibited from registering with the Commission by section 203A 
of the Advisers Act. See 2012 ABA Letter, supra footnote 5. However, 
a relying adviser did not have a way to answer Item 2 regarding the 
basis on which it was eligible for SEC registration. In addition, 
relying advisers often had to list owners and executive officers in 
a confusing manner in Schedules A and B which were not designed to 
accommodate multiple advisers and did not always provide the 
Commission staff with useful information on the owners of each 
relying adviser. Also, the filing adviser disclosed its reliance on 
the 2012 ABA Letter in the Miscellaneous Section of Schedule D.
---------------------------------------------------------------------------

    We are adopting, as proposed, amendments to Form ADV's General 
Instructions that establish conditions for an adviser to assess whether 
umbrella registration is available. The conditions we are adopting 
today are the same as the conditions set forth in the staff's guidance 
that many investment advisers have relied on since 2012 (except that 
the staff's guidance also included disclosure conditions for Form ADV, 
the substance of which is covered elsewhere in this Release).\207\ The 
conditions are as follows:
---------------------------------------------------------------------------

    \207\ See 2012 ABA Letter, supra footnote 5 at Question 4.
---------------------------------------------------------------------------

    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; \208\
---------------------------------------------------------------------------

    \208\ The Glossary to Form ADV provides that ``United States 
person'' has the same meaning as in rule 203(m)-1 under the Advisers 
Act, which includes any natural person that is resident in the 
United States.
---------------------------------------------------------------------------

    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

[[Page 60434]]

the persons acting on its behalf are ``persons associated with'' the 
filing adviser (as defined in section 202(a)(17) of the Advisers Act);
    4. The advisory activities of each relying adviser are subject to 
the Advisers Act and the rules thereunder, and each relying adviser is 
subject to examination by the Commission; and
    5. The filing adviser and each relying adviser operate under a 
single code of ethics adopted in accordance with rule 204A-1 under the 
Advisers Act and a single set of written policies and procedures 
adopted and implemented in accordance with rule 206(4)-(7) under the 
Advisers Act and administered by a single chief compliance officer in 
accordance with that rule.\209\
---------------------------------------------------------------------------

    \209\ The code of ethics and written policies and procedures 
must be administered as if the filing adviser and each relying 
adviser are part of a single entity, although they may take into 
account, for example, that a relying adviser operating in a 
different jurisdiction may have obligations that differ from the 
filing adviser or another relying adviser.
---------------------------------------------------------------------------

    The conditions are designed to limit eligibility for umbrella 
registration to groups of private fund advisers that operate as a 
single advisory business. For purposes of umbrella registration, we 
consider the following factors as indicia of a single advisory 
business: Commonality of advisory services and clients; a consistent 
application of the Advisers Act and the rules thereunder to all 
advisers in the business; and a unified compliance program. The 
conditions that we are adopting today are designed to demonstrate these 
factors. Condition 1 limits eligibility for umbrella registration to 
private fund advisers with a commonality of advisory services and 
clients. Conditions 2 and 4 are designed to provide assurance that our 
staff has access to and can readily examine the filing and relying 
advisers and that the Advisers Act and the rules thereunder fully apply 
to all advisers under the umbrella registration and clients of those 
advisers. Conditions 3 and 5 are designed to provide assurance that the 
filing and relying advisers are subject to a unified compliance 
program. Based on our experience, we believe that the conditions, when 
taken together, are a strong indication of the existence of a single 
private fund advisory business operating through the use of multiple 
legal entities.
    In addition, we are amending the General Instructions as proposed 
to provide advisers using umbrella registration directions on 
completing Form ADV for the filing adviser and each relying adviser, 
including details for filing umbrella registration requests and the 
timing of filings and amendments in connection with an umbrella 
registration.\210\ To satisfy the requirements of Form ADV while using 
umbrella registration, the filing adviser is required to file, and 
update as required, a single Form ADV (Parts 1 and 2) that relates to, 
and includes all information concerning, the filing adviser and each 
relying adviser, and must include this same information in any other 
reports or filings it must make under the Advisers Act or the rules 
thereunder (e.g., Form PF). The revisions to the form's Instructions 
and Form ADV further specify those questions that should be answered 
solely with respect to the filing adviser and those that require the 
filing adviser to answer on behalf of itself and its relying 
adviser(s).\211\ Additionally, we are amending the Glossary as proposed 
to add the following three terms: (i) ``filing adviser;'' \212\ (ii) 
``relying adviser;'' \213\ and (iii) ``umbrella registration.'' \214\
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    \210\ See Form ADV, General Instruction 5.
    \211\ See, e.g., statements added to Form ADV, Instructions and 
Part 1A, Items 1, 2, 3, 7, 10 and 11.
    \212\ ``Filing Adviser'' means: ``An investment adviser eligible 
to register with the SEC that files (and amends) a single umbrella 
registration on behalf of itself and each of its relying advisers.'' 
See Form ADV, Glossary.
    \213\ ``Relying Adviser'' means: ``An investment adviser 
eligible to register with the SEC that relies on a filing adviser to 
file (and amend) a single umbrella registration on its behalf.'' See 
Form ADV, Glossary.
    \214\ ``Umbrella Registration'' means: ``A single registration 
by a filing adviser and one or more relying advisers who 
collectively conduct a single advisory business and that meet the 
conditions set forth in General Instruction 5.'' See Form ADV, 
Glossary.
---------------------------------------------------------------------------

    We also are adopting as proposed a new schedule to Part 1A--
Schedule R--that must be filed for each relying adviser.\215\ Schedule 
R requires identifying information, basis for SEC registration, and 
ownership information about each relying adviser, some of which was 
already filed by an adviser relying on the staff guidance.\216\ This 
new schedule consolidates in one location information for each relying 
adviser and addresses the problem the staff faced in its guidance that 
resulted in information regarding relying advisers being submitted in 
response to a number of different items on the Form, in ways not 
consistent across advisers, due to the fact that Form ADV was not 
designed to accommodate umbrella registration.\217\ We believe that 
certain information that we are requiring (such as mailing address and 
basis for registration) is the same for nearly all relying advisers, 
and the filing adviser can check a box indicating that the mailing 
address of the relying advisers is the same as that of the filing 
adviser. Finally, we are adding, as proposed, a new question to 
Schedule D that requires advisers to identify the filing advisers and 
relying advisers that manage or sponsor private funds reported on Form 
ADV.\218\ This information will allow us to identify the specific 
adviser managing the private fund reported on Form ADV if it is part of 
an umbrella registration. We believe that this information will help us 
better understand the management of private funds, will provide 
information to contact relying advisers, and will help us better 
understand the relationship between relying advisers and filing 
advisers.
---------------------------------------------------------------------------

    \215\ Advisers that choose to file an umbrella registration are 
directed by Item 1.B. to complete a new Schedule R for each relying 
adviser. Form ADV, Part 1A, Item 1.B.(2).
    \216\ Schedule R requires the following information for each 
relying adviser: Identifying information (Section 1); basis for SEC 
registration (Section 2); form of organization (Section 3) and 
control persons (Section 4). For basis for SEC registration (Section 
2), we did not include categories that would make the relying 
adviser ineligible for umbrella registration, such as serving as an 
adviser to a registered investment company.
    \217\ Under the staff's guidance in the 2012 ABA Letter, an 
adviser reported in its Form ADV (Miscellaneous Section of Schedule 
D) that it and its relying advisers were together filing a single 
Form ADV in reliance on the position expressed in the letter and 
identified each relying adviser by completing a separate Section 
1.B., Schedule D, of Form ADV for each relying adviser and 
identified it as such by including the notation ``(relying 
adviser).'' See 2012 ABA Letter, supra footnote 5 at Question 4.
    \218\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
3(b).
---------------------------------------------------------------------------

    We received multiple comment letters regarding our proposal to 
codify umbrella registration, the vast majority of which expressed 
support for umbrella registration.\219\ Several commenters also agreed 
that umbrella registration should not be mandatory.\220\ However, 
several commenters urged the Commission to expand the eligibility for 
umbrella registration to additional advisers including non-U.S. filing 
advisers, exempt reporting advisers, advisers to other types of 
clients, and advisers not independently eligible to register with the 
Commission.\221\
---------------------------------------------------------------------------

    \219\ See, e.g., ABA Committee Letter; ACG Letter; AIMA Letter; 
ASG Letter; BlackRock Letter; CFA Letter; Dechert Letter; MFA 
Letter; NASAA Letter; NRS Letter; NYSBA Committee Letter; PCA 
Letter; PEGCC Letter; SBIA Letter; Schulte Letter; Shearman Letter; 
SIFMA Letter.
    \220\ ABA Committee Letter; ASG Letter; BlackRock Letter; 
Dechert Letter.
    \221\ One commenter suggested that advisers that can, but do not 
elect to, file an umbrella registration be required to note that on 
Form ADV. CFA Letter.
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    Many commenters encouraged us to permit umbrella registration for 
non-

[[Page 60435]]

U.S. filing advisers.\222\ However, as we previously have expressed, we 
remain concerned that, absent Condition 2 (which requires that the 
filing adviser have its principal place of business in the United 
States), a group of related advisers based inside and outside of the 
United States could designate a non-U.S. adviser as a filing adviser, 
and could assert, based on the theory of operating a single advisory 
business, that the Advisers Act's substantive provisions generally 
would not apply to the U.S.-based relying advisers' dealings with their 
non-U.S. clients.\223\ Many commenters acknowledged this concern.\224\ 
Some commenters suggested that we address the concern by requiring that 
advisers indicate on their umbrella registration that they will follow 
applicable law.\225\ We believe that Condition 2 eliminates the 
difficult determinations of the Advisers Act's application to these 
advisory relationships. The amendments we are adopting today do not 
change the Commission's statements with respect to the cross-border 
application of the Advisers Act.\226\
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    \222\ ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA 
Committee Letter; Schulte Letter. See also Shearman Letter.
    \223\ 2012 ABA Letter, supra footnote 5 at n.9; See Exemptions 
Release, supra footnote 203 at Section II.D.
    \224\ ABA Committee Letter; AIMA Letter; NYSBA Committee Letter; 
Schulte Letter; Shearman Letter.
    \225\ AIMA Letter; NYSBA Committee Letter. See also Dechert 
Letter; ABA Committee Letter (suggesting that we state on Form ADV 
that the Advisers Act applies with respect to all U.S. clients of 
every registered investment adviser, and with respect to all of the 
activities of registered investment advisers that have their 
principal place of business in the United States).
    \226\ Certain commenters discussed our cross-border application 
of the Advisers Act. ABA Committee Letter; Dechert Letter; Schulte 
Letter. Most of the substantive provisions of the Advisers Act are 
not applied to the non-U.S. clients of a non-U.S. adviser registered 
with the Commission but non-U.S. advisers registered with the 
Commission must comply with the Advisers Act and the Commission's 
rules thereunder with respect to any U.S. clients (and any 
prospective U.S. clients) they may have. See Proposing Release, 
supra footnote 3 at n.57 and Exemptions Release, supra footnote 203 
at Section II.D.
---------------------------------------------------------------------------

    Two commenters suggested permitting umbrella registration for an 
organization where all of the advisers have their principal office and 
place of business outside of the United States.\227\ However, umbrella 
registration is intended to apply only where our staff has access to 
and can readily examine the filing and relying advisers and where the 
Advisers Act and the rules thereunder fully apply to all advisers (and 
clients) under the umbrella registration.\228\ This would not be the 
case for a group of non-U.S. advisers.
---------------------------------------------------------------------------

    \227\ Schulte Letter; Shearman Letter.
    \228\ Proposing Release, supra footnote 3 at Section II.A.3.
---------------------------------------------------------------------------

    Several commenters\229\ argued that we should expand the concept of 
umbrella registration by registered advisers to include ``umbrella 
reporting'' by exempt reporting advisers. Many of these commenters 
stated, and we acknowledge, that allowing exempt reporting advisers 
that operate a single advisory business through multiple legal entities 
to file an ``umbrella report'' would provide many of the same benefits 
as umbrella registration.\230\ However, we are not expanding the 
concept of umbrella registration to include ``umbrella reporting'' by 
exempt reporting advisers at this time. Some of the conditions required 
for umbrella registration reflect certain requirements that apply only 
to registered advisers.\231\ Different conditions might be more 
appropriate for ensuring that a group of exempt reporting advisers is 
operating a single advisory business and therefore should be able to 
take advantage of ``umbrella reporting.''
---------------------------------------------------------------------------

    \229\ ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; 
MFA Letter; NYSBA Committee Letter; SBIA Letter; Schulte Letter; 
Shearman Letter.
    \230\ ABA Committee Letter; AIMA Letter; MFA Letter; SBIA 
Letter; Schulte Letter. See also ACG Letter.
    \231\ Specifically, exempt reporting advisers are not subject to 
the requirement for compliance policies and procedures pursuant to 
rule 206(4)-7 under the Advisers Act or for a code of ethics 
pursuant to rule 204A-1 under the Advisers Act. See ACG Letter.
---------------------------------------------------------------------------

    Certain commenters questioned the status of a set of Frequently 
Asked Questions \232\ that permits certain exempt reporting advisers to 
file a single Form ADV on behalf of multiple special purpose 
entities.\233\ The views of the staff as expressed in these Frequently 
Asked Questions are not withdrawn as a result of today's amendments to 
Form ADV.
---------------------------------------------------------------------------

    \232\ Frequently Asked Questions on Form ADV and IARD, Reporting 
to the SEC as an Exempt Reporting Adviser (Mar. 2012), available at 
https://www.sec.gov/divisions/investment/iard/iardfaq.shtml#exemptreportingadviser.
    \233\ ABA Committee Letter; AIMA Letter; NYSBA Committee Letter.
---------------------------------------------------------------------------

    Two commenters disagreed with Condition 5's requirement that the 
filing adviser and each relying adviser operate under a single code of 
ethics adopted in accordance with rule 204A-1 under the Advisers Act 
and a single set of written policies and procedures adopted and 
implemented in accordance with rule 206(4)-(7) under the Advisers Act 
and administered by a single chief compliance officer in accordance 
with that rule.\234\ One commenter argued that Condition 5 was too 
restrictive and suggested that we allow groups of related advisers with 
``substantially similar'' codes of ethics and sets of policies and 
procedures administered by several chief compliance officers operating 
under a ``common compliance regime'' to file an umbrella 
registration.\235\ Based on our experience with private fund advisers 
that operate a single private fund advisory business through multiple 
legal entities, we believe that they commonly have a unified compliance 
program which is characterized by a single code of ethics and a single 
set of compliance policies and procedures administered by a single 
chief compliance officer. Because we believe that the existence of a 
unified compliance program that meets the requirements of Condition 5 
is a meaningful indicia of a single private fund advisory business, we 
are not modifying Condition 5 at this time.
---------------------------------------------------------------------------

    \234\ Capital Research Letter. See ACG Letter (stating that 
Condition 5 would have the practical effect of excluding exempt 
reporting advisers from eligibility for umbrella registration 
because exempt reporting advisers are not required by Advisers Act 
rule 204A-1 to adopt a code of ethics, nor are they required by 
Advisers Act rule 206(4)-7 to adopt compliance policies and 
procedures).
    \235\ Capital Research Letter.
---------------------------------------------------------------------------

    Several commenters disagreed with limiting umbrella registration 
eligibility to advisers operating a single private fund advisory 
business as described in Condition 1.\236\ Some commenters urged the 
Commission to make umbrella registration available where the advisers 
operate a single advisory business for types of clients other than 
those described in Condition 1, including registered investment 
companies and business development companies.\237\ Another commenter 
disagreed with limiting eligibility to a single advisory business of 
any kind and suggested that umbrella registration apply to all related 
persons of a filing adviser.\238\ However, as we stated in the 
Proposing Release, we do not believe umbrella registration is 
appropriate for advisers that are related but that operate separate 
advisory businesses as it would compromise data quality and complicate 
analyses that rely on data from Form ADV.\239\ We believe that by 
adopting umbrella registration as proposed, we are best able to 
accommodate the unique needs of

[[Page 60436]]

private fund advisers that operate a single advisory business through 
multiple legal entities without compromising the data quality or 
analyses that rely on data from Form ADV.
---------------------------------------------------------------------------

    \236\ ASG Letter; BlackRock Letter; Capital Research Letter; 
Dechert Letter; Comment Letter of Tannenbaum Helpern Syracuse & 
Hirschtritt LLP (Aug. 5, 2016) (``Tannenbaum Letter'') (disagreed 
with ``substantially similar or otherwise related'' language, 
because advisers may operate a single business with different 
investment strategies).
    \237\ ASG Letter; Dechert Letter. See also BlackRock Letter.
    \238\ Capital Research Letter.
    \239\ Proposing Release, supra footnote 3 at Section II.A.3.
---------------------------------------------------------------------------

    Several commenters took issue with the proposal's requirement to 
determine asset-based eligibility for umbrella registration on an 
entity-by-entity, rather than consolidated, basis.\240\ These 
commenters suggested that the goals of providing a clearer picture of 
groups of related advisers that operate as a single business and 
establishing a more efficient method for registration for separate 
legal entities that collectively conduct a single advisory business 
would be better served by allowing the group to determine asset-based 
eligibility for umbrella registration on a consolidated basis.\241\ 
Umbrella registration was intended to consolidate the multiple 
registration forms that may otherwise have been required by a single 
advisory business. It was not intended to alter or modify the 
eligibility for registration with the Commission.\242\
---------------------------------------------------------------------------

    \240\ Dechert Letter; Morgan Letter; NRS Letter; NYSBA Committee 
Letter. See MFA Letter (arguing that a registered private fund 
adviser that serves as a filing adviser should be able to add a 
relying adviser that is an exempt reporting adviser to its umbrella 
registration).
    \241\ Id.
    \242\ See Proposing Release, supra footnote 3 at Section II.A.3. 
To the extent there is concern about the eligibility of SEC 
registration for newly-formed relying advisers, rule 203A-2(c) 
provides an exemption for advisers that expect to be eligible for 
Commission registration within 120 days.
---------------------------------------------------------------------------

    Some commenters disagreed with the requirement contained in 
Condition 1 that separately managed accounts be owned by qualified 
clients.\243\ One commenter stated that the qualified client 
requirement for separately managed accounts is not related to the 
single business requirement.\244\ Condition 1 also requires that the 
qualified clients be otherwise eligible to invest in the private funds 
advised by the filing adviser or a relying adviser and that their 
accounts pursue investment objectives and strategies that are 
substantially similar or otherwise related to those private funds. 
Condition 1, including the qualified client requirement, is intended to 
ensure the commonality of clients that we believe is an important 
indicia of a single private fund advisory business. For example, if a 
group of advisers advised private funds as well as separately managed 
accounts held by non-qualified clients or separately managed accounts 
that pursue investment objectives or strategies that differ from the 
private funds they advise, we do not believe they would be operating a 
single private fund advisory business. The offering of separately 
managed accounts to clients other than qualified clients (such as 
retail clients) or separately managed accounts that pursue investment 
objectives or strategies that differ from the private funds they advise 
indicate that the group of advisers is engaged in lines of business 
that differ from a single private fund advisory business that we intend 
to cover with umbrella registration. Accordingly, at this time, we 
continue to believe that a group of advisers' ability to comply with 
Condition 1, including the qualified client requirement for separately 
managed accounts, is a meaningful indicia of a single private fund 
advisory business, and we are therefore adopting Condition 1 as 
proposed.
---------------------------------------------------------------------------

    \243\ Morgan Letter; NYSBA Committee Letter; Tannenbaum Letter. 
See also PCA Letter.
    \244\ NYSBA Committee Letter.
---------------------------------------------------------------------------

    We also received several comments on the new amendments to Form ADV 
to accommodate umbrella registration. Two commenters generally 
supported the benefits of new Schedule R, which requires separate 
reporting of indirect and direct ownership for relying advisers 
(similar to current Schedules A and B of Form ADV).\245\ One commenter 
was concerned that relying advisers, which may act as special purpose 
general partners or similar entities and may be owned by employees 
sharing in the performance-based compensation paid by the fund, would 
in effect be forced to share the details of employee compensation on a 
public filing.\246\ The ownership information required of relying 
advisers is consistent with the ownership information required of 
filing advisers. We believe this information will more accurately 
reflect the full nature and scope of the single advisory business 
conducted by the group of related advisers and will be more informative 
for advisory clients and private fund investors as well as the 
Commission.\247\
---------------------------------------------------------------------------

    \245\ ASG Letter; PEGCC Letter.
    \246\ Shearman Letter.
    \247\ See Proposing Release, supra footnote 3 at Section II.A.3.
---------------------------------------------------------------------------

4. Clarifying, Technical and Other Amendments to Form ADV
    We are adopting, largely as proposed, several amendments to Form 
ADV that are designed to clarify the form and its instructions. As 
noted in the Proposing Release, we believe these amendments to Form ADV 
will make the filing process clearer and more efficient for advisers 
and increase the reliability and the consistency of information 
provided by investment advisers. More reliable and consistent 
information will improve our staff's ability to interpret, understand, 
and place in context the information provided by advisers, allow our 
staff to make comparisons across investment advisers and improve the 
risk assessment and examination program. Many of these amendments are 
derived from questions frequently received by our staff. Except where 
noted, we did not receive comments on these amendments.
a. Amendments to Item 2
    Item 2.A. of Part 1A of Form ADV requires an adviser to select the 
basis upon which it is eligible to register with the Commission, and 
Item 2.A.(9) includes as a basis that the adviser is eligible for 
registration because it is a ``newly formed adviser'' relying on rule 
203A-2(c) because it expects to be eligible for SEC registration within 
120 days.\248\ Section 2.A.(9) of Schedule D is entitled ``Newly Formed 
Adviser'' and requests the adviser to make certain representations. As 
noted in the Proposing Release, our staff has received questions about 
whether the exemption from the prohibition on Commission registration 
contained in rule 203A-2(c) under the Advisers Act applies only to 
entities that have been ``newly formed,'' i.e., newly created as 
corporate or other legal entities. It does not only apply to newly 
created entities and therefore, as proposed, we are deleting the phrase 
``newly formed adviser'' from Item 2.A.(9) and Section 2.A.(9) of 
Schedule D. Section 2.A.(9) will be renamed ``Investment Adviser 
Expecting to be Eligible for Commission Registration within 120 Days.'' 
\249\
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    \248\ Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of 
Schedule D.
    \249\ Amended Form ADV, Part 1A, Item 2.A.(9); see rule 203A-
2(c) under the Advisers Act.
---------------------------------------------------------------------------

b. Amendments to Item 4
    Item 4 of Part 1A of Form ADV addresses successions of investment 
advisers, and the Instructions to Item 4 provide that a new 
organization has been created under certain circumstances, including if 
the adviser has changed its structure or legal status (e.g., form of 
organization or state of incorporation). As noted in the Proposing 
Release, our staff frequently receives questions from investment 
advisers regarding this item and, as proposed, we are adding to Item 4 
and Section 4 of Schedule D text that is currently contained in the 
Instructions to Item 4 that succeeding to the business of a registered 
investment adviser includes, for example, a change of

[[Page 60437]]

structure or legal status (e.g., form of organization or state of 
incorporation).\250\
---------------------------------------------------------------------------

    \250\ Amended Form ADV, Part 1A, Item 4.A. and Section 4 of 
Schedule D.
---------------------------------------------------------------------------

c. Amendments to Item 7
    Item 7 of Part 1A of Form ADV and corresponding sections of 
Schedule D require advisers to report information about their financial 
industry affiliations and the private funds they advise. We are 
adopting several technical amendments to Item 7. As proposed, we are 
revising Item 7.A., which requires advisers to check whether their 
related persons are within certain categories of the financial 
industry, to clarify that advisers should not disclose in response to 
this item that some of their employees perform investment advisory 
functions or are registered representatives of a broker-dealer, because 
this information is required to be reported on Items 5.B.(1) and 
5.B.(2) of Part 1A, respectively. Items 5.B.(1) and 5.B.(2) request 
information about an adviser's employees. Adding this text to Form ADV 
should assist filers in filling out the form as well as provide more 
accurate data to us and the general public.\251\
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    \251\ Amended Form ADV, Part 1A, Item 7. The staff has provided 
this clarification and it is currently available online at our 
staff's Frequently Asked Questions on Form ADV and IARD, available 
at https://www.sec.gov/divisions/investment/iard/iardfaq.shtml.
---------------------------------------------------------------------------

    Item 7.B. of Part 1A of Form ADV asks whether the adviser serves as 
adviser to any private fund. Section 7.B.(1) of Schedule D requires 
advisers to provide information about the private funds they manage. We 
are adding text to Item 7.B. clarifying that Section 7.B.(1) of 
Schedule D should not be completed if another SEC-registered adviser or 
SEC exempt reporting adviser reports the information required by 
Section 7.B.(1) of Schedule D. Currently the instructions only refer to 
another adviser. We are also adopting, as proposed, several amendments 
to Section 7.B.(1) of Schedule D. Question 8 of Section 7.B.(1) 
currently asks whether the private fund is a ``fund of funds,'' and if 
it is, whether the private fund invests in funds managed by the adviser 
or a related person of the adviser. Below those two questions there is 
a note informing advisers when they should answer yes to the first 
question regarding whether the private fund is a ``fund of funds.'' We 
are moving the note to directly after Question 8.(a).\252\ We believe 
this change will assist filers in answering Question 8.
---------------------------------------------------------------------------

    \252\ Amended 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. As proposed, we are deleting 
text in Question 10 that directs advisers to refer to the underlying 
funds of a fund of funds when selecting the type of fund, in order to 
reconcile differences with Form PF, which permits advisers to disregard 
any private fund's equity investments in other private funds.\253\ 
Question 19 of Section 7.B.(1) of Schedule D asks whether the adviser's 
clients are solicited to invest in the private fund. We are adding text 
to Question 19, as proposed, to make clear that the adviser should not 
consider feeder funds as clients of the adviser to a private fund when 
answering whether the adviser's clients are solicited to invest in the 
private fund.\254\ As noted in the Proposing Release, this is a common 
question that our staff receives and the intent of Question 19 is not 
to capture affiliated feeder funds. Question 21 of Section 7.B.(1) of 
Schedule D asks whether the private fund relies on an exemption from 
registration of its securities under Regulation D of the Securities Act 
of 1933 and Question 22 asks for the private fund's Form D file number. 
We are adopting a clarifying revision to Question 21 as proposed to ask 
if the private fund has ever relied on an exemption from registration 
of its securities under Regulation D, in order to better reflect the 
intention of the Question.\255\ The current Question 21, if answered in 
the negative, would not require the adviser to provide the private 
fund's Form D file number in Question 22, meaning we would not receive 
Form D file numbers in the event there was past reliance on Regulation 
D.\256\
---------------------------------------------------------------------------

    \253\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 10. See Form PF, General Instruction 7.
    \254\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 19.
    \255\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 21.
    \256\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
21.
---------------------------------------------------------------------------

    We are adopting revisions to Question 23.(a)(2) as proposed. 
Currently, this question requires an adviser to check a box to indicate 
whether the private fund's financial statements are prepared in 
accordance with U.S. generally accepted accounting principles 
(``GAAP'').\257\ We are adding text instructing advisers that they are 
required to answer Question 23.(a)(2) only if they answer ``yes'' to 
Question 23.(a)(1), which asks whether the private fund's financial 
statements are subject to an annual audit.\258\ This revision will 
clarify when an adviser is actually required to answer Question 
23.(a)(2). We are also revising Question 23.(g) as proposed. The 
question currently asks whether the private fund's audited financial 
statements are distributed to the private fund's investors. We are 
adding ``for the most recently completed fiscal year'' to clarify the 
question. In addition, we are revising Question 23.(h) as proposed. 
This question currently asks whether the report prepared by the 
auditing firm contains an unqualified opinion.\259\ As noted in the 
Proposing Release, this question has prompted questions from advisers 
regarding which report and what timeframe the question refers to. To 
clarify, we are revising the question, as proposed, to ask whether all 
of the reports prepared by the auditing firm since the date of the 
adviser's last annual updating amendment contain unqualified 
opinions.\260\ Finally, as proposed, we are adding Question 25.(g), 
which requests the legal entity identifier, if any, for a private fund 
custodian that is not a broker-dealer, or that is a broker-dealer but 
does not have an SEC registration number. The legal entity identifier 
is a unique identifier associated with a single entity and is intended 
to provide a uniform international standard for identifying parties to 
financial transactions. Furthermore, the reporting of legal entity 
identifier information on Form ADV facilitates the ability of investors 
and the Commission to link the data reported with data from other 
filings or sources that is reported elsewhere as legal entity 
identifiers become more widely used by regulators and the financial 
industry. This information will help our examination staff more readily 
identify the use of particular custodians by private funds.
---------------------------------------------------------------------------

    \257\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
23.(a)(2).
    \258\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23.(a)(2).
    \259\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
23.(h).
    \260\ Amended Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23.(h).
---------------------------------------------------------------------------

d. Amendments to Item 8
    Based on inquiries from filers, we are adopting the proposed 
amendments to Item 8 with a modification to clarify that newly-formed 
advisers should answer questions in the item based on the types of 
participation and interest they expect to engage in during the next 
year. In the Proposing Release, we did not specify that the instruction 
was for newly-formed advisers, and commenters expressed concern that 
the proposal

[[Page 60438]]

would make Item 8 the only section in Part 1A requesting forward-
looking information, and were concerned about the difficulty around 
gauging the likelihood of future events and the possibility for ``false 
positives.'' \261\ We agree and, as adopted here, we have updated the 
Item to address commenters' concerns.
---------------------------------------------------------------------------

    \261\ See IAA Letter; Oppenheimer Letter; SIFMA Letter.
---------------------------------------------------------------------------

    Item 8.B.(2) of Part 1A of Form ADV currently asks whether the 
adviser or any related person of the adviser recommends the purchase of 
securities to advisory clients for which the adviser or any related 
person of the adviser serves as underwriter, general or managing 
partner, or purchaser representative.\262\ The current wording has 
caused confusion regarding the treatment of purchaser representatives. 
As proposed, we are rewording the question to ask whether the adviser 
or any related person of the adviser recommends to advisory clients or 
acts as a purchaser representative for advisory clients with respect to 
the purchase of securities for which the adviser or any related person 
of the adviser serves as underwriter or general or managing partner. As 
noted in the Proposing Release, this edit is designed to clarify that 
the question applies to any related person who recommends to advisory 
clients or acts as a purchaser representative for advisory clients with 
respect to the purchase of securities for which the adviser or any 
related person of the adviser serves as underwriter or general or 
managing partner.\263\
---------------------------------------------------------------------------

    \262\ Form ADV, Part 1A, Item 8.B.(2).
    \263\ Amended 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 revising Item 8.H. as proposed to 
break the question into two parts to increase our understanding of 
compensation for client referrals. Revised Item 8.H.(1) will cover 
compensation to persons other than employees for client referrals.\264\ 
Revised Item 8.H.(2) will cover compensation to employees, in addition 
to employees' regular salaries, for obtaining clients for the 
firm.\265\ Item 8.I. asks whether the adviser or any related person of 
the adviser directly or indirectly receives compensation from any 
person other than the adviser or related person of the adviser for 
client referrals. We are also adding text to Item 8.I., as proposed, to 
clarify that advisers should not include the regular salary that the 
adviser pays to an employee in responding to this item.\266\
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    \264\ Amended Form ADV, Part 1A, Item 8.H.(1).
    \265\ Amended Form ADV, Part 1A, Item 8.H.(2).
    \266\ Amended Form ADV, Part 1A, Item 8.I.
---------------------------------------------------------------------------

    Two commenters thought that the proposed amendment to Item 8.H was 
highly subjective and needed additional guidance.\267\ In addition, one 
commenter suggested that Part 2B of Form ADV provided adequate 
disclosure of employee compensation.\268\ While we appreciate these 
comments, we are adopting these amendments as proposed. We continue to 
believe Item 8.H and the accompanying instructions are sufficiently 
clear and are appropriate to accommodate responses from and provide 
flexibility to varying types of advisory businesses and compensation 
arrangements. As noted in the Proposing Release, we are adopting these 
amendments to Item 8.H to better understand how advisers compensate 
both their staff and third parties for client referrals. The revisions 
to this item do not change the scope of the information collected, but 
instead provide more precise information about compensation for client 
referrals.
---------------------------------------------------------------------------

    \267\ See MMI Letter (Item 8.H.(2) should be modified to conform 
with Item 5 of Part 2B, where economic benefits for providing 
advisory services are disclosed, but not regular salaries or 
bonuses). See also PCA Letter.
    \268\ JAG Letter.
---------------------------------------------------------------------------

e. Amendments to Section 9.C. of Schedule D
    Section 9.C. of Schedule D requests information about independent 
public accountants that perform surprise examinations in connection 
with the Advisers Act custody rule, rule 206(4)-2. We are adopting two 
changes to Section 9.C. of Schedule D as proposed. First, we are adding 
text requiring an adviser to provide the PCAOB-assigned number of the 
adviser's independent public accountant. This will improve our staff's 
ability to cross-reference information submitted through other systems 
and evaluate compliance with the custody rule.\269\ Section 9.C.(6) 
currently requires advisers to report whether any report prepared by an 
independent public accountant that audited a pooled investment vehicle 
or examined internal controls contained an unqualified opinion. We are 
amending Section 9.C.(6) in a manner similar to Section 7.B.(1) of 
Schedule D, Question 23.(h) as described above to provide clarity to 
filers. Accordingly, the question will now ask whether all of the 
reports prepared by the independent public accountant since the date of 
the last annual updating amendment have contained unqualified 
opinions.\270\
---------------------------------------------------------------------------

    \269\ Amended Form ADV, Part 1A, Section 9.C.(3) of Schedule D.
    \270\ Amended Form ADV, Part 1A, Section 9.C.(6) of Schedule D.
---------------------------------------------------------------------------

    We received requests from multiple commenters to amend Item 9 of 
Part 1A and Section 9.C. of Schedule D related to custody.\271\ We 
appreciate commenters' suggestions, but these suggested amendments to 
Item 9 or Section 9.C. are outside the scope of this rulemaking and we 
are not amending them at this time.
---------------------------------------------------------------------------

    \271\ See ASG Letter; Comment Letter of Pat Hyman (June 11, 
2015) (``Hyman Letter''); IAA Letter; PCA Letter and Schwab & Co. 
Letter.
---------------------------------------------------------------------------

f. Amendments to Disclosure Reporting Pages
    Item 11 of Part 1A of Form ADV requires registered advisers and 
exempt reporting advisers to provide information about their 
disciplinary history and the disciplinary history of their advisory 
affiliates. Those advisers who report an event for purposes of Item 11 
are directed to complete a Disclosure Reporting Page (``DRP'') to 
provide the details of the event. DRPs can be removed from Form ADV 
under certain circumstances, including when ``the adviser is registered 
or applying for registration with the SEC and the event was resolved in 
the adviser's or advisory affiliate's favor.'' \272\ As proposed, we 
are amending this text in each DRP to add ``or reporting as an exempt 
reporting adviser with the SEC'' after ``applying for registration with 
the SEC'' to clarify that both registered and exempt reporting advisers 
may remove a DRP from their Form ADV record if a criminal, regulatory 
or civil judicial action was resolved in the adviser's (or advisory 
affiliate's) favor.\273\ As discussed in the Proposing Release, these 
amendments will make disciplinary reporting uniform across registered 
and exempt reporting advisers, consistent with requiring exempt 
reporting advisers to report disciplinary events on Form ADV.
---------------------------------------------------------------------------

    \272\ Form ADV, Part 1A, Criminal, Regulatory Action and Civil 
Judicial Action Disclosure Reporting Pages.
    \273\ Amended Form ADV, Part 1A, Criminal, Regulatory Action and 
Civil Judicial Action Disclosure Reporting Pages.
---------------------------------------------------------------------------

g. Amendments to Instructions and Glossary
    Together with the amendments to Part 1A, we are also adopting, as 
proposed, conforming amendments to the General Instructions and the 
Glossary for Form ADV. As discussed above, we are amending the General 
Instructions to include instructions regarding umbrella registration. 
As proposed, we are also removing outdated references to

[[Page 60439]]

``Special One-Time Dodd-Frank Transition Filing for SEC Registered 
Advisers'' and ``recent'' amendments to Form ADV Part 2 that are no 
longer needed. We retained one sentence from those instructions that 
specifies that every application for registration must include a 
narrative brochure prepared in accordance with the requirements of Part 
2A of Form ADV.\274\ We also added clarifying language that exempt 
reporting advisers submitting other than annual amendments should 
update corresponding sections of Schedules A, B, C and D,\275\ and 
provided updated mailing instructions for FINRA.\276\ In the glossary, 
we are updating the definition of ``Legal Entity Identifier'' to 
reflect recent advancements in this protocol.\277\
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    \274\ Amended Form ADV, General Instructions, Instruction 3.
    \275\ Amended Form ADV, General Instructions, Instruction 4.
    \276\ Amended Form ADV, General Instructions, Instruction 9.
    \277\ The definition of Legal Entity Identifier is: A ``legal 
entity identifier'' assigned by a utility endorsed by the Global LEI 
Regulatory Oversight Committee (ROC) or accredited by the Global LEI 
Foundation (GLEIF). See Amended Form ADV, Glossary. In Item 1.P., we 
are removing outdated text referring to the ``legal entity 
identifier'' as being ``in development'' in the first half of 2011.
---------------------------------------------------------------------------

    Where applicable, we are making technical revisions, as proposed, 
to specify that an adviser must ``apply for registration'' (rather than 
simply ``register'') to more accurately reflect the rule text. As 
proposed, we are also deleting text in the instructions related to Item 
1.O. because this text is going to appear directly in the corresponding 
section of Part 1 of Form ADV. We are adding text clarifying that a 
change in information related to Item 1.O. does not necessitate a 
prompt other-than-annual amendment (as changes to Item 1 otherwise do).
    We have also received numerous comment letters recommending 
additional amendments to clarify other sections of Form ADV.\278\ While 
we appreciate commenters raising their concerns with us, these 
suggested recommendations are outside the scope of this rulemaking and 
we decline to take action to further modify Form ADV based on these 
comments.
---------------------------------------------------------------------------

    \278\ See, e.g., ASG Letter (Items 6 and 7); JGAS Letter; PCA 
Letter (Item 8); NYSBA Committee Letter (Items 5 and 8 and Schedule 
D); PCA Letter (Items 5 and 8); T. Rowe Price Letter (definition of 
``regulatory assets under management'' in subadvisory arrangements). 
BlackRock also recommended we use XML format for Form ADV filings. 
See BlackRock Letter.
---------------------------------------------------------------------------

B. Amendments to Investment Advisers Act Rules

1. Amendments to Books and Records Rule
    We are adopting two amendments to the Advisers Act books and 
records rule, rule 204-2, largely as proposed, that will require 
advisers to maintain additional materials related to the calculation 
and distribution of performance information.
    Rule 204-2(a)(16) currently requires advisers that are registered 
or required to be registered with us to maintain records supporting 
performance claims in communications that are distributed or circulated 
to ten or more persons.\279\ Consistent with the proposal, we are 
amending rule 204-2(a)(16) by removing the ten or more persons 
condition and replacing it with ``any person.'' Accordingly, under the 
amended rule, advisers will be required to maintain the materials 
listed in rule 204-2(a)(16) that demonstrate the calculation of the 
performance or rate of return in any communication that the adviser 
circulates or distributes, directly or indirectly, to any person.
---------------------------------------------------------------------------

    \279\ Rule 204-2(a)(16) requires advisers to make and keep ``All 
accounts, books, internal working papers, and any other records or 
documents that are necessary to form the basis for or demonstrate 
the calculation of the performance or rate of return of any or all 
managed accounts or securities recommendations in any notice, 
circular, advertisement, newspaper article, investment letter, 
bulletin or other communication that the investment adviser 
circulates or distributes, directly or indirectly, to 10 or more 
persons (other than persons connected with such investment adviser); 
provided, however, that, with respect to the performance of managed 
accounts, ``the retention of all account statements, if they reflect 
all debits, credits, and other transactions in a client's account 
for the period of the statement, and all worksheets necessary to 
demonstrate the calculation of the performance or rate of return of 
all managed accounts shall be deemed to satisfy the requirements of 
this paragraph.''
---------------------------------------------------------------------------

    We are also adopting amendments to rule 204-2(a)(7). Rule 204-
2(a)(7) currently requires advisers that are registered or required to 
be registered with us to maintain certain categories of written 
communications received and copies of written communications sent by 
such advisers.\280\ Consistent with the proposal, we are amending rule 
204-2(a)(7) to require advisers to also maintain originals of all 
written communications received and copies of written communications 
sent by an investment adviser relating to the performance or rate of 
return of any or all managed accounts or securities recommendations.
---------------------------------------------------------------------------

    \280\ Rule 204-2(a)(7) requires advisers to make and keep: 
``Originals of all written communications received and copies of all 
written communications sent by such investment adviser relating to 
(i) any recommendation made or proposed to be made and any advice 
given or proposed to be given, (ii) any receipt, disbursement or 
delivery of funds or securities, or (iii) the placing or execution 
of any order to purchase or sell any security.''
---------------------------------------------------------------------------

    Several commenters expressed general support for the proposed 
amendments to the books and records rule,\281\ while other commenters 
felt the proposed amendments would be unnecessary and a significant 
burden on advisers.\282\ Several commenters also suggested the proposed 
amendments be modified to exclude one-on-one communications that are 
customized responses from investors or communications with 
sophisticated investors or clients.\283\ In addition, two commenters 
raised concerns about the applicability of the amendments to rule 204-2 
to performance information that predated the effective date of the 
amendments.\284\
---------------------------------------------------------------------------

    \281\ See, e.g., ABA Committee Letter; CFA Letter; LPL Letter 
(supporting the proposed amendments to rule 204-2(a)(7) but 
suggesting an exception to rule 204-2(a)(16) for communications 
addressed to a single client regarding that client's particular 
account or security in the account); NASAA Letter; PCA Letter 
(finding the proposed rule change sufficient but expressing concern 
with the Commission linking the requirement to maintain records 
pertaining to calculation of individual client account performance 
history, which are communications and not advertising, to the 
enforcement of rule 206(4)-1); Comment Letter of Wells Fargo Funds 
Management, LLC (Aug. 11, 2015) (``Wells Fargo Letter'').
    \282\ See, e.g., ACG Letter; Anonymous Letter (citing specific 
costs of increased training needed to implement and possible 
software updates); ASG Letter (asserting the amended requirement is 
burdensome because advisers do not always maintain copies of 
individual performance provided on an ad hoc basis); PEGCC Letter 
(stating the Commission significantly understates the burden of 
complying with the proposed amendments); SBIA Letter (noting that 
while the amendments themselves are not burdensome, when they are 
aggregated with other recordkeeping obligations, they could lead to 
overall compliance burdens for smaller advisers); Schnase Letter 
(advisers may find it difficult to discern whether particular 
materials are subject to the rule). One commenter suggested that the 
amendments to rule 204-2(a)(7) are not necessary because other 
recordkeeping provisions already require advisers to maintain those 
records. See IAA Letter.
    \283\ PEGCC Letter. See also Comment Letter of Michael D. Berlin 
(June 8, 2015) (``Berlin Letter''); LPL Letter.
    \284\ See Comment Letter of Arnstein & Lehr LLP (Dec. 3, 2015); 
NRS Letter.
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    Based on a comment we received,\285\ we are making one non-
substantive modification to the proposed amendments. To clarify and 
avoid confusion, we are adding the new subsection (iv) of rule 204-
2(a)(7) immediately following subsection (iii) of the rule and 
preceding the proviso regarding unsolicited market letters and

[[Page 60440]]

records of names and addresses of persons to whom an adviser sent 
particular items. A commenter noted that this placement of the new 
subsection raised questions about whether the proviso also applied to 
new subsection (iv). The proviso does apply to new subsection (iv) and 
we believe that, by moving subsection (iv) to immediately after 
subsection (iii) and before the proviso, we have addressed the 
commenter's concern.
---------------------------------------------------------------------------

    \285\ See IAA Letter (noting that the new subsection (iv) of 
rule 204-2(a)(7), as it currently appears, is unclear on whether an 
adviser would be required to maintain records relating to 
unsolicited market letters or other communications discussing the 
performance of securities that the adviser recommended to its 
clients).
---------------------------------------------------------------------------

    We are adopting the rest of the amendments to rule 204-2 as 
proposed. While we appreciate the concerns raised by commenters, we 
continue to believe the veracity of performance information is 
important regardless of whether it is a personalized client 
communication or in an advertisement sent to ten or more persons. As 
noted in the Proposing Release, a recent enforcement action 
demonstrated to us the disadvantages of not requiring investment 
advisers to maintain records forming the basis of performance 
calculations or performance communications sent to individuals.\286\ 
Moreover, it has been our staff's experience that investment advisers 
routinely make and preserve communications containing performance 
information and records to support the performance claims. Based on our 
staff's experience and the confirmation of several commenters, we 
believe that most advisers already maintain this information.\287\
---------------------------------------------------------------------------

    \286\ In the Matter of Michael R. Pelosi, Investment Advisers 
Act Release No. 3141 (Jan. 14, 2011); Initial Decision Release No. 
448 (Jan. 5, 2012); Investment Advisers Act Release No. 3805 (Mar. 
27, 2014) (Commission opinion dismissing proceeding against 
associated person of registered investment adviser charged with 
providing false and misleading performance information because the 
record lacked an evidentiary basis from which to determine that the 
performance information was materially false or misleading).
    \287\ See, e.g., ABA Committee Letter; Morningstar Letter; PCA 
Letter. See also IAA Letter.
---------------------------------------------------------------------------

    We believe these records will be useful in examining and evaluating 
adviser performance claims. Investors will benefit to the extent that 
the amendments reduce the incidence of misleading or fraudulent 
advertising and communications. For these reasons, we are adopting the 
amendments to the Adviser Act books and records rule, rule 204-2, as 
proposed.
    These amendments will apply to communications circulated or 
distributed after the compliance date of amended rule 204-2. Advisers 
that circulate or distribute communications after the compliance date 
that include performance information, including information on 
performance that predates the effective date of these amendments, will 
be required to maintain materials listed in rule 204-2(a)(16) that 
demonstrate the calculation of the performance.\288\
---------------------------------------------------------------------------

    \288\ We note that to the extent this information was previously 
or is currently included in an advertisement, the adviser is already 
required to maintain the information under rule 204-2(a)(16).
---------------------------------------------------------------------------

2. Technical Amendments to Advisers Act Rules
    We are adopting the proposed technical amendments to several rules 
under the Advisers Act and withdrawing transition rule 203A-5 under the 
Advisers Act. Consistent with the proposal, we are removing transition 
provisions from rules where the transition process is complete. Three 
of the provisions were added as part of the implementation of the Dodd-
Frank Act. Two of the provisions were added when we amended Form ADV 
and several Advisers Act rules to require advisers to electronically 
file their brochures with the Commission. One commenter specifically 
supported removal of the transition provisions.\289\
---------------------------------------------------------------------------

    \289\ See NRS Letter.
---------------------------------------------------------------------------

a. Rule 203A-5
    The Dodd-Frank Act amended section 203A of the Advisers Act to 
prohibit from SEC registration ``mid-sized'' advisers that generally 
have assets under management of between $25 million and $100 
million.\290\ Rule 203A-5 provided a temporary exemption from the 
prohibition on registration for mid-sized advisers to facilitate their 
transition to state registration.\291\ As proposed, we are withdrawing 
rule 203A-5 because the transition of mid-sized advisers from SEC to 
state registration was completed in June 2012.
---------------------------------------------------------------------------

    \290\ See Section 410 of the Dodd-Frank Act.
    \291\ See Implementing Release, supra footnote 133.
---------------------------------------------------------------------------

b. Rule 202(a)(11)(G)-1(e)
    Section 409 of the Dodd-Frank Act created a new exclusion from the 
definition of ``investment adviser'' in section 202(a)(11)(G) of the 
Advisers Act for family offices. The Commission adopted rule 
202(a)(11)(G)-1 \292\ defining a family office and provided two 
extended transition periods for family offices with certain charitable 
organization clients and family offices relying on the rescinded 
``private adviser'' exemption.\293\ As proposed, we are removing 
paragraph (e) of rule 202(a)(11)(G)-1 because subparagraph (1) of the 
transition provisions provided for by it expired on December 31, 2013, 
and subparagraph (2) expired on March 30, 2012.
---------------------------------------------------------------------------

    \292\ Family Offices, Investment Advisers Act Release No. 3220 
(June 22, 2011) [76 FR 37983 (June 29, 2011)].
    \293\ Section 203(b)(3) of the Advisers Act as in effect before 
Jul. 21, 2011, repealed by section 403 of the Dodd-Frank Act.
---------------------------------------------------------------------------

c. Rule 203-1(e)
    Rule 203-1 outlines the procedures for advisers to register with 
the Commission. Paragraph (e) of the rule was added as part of the 
implementation of the Dodd-Frank Act and allowed companies that were 
relying on the rescinded ``private adviser'' exemption \294\ to remain 
exempt from registration until March 30, 2012 under certain 
conditions.\295\ As proposed, we are removing paragraph (e) from Rule 
203-1 because the transition for private advisers is now complete.
---------------------------------------------------------------------------

    \294\ Id.
    \295\ See Implementing Release, supra footnote 133. The rule 
203-1(e) exemption from registration requires not only reliance on 
the former private adviser exemption but also that an adviser have 
fifteen or fewer clients in the preceding twelve months and neither 
hold itself out to the public as an investment adviser nor act as an 
investment adviser to a registered investment company or business 
development company.
---------------------------------------------------------------------------

d. Rule 203-1(b), Rule 204-1(c) and Rule 204-3(g)
    Rule 203-1 and Rule 204-1 were amended in 2010 to provide 
transition periods for advisers to file narrative brochures required by 
Part 2A of Form ADV electronically with the Investment Adviser 
Registration Depository (``IARD'').\296\ Rule 203-1(b), entitled 
``transition to electronic filing,'' requires investment advisers 
applying for registration after January 1, 2011 to file their brochures 
electronically unless they receive a continuing hardship 
exemption.\297\ Rule 204-1(c) requires investment advisers that are 
required to file a brochure and had a fiscal year that ended on or 
after December 31, 2010 to electronically file a Part 2A brochure as 
part of their next annual updating amendment. As proposed, we are 
removing paragraph (b) from rule 203-1 and paragraph (c) from rule 204-
1 because the transition to electronic filing is now complete.\298\ We 
also are making a technical, conforming additional change by removing 
rule 204-3(g) because it refers to the transition provision in rule 
204-1(c).\299\
---------------------------------------------------------------------------

    \296\ Amendments to Form ADV, Investment Advisers Act Release 
No. 3060 (Jul. 28, 2010) [75 FR 49233 (Aug. 12, 2010)].
    \297\ The continuing hardship exemption under rule 203-3 will 
not be withdrawn by these technical amendments.
    \298\ Current paragraphs (c) and (d) of Rule 203-1 are 
redesignated as (b) and (c) and current paragraphs (d) and (e) of 
Rule 204-1 are redesignated as (c) and (d).
    \299\ Current paragraph (h) of Rule 204-3 is redesignated as 
(g).

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[[Page 60441]]

III. Effective and Compliance Dates

A. Effective Date

    The effective date of the amendments to rules 204-2, 202(a)(11)(G)-
1, 203-1, 204-1 and 204-3, and the amendments to Form ADV is October 
31, 2016. Rule 203A-5 is removed effective October 31, 2016.

B. Compliance Dates

1. Amendments to Form ADV
    Several commenters requested a compliance date of at least one year 
after adoption.\300\ Any adviser filing an initial Form ADV or an 
amendment to an existing Form ADV on or after October 1, 2017 will be 
required to provide responses to the form revisions we are adopting 
today. Our staff is working closely with FINRA to re-program IARD and 
we understand that the system is expected to be able to accept filings 
of revised Form ADV by October 1, 2017. This date is over one year from 
adoption. In addition, most advisers will not be filing their annual 
updating amendment until the first quarter of 2018, and therefore we 
believe this compliance period is appropriate.
---------------------------------------------------------------------------

    \300\ See Anonymous Letter; Capital Research Letter; Dechert 
Letter; IAA Letter; MMI Letter; SIFMA Letter.
---------------------------------------------------------------------------

2. Amendments to Investment Advisers Act Rules
    Our amendments to the books and records rule, 275.204-2, will apply 
to communications circulated or distributed after October 1, 2017. As 
discussed in Section II.B.(1), advisers that circulate or distribute 
communications after October 1, 2017 that include performance 
information, including information on performance that predates that 
date, will be required to maintain the materials listed in 275.204-
2(a)(16) that demonstrate the calculation of the performance.

IV. Economic Analysis

A. Introduction

    We are sensitive to the benefits and costs imposed by our rules and 
understand that there will be costs associated with complying with the 
amendments. The following economic analysis identifies and considers 
the benefits and costs--including the effects on efficiency, 
competition, and capital formation--that will result from the 
amendments to Form ADV and the amendments to and rescission of certain 
rules under the Investment Advisers Act. The economic effects 
considered in adopting the amendments are discussed below.
    We are adopting amendments to Form ADV and the Advisers Act books 
and records rule 204-2, and technical amendments to several other rules 
under the Advisers Act. In summary, and as discussed in greater detail 
in Section II. above, we are adopting the following amendments to Form 
ADV and Advisers Act rules:
     Amendments to Form ADV designed to fill certain data gaps 
and enhance current reporting provided by investment advisers in order 
to improve the depth and quality of the information we collect on 
investment advisers and to facilitate our risk monitoring objectives;
     Amendments to Form ADV to incorporate ``umbrella 
registration'' for private fund advisers;
     Clarifying, technical and other amendments to Part 1A of 
Form ADV;
     Amendments to the Advisers Act books and records rule to 
require advisers to make and keep supporting documentation that 
demonstrates performance calculations or rates of return in any written 
communications that the investment adviser circulates or distributes; 
and
     Technical amendments to several rules under the Advisers 
Act to remove transition provisions that are no longer necessary.
    As discussed in the Proposing Release, we rely on information 
reported by investment advisers on Form ADV to monitor trends, assess 
emerging risks, inform policy choices and rulemaking, and assist our 
staff in examination and enforcement efforts.\301\ We believe that the 
amendments to Form ADV will improve the information provided by 
investment advisers to the Commission, clients and prospective clients, 
and may improve investor protection by informing policy choices and 
focusing examination activities. We also believe that the amendments to 
the Advisers Act books and records rule may improve investor 
protections by providing useful information to our examination and 
enforcement staff in evaluating advisers' performance claims. While, as 
stated above, we believe that most that can rely on umbrella 
registration are doing so, incorporating umbrella registration into 
Form ADV will make the existence of umbrella registration more widely 
known to advisers, which may result in more eligible advisers taking 
advantage of the opportunity to umbrella register. This could, make 
filing ADV more efficient for such advisers, reducing their filing 
costs. In addition, we believe that incorporating umbrella registration 
into Form ADV will benefit the Commission, clients and prospective 
clients by improving the consistency and quality of the information 
that private fund advisers disclose about their business.
---------------------------------------------------------------------------

    \301\ Proposing Release, supra footnote 3 at Section III.A.
---------------------------------------------------------------------------

    The regulatory regime as it exists today for investment advisers 
serves as the economic baseline against which the costs and benefits, 
as well as the impact on efficiency, competition, and capital formation 
of the amendments are discussed. The baseline includes the current 
requirement for investment advisers to file Form ADV, the staff 
guidance regarding a filing adviser filing a single Form ADV on behalf 
of itself and each relying adviser,\302\ the current requirements for 
investment advisers to maintain books and records, and other current 
rules under the Advisers Act. The parties that will be affected by the 
amendments are: investment advisers that file Form ADV, including 
private fund advisers that rely on, or will rely on, umbrella 
registration, and investment advisers that currently manage, or will 
manage, separately managed accounts; the Commission; current and future 
advisory clients; and other current and future users of investment 
adviser information reported on Form ADV, including third-party 
information providers.
---------------------------------------------------------------------------

    \302\ See 2012 ABA Letter, supra footnote 5.
---------------------------------------------------------------------------

    Based on IARD system data as of May 16, 2016, approximately 12,024 
investment advisers are registered with the Commission, and 3,248 
exempt reporting advisers file reports with the Commission. 
Approximately 8,718 investment advisers registered with the Commission 
(73%) reported assets under management attributable to separately 
managed account clients. Of those 8,718 advisers, approximately 2,538 
advisers reported regulatory assets under management attributable to 
separately managed account clients of at least $500 million and less 
than $10 billion and approximately 545 advisers reported regulatory 
assets under management attributable to separately managed account 
clients of at least $10 billion.\303\ Advisers with at least $10 
billion in regulatory assets under management attributable to 
separately managed accounts will be subject to

[[Page 60442]]

additional reporting on separately managed accounts on Form ADV. 
Approximately 743 registered advisers to private funds currently submit 
a single Form ADV on behalf of themselves and 2,587 relying advisers, 
relying on the 2012 ABA Letter. All investment advisers registered or 
required to be registered with the Commission are subject to the 
Advisers Act books and records rule.
---------------------------------------------------------------------------

    \303\ Based on IARD system data as of May 16, 2016. These 
estimates are approximations because Form ADV currently collects 
information about assets under management by client type and the 
number of clients of each type in broad ranges. Item 5.D.(1)-(3) 
will require advisers to specify their assets under management and 
number of clients by client type, which will benefit our ability to 
understand and oversee the investment advisers that advise these 
accounts and recognize potential risks.
---------------------------------------------------------------------------

    As we explained in the Proposing Release, we have sought, where 
possible, to quantify the costs, benefits, and effects on efficiency, 
competition, and capital formation expected to result from the 
amendments to Form ADV and Investment Advisers Act rules, and 
reasonable alternatives.\304\ In many cases, however, we are unable to 
quantify the economic effects because we lack the information necessary 
to provide reasonable estimates. The economic effects of the amendments 
also depend upon a number of factors which we often cannot estimate. 
Examples include the extent to which investor protection and our 
ability to oversee investment advisers will improve, and the extent to 
which investors will utilize the information in Form ADV to choose or 
retain an investment adviser. Therefore, some of the discussion below 
is qualitative in nature. Several commenters raised concerns about the 
burdens and costs associated with these amendments, and in some cases 
suggested that our quantitative estimates in the Proposing Release 
underestimated these costs. We describe their comments below, and have 
modified certain provisions in response to the comments.
---------------------------------------------------------------------------

    \304\ Proposing Release, supra footnote 3 at Section III.A.
---------------------------------------------------------------------------

B. Amendments to Form ADV

    Certain amendments to Form ADV are designed to address potential 
gaps in information, such as information about advisers' separately 
managed accounts, and obtain additional information on areas such as 
social media, additional offices, foreign clients, and wrap fee 
accounts. We believe this information will improve the depth and 
quality of information that we collect on investment advisers, which 
will assist the Commission in our oversight activities and clients and 
potential clients in assessing advisers.\305\ We also are adopting 
amendments to Form ADV to establish a more efficient method for 
multiple private fund adviser entities operating a single advisory 
business to register with us using a single Form ADV. Finally, we are 
adopting several clarifying, technical and other amendments to Form 
ADV.
---------------------------------------------------------------------------

    \305\ See supra Section I.
---------------------------------------------------------------------------

1. Economic Baseline and Affected Market Participants
    As noted above and in the Proposing Release, the investment adviser 
regulatory regime currently in effect serves as the economic baseline 
against which the costs and benefits, as well as the impact on 
efficiency, competition and capital formation, of the amendments to 
Form ADV are discussed. Investment advisers use Form ADV to register 
with the Commission and with the states. Once registered, an investment 
adviser is required to file an annual amendment within 90 days of the 
end of its fiscal year, and more frequently if required by the 
instructions to Form ADV.\306\ Form ADV is also used by exempt 
reporting advisers to submit, and periodically update, reports to the 
Commission by completing a limited subset of items on Form ADV. 
Information filed on Form ADV is publicly available through the IAPD 
Web site.\307\ The parties that will be affected by the amendments to 
Form ADV are: Investment advisers that file Form ADV with the 
Commission; the Commission; current and future advisory clients; and 
other current and future users of information filed on Form ADV, 
including third-party information providers.
---------------------------------------------------------------------------

    \306\ See rule 204-1(a) under the Advisers Act.
    \307\ Certain personal identifying information is not made 
public.
---------------------------------------------------------------------------

2. Analysis of the Amendments to Form ADV and Alternatives
    As discussed in Section II. above, we believe the amendments to 
Form ADV will improve our ability to oversee investment advisers and 
identify potential risks by increasing the amount, consistency, and 
reliability of the information disclosed by investment advisers, which 
will enhance our staff's ability to effectively carry out the risk-
based examination program and other risk monitoring activities, and may 
improve investor protection by informing policy choices and focusing 
examination activities. The amendments to Form ADV will address certain 
data gaps by requiring advisers to report additional information. 
Clients and potential clients may indirectly benefit to the extent that 
the amendments improve our oversight of investment advisers.
    The enhanced reporting requirements also may directly improve the 
ability of clients and potential clients of investment advisers to make 
more informed decisions about the selection and retention of investment 
advisers.\308\ To the extent that clients and future clients use the 
information investment advisers file in Form ADV to differentiate 
between investment advisers, the enhanced reporting requirements may 
result in a limited increase in competition among investment advisers 
for clients. The amendments will likely not have a significant effect 
on capital formation or on the ability of investors to efficiently 
allocate capital across investments because the amendments do not 
directly relate to the amount of capital investors allocate to 
investments or their ability to allocate capital across investments. We 
further identify effects on efficiency, competition, and capital 
formation in the discussion below.
---------------------------------------------------------------------------

    \308\ See supra Section II.A.2.a.
---------------------------------------------------------------------------

a. Information Regarding Separately Managed Accounts
    We are adopting amendments to Form ADV that will require investment 
advisers to report information regarding separately managed accounts, 
which are managed for clients other than pooled investment 
vehicles.\309\ Based on IARD system data, approximately 73% of 
investment advisers registered with the Commission reported assets 
under management attributable to separately managed accounts.\310\
---------------------------------------------------------------------------

    \309\ See supra Section II.A.1.
    \310\ Based on IARD system data as of May 16, 2016.
---------------------------------------------------------------------------

    We do not currently collect information from investment advisers 
specific to separately managed accounts, but we currently collect 
detailed information about an adviser's registered investment company 
and private fund clients. The absence of detailed information about 
separately managed accounts limits the ability of our staff to 
understand, monitor and oversee the investment advisers that advise 
these accounts and recognize the risk exposures relating to these 
accounts. The newly reported information on Form ADV regarding 
separately managed accounts is intended to enhance the ability of our 
staff to effectively carry out our risk-based examination program and 
other risk-monitoring activities, as it does with other information on 
ADV and other filings by the Commission. The additional information 
regarding separately managed accounts will also assist us in addressing 
regulatory issues and identifying areas for additional examination and 
enforcement activities.
    The additional information investment advisers will file relating 
to separately managed accounts will be

[[Page 60443]]

publicly available.\311\ As discussed above, we continue to believe 
that public disclosure of information about separately managed accounts 
on Form ADV is appropriate in the public interest as well as for the 
protection of investors. Commenters expressed concern relating to the 
public disclosure of the separately managed account information and its 
potential impact on competition between investment advisers. Many 
commenters opposing the public disclosure of separately managed account 
information cited the potential cost of disclosure of confidential 
information, particularly for advisers with a small number of 
separately managed account clients.\312\ In addition, other commenters 
cited the potential disclosure of proprietary investment or trading 
strategies as a potential cost of publicly releasing the separately 
managed account information.\313\
---------------------------------------------------------------------------

    \311\ See supra Section II.A.1.e.
    \312\ AIMA Letter; BlackRock Letter; IAA Letter; Invesco Letter; 
NYSBA Committee Letter; Oppenheimer Letter; PEGCC Letter; Shearman 
Letter; SIFMA Letter. One commenter suggested that investors may 
instead invest in a fund structure, or forego investment 
opportunities with an investment adviser altogether, rather than 
place assets in a separately managed account and risk the disclosure 
of separately managed account information. Schulte Letter. As 
discussed above, the modifications from the proposal should reduce 
the potential for the disclosure of private or sensitive information 
relating to separately managed accounts, and should alleviate 
potential investor concerns and the effect of the disclosure on 
their investment decisions.
    \313\ ABA Committee Letter; Dechert Letter; IAA Letter; Invesco 
Letter; MFA Letter; NYSBA Committee Letter; Oppenheimer Letter; 
Schulte Letter; Shearman Letter; SIFMA Letter.
---------------------------------------------------------------------------

    We revised certain items on the form to address commenters' 
concerns regarding the potential disclosure of confidential or 
proprietary information. As proposed, Item 5.D. would have required 
investment advisers to report the number of clients even for investment 
advisers that manage fewer than five accounts. In addition, under the 
proposed amendments, Section 5.K.(2) of Schedule D would have required 
investment advisers to report the number of accounts and the net asset 
value of the accounts.\314\ In response to comments, we have revised 
Item 5.D. by adding a ``Fewer than 5 clients'' column, which allows 
advisers with fewer than five clients in a particular category to avoid 
reporting the exact number of clients in that category. In addition, 
Section 5.K.(2) in Schedule D will not require investment advisers to 
report the number of separately managed accounts. We believe that these 
changes mitigate the risk of any client-specific information being 
disclosed. In addition, as we discussed in Section II.A., this 
information would be reported for one or two data points per year, 
depending on the amount of regulatory assets under management 
attributable to separately managed accounts, ninety days after the end 
of the adviser's fiscal year, and only on an aggregate basis for all 
the separately managed account clients that an adviser manages. Given 
the limited number of data points that advisers to separately managed 
accounts must report on, the fact that the information is reported in 
aggregate across an adviser's separately managed accounts, and the time 
lag between those data points and any public reporting, we do not 
believe that this reporting could compromise trading strategies.
---------------------------------------------------------------------------

    \314\ Also, investment advisers will be required to report the 
total dollar amount of borrowings that correspond to ranges of gross 
notional exposure and not the weighted average amount. See supra 
Section II.A.1.c.
---------------------------------------------------------------------------

    In the Proposing Release, we also discussed other alternatives. For 
example, we could have required different information regarding 
separately managed account regulatory assets under management such as 
information at different time intervals or with different asset 
categories. We have determined not to require reporting at a higher 
frequency or in a more granular manner, because, as discussed above, we 
believe that the information we are requiring today will appropriately 
enhance our staff's ability to effectively carry out our risk-based 
examination program and other risk assessment and monitoring 
activities, and that more frequent or granular reporting requirements 
may increase the costs to investment advisers to report the 
information. One commenter suggested as an alternative a separate form 
for separately managed account reporting that would be filed on a 
confidential basis, but, as discussed above, we believe that given the 
changes discussed above, we have mitigated concerns about client 
confidentiality.
    We proposed to require at least some information about separately 
managed accounts from all advisers, and additional information from 
advisers with at least $150 million in regulatory assets under 
management. In response to commenters who requested modifications to 
alleviate potential reporting burdens on smaller advisers relative to 
the proposal, we are adopting amendments that require less information 
about separately managed accounts than what was proposed for investment 
advisers managing at least $150 and less than $500 million in 
regulatory assets.\315\ Another alternative would be to require, as 
proposed, investment advisers with at least $150 million in separately 
managed account regulatory assets under management to provide this 
additional information regarding these accounts. However, the higher 
threshold we are adopting will reduce the number of investment advisers 
required to provide this additional information by approximately 2,800 
advisers, thereby reducing costs for those advisers with at least $150 
million but less than $500 million in assets under management that 
would no longer have to report the additional information. As discussed 
in Section II.A.1.c., the $500 million threshold was suggested by 
commenters and will provide us information with respect to over 98% of 
the separately managed account assets that would have been reported 
under the proposed approach.\316\
---------------------------------------------------------------------------

    \315\ See supra Section II.A.1.c.
    \316\ See IAA Letter; NYSBA Committee Letter; Schwab & Co. 
Letter.
---------------------------------------------------------------------------

    Another alternative would be to collect different information 
regarding derivatives in separately managed accounts. For example, 
commenters raised concerns about the utility of gross notional exposure 
as a measure of derivative risk exposures. Several commenters stated 
that gross notional metrics are not accurate measures of risk or 
leverage,\317\ and expressed concern that gross notional metrics could 
be misleading to or misunderstood by investors without additional 
context.\318\ Other commenters suggested alternative measures of 
derivative risk exposures.\319\ We recognize that gross notional 
metrics do not always reflect the way in which derivatives are used in 
a separately managed account and are not a risk measure, but rather 
they are commonly used metrics that are comparable to information 
collected in Form PF regarding private funds. On balance, therefore, we 
continue to believe that, for most types of derivatives the gross 
notional metrics generally provide a measure of the scale of an 
account's derivatives activities that is sufficient for this regulatory 
purpose, which is to collect information about the scale of an 
account's derivatives activities, rather than to collect specific risk 
metrics or more granular information regarding the ways

[[Page 60444]]

in which derivatives are used in a separate account.\320\
---------------------------------------------------------------------------

    \317\ See BlackRock Letter; Dechert Letter; IAA Letter; MFA 
Letter.
    \318\ See Dechert Letter; IAA Letter; Invesco Letter; MFA 
Letter; NYSBA Committee Letter.
    \319\ See AIMA Letter; BlackRock Letter; Dechert Letter.
    \320\ See supra Section II.A.1.c.
---------------------------------------------------------------------------

    We are also adopting, as proposed, amendments that will require 
investment advisers to report the identity of the custodians that 
account for at least ten percent of each adviser's total separately 
managed account regulatory assets under management, and the amount held 
at such custodians. As discussed in the Proposing Release,\321\ 
alternatives to the custodian reporting requirements include collecting 
different information, changing reporting thresholds, changing the 
frequency of reporting, obtaining information from other parties and 
not requiring certain information, such as the location of the 
custodian's office.\322\ Although requiring less information would 
decrease the reporting requirements and the costs to investment 
advisers to file Form ADV, as discussed above, we believe that the 
reporting requirements as adopted will provide information important to 
us and improve the ability of our examination staff to identify 
advisers whose clients use the same custodian in the event a concern is 
raised about a particular custodian. One commenter suggested that we 
should collect data about custodians of separately managed accounts 
from the custodians themselves, but considering that the Commission 
does not directly regulate all custodians (including banks), we do not 
think this alternative appropriately addresses our regulatory 
objective.
---------------------------------------------------------------------------

    \321\ See Proposing Release, supra footnote 3 at Section II.A.1.
    \322\ See AIMA Letter; IAA Letter; MMI Letter; NRS Letter; 
Oppenheimer Letter; SIFMA Letter regarding the custodian's office 
location. See also supra Section II.A.1.d.
---------------------------------------------------------------------------

b. Additional Information Regarding Investment Advisers
    In addition to information regarding separately managed accounts, 
we are also adopting amendments to collect additional information about 
the business of investment advisers and other additional identifying 
information. For example, we are adopting amendments to require 
investment advisers to disclose information regarding their use of 
social media platforms. We are also adopting amendments to request 
additional information about an adviser's participation in and assets 
under management attributable to wrap fee programs. Other amendments 
include replacing ranges with more precise information about the number 
of advisory clients and the amount of assets under management, the 
total number of offices that conduct investment advisory business, and 
information regarding each adviser's top twenty-five largest offices in 
terms of numbers of employees. For several items we are requiring 
additional identifying information. The additional identifying 
information includes the CIK Numbers for all advisers that have 
obtained one or more such numbers, PCAOB-assigned numbers for auditing 
firms, and the SEC file number and the CRD number for sponsors of wrap 
fee programs.
    We believe the additional information describing the adviser's 
business and the additional identifying information will be useful to 
the risk assessment, examination, and oversight of investment advisers. 
For example, the information regarding social media platforms will 
improve our understanding of how advisers use social media to 
communicate with current and potential clients. The additional 
identifying information will improve the ability of our staff and other 
current and future users of Form ADV information to cross-reference 
information from Form ADV with information from filings and other 
sources to investigate and obtain a more complete understanding of the 
business and relationships of investment advisers, and improve our 
oversight of investment advisers. In addition, to the extent that 
current and future investment advisory clients are interested in the 
information, the information may improve their ability to make informed 
decisions about the selection and retention of investment advisers.
    Several commenters expressed concern that the additional 
information describing the advisory business and the additional 
identifying information would increase the burden on investment 
advisers to file Form ADV.\323\ In addition, commenters questioned the 
benefits of the additional information and the additional identifying 
information to clients or potential clients and to the Commission. For 
example, one commenter raised concern regarding the usefulness of 
replacing ranges with the number of advisory clients and the regulatory 
assets under management attributable to each client type.\324\ In 
addition, commenters believed that information regarding social media 
would not be informative to investors, who may be more likely to obtain 
the information through the adviser's Web site or internet 
searches.\325\ Several commenters also expressed concern that the 
reporting of adviser offices would impose a significant burden on 
advisers with little or no benefit to either the Commission or 
investors.\326\
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    \323\ Several commenters stated that advisers would need to 
update computer systems to obtain this data, and raised concerns 
about the increased burden that our proposal would place on 
advisers. ASG Letter; IAA Letter; LPL Letter; MMI Letter. Commenters 
also expressed concerns that investment advisers would need to 
update the additional information on more than an annual basis which 
would increase the burden on investment advisers. See BlackRock 
Letter; Morningstar Letter; NRS Letter; SIFMA Letter. We have 
clarified that certain information, such as information about 
additional offices, must only be updated on an annual basis, which 
should help address these concerns.
    \324\ ACG Letter.
    \325\ ASG Letter; JAG Letter; Morgan Letter; Morningstar Letter; 
NRS Letter; NYSBA Committee Letter.
    \326\ ACG Letter; CFA Letter; Morningstar Letter; NRS Letter; 
NYSBA Committee Letter.
---------------------------------------------------------------------------

    Alternatives to the amendments regarding disclosure of additional 
information about advisers include the disclosure of different 
information, more information, or less information on topics such as 
social media or advisers' offices.\327\ When determining the specific 
amendments to Form ADV for adoption, we considered what information 
would be important for our oversight activities and for advisory 
clients and prospective clients to make decisions regarding the 
selection or retention of investment advisers against the costs to 
investment advisers to report this information. We believe that the 
amendments we are adopting today strike an appropriate balance of 
providing important information to the Commission, advisory clients and 
prospective clients while mitigating the burden on investment advisers 
to report the information. As noted above, however, we recognize that 
the burden on some large advisers might be significant, especially in 
the initial reporting cycle when they are required to report the 
additional information for the first time. However, we believe that the 
burden will decrease after the initial filing because in subsequent 
filings, advisers will only be reporting changes to their previously 
reported information.
---------------------------------------------------------------------------

    \327\ See supra footnote 111 and accompanying text.
---------------------------------------------------------------------------

    Another alternative to the amendments to Form ADV would be for us 
not to require investment advisers to report additional information but 
instead for us to undertake targeted examinations of investment 
advisers. We believe it is more efficient to compile information about 
advisers that can then be utilized to identify specific advisers for 
examinations. An absence of information about advisers also would 
reduce our ability to identify industry trends and assess risks.

[[Page 60445]]

c. Costs Applicable to Reporting Information Regarding Separately 
Managed Accounts and Additional Information on Form ADV
    The amendments that will require investment advisers to provide 
additional information about certain aspects of their business will 
impose additional costs, at least initially, for investment advisers to 
file Form ADV, but we believe based on our experience that much of the 
information we are requiring is readily available because it is used by 
investment advisers to conduct their business. Costs will vary across 
advisers, depending on the nature and size of an adviser's 
business.\328\ For example, advisers that manage a limited number of 
separately managed accounts or that have smaller amounts of assets 
under management in those accounts will have fewer reporting 
requirements than advisers that manage a large number of separately 
managed accounts or that have larger amounts of assets under management 
in those accounts. In addition, investment advisers with a larger 
number of offices will have greater reporting requirements than 
investment advisers with fewer offices, particularly in the case of the 
initial filing. The one-time costs to initially report the information 
on Form ADV will also be greater for those investment advisers that 
currently do not collect or maintain the information. In addition, some 
amendments to Form ADV will require information that will impose a 
fixed filing cost that is not scalable with size, and therefore will 
have a relatively greater impact on small investment advisers.
---------------------------------------------------------------------------

    \328\ Several commenters expressed concern that the proposed 
amendments would increase the costs for small advisers. See Comment 
Letter of Adrian Day Asset Management (May 21, 2015) (``Adrian Day 
Letter''); AIMA Letter; Diercks Letter; IAA Letter; SBIA Letter; 
Schwab & Co. Letter. For a discussion of these comments, please see 
the Final Regulatory Flexibility Analysis in Section V infra.
---------------------------------------------------------------------------

    To the extent possible, we have attempted to quantify the costs of 
these amendments to Form ADV. Certain commenters questioned the cost 
estimates of the amendments to Form ADV, and some commenters noted that 
advisers will have to create new systems or processes to capture the 
additional information required and that the Commission underestimated 
these costs.\329\ We believe that much of the information, such as 
regulatory assets under management, should be readily available to 
advisers, and that modifications to the proposed amendments, such as 
the reporting requirements relating to separately managed accounts, 
help mitigate the costs to investment advisers of reporting the 
additional information. As discussed in Section V., for purposes of the 
increased Paperwork Reduction Act (``PRA'') burden for Form ADV, we 
estimate that each adviser will incur average costs in connection with 
the amendments to Form ADV of approximately $1,273,\330\ for a total 
aggregate cost of $15,306,552.\331\
---------------------------------------------------------------------------

    \329\ Adrian Day Letter; Financial Engines Letter; IAA Letter; 
NRS Letter; PCA Letter; SBIA Letter. One commenter noted that it 
would require significant systems work to aggregate gross notional 
exposure calculations at the investment adviser level. SIFMA II 
Letter. Other commenters also noted that investment advisers would 
need to modify or update computer software systems. ASG Letter; MMI 
Letter.
    \330\ We estimate that each adviser will spend, on average, 3 
hours to complete the questions regarding separately managed 
accounts. We further estimate that the amendments to Part 1A that 
request other additional information will take each adviser, on 
average, 2 hours to complete. As a result, we estimate a 5 hour 
increase in the total average time burden related to the amendments 
to Form ADV. We expect that the performance of this function will 
most likely be equally allocated between a senior compliance 
examiner and a compliance manager. Data from the Securities Industry 
Financial Markets Association's Management & Professional Earnings 
in the Securities Industry 2013 (``SIFMA Management and Professional 
Earnings Report''), modified by Commission staff to account for an 
1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead, 
suggest that costs for a senior compliance examiner and a compliance 
manager are $221 and $288 per hour, respectively. [2.5 hours x $221 
= $553] + [2.5 hours x $288 = $720] = $1,273.
    \331\ 12,024 advisers x $1,273 = $15,306,552.
---------------------------------------------------------------------------

d. Umbrella Registration
    The amendments to Form ADV that will incorporate the concept of 
umbrella registration and establish a method on Form ADV for certain 
private fund advisers to use umbrella registration will simplify, and 
therefore make more efficient the filing procedures for these advisers 
and provide greater certainty about the availability of umbrella 
registration. The amendments will also improve the consistency and 
quality of the information that private fund advisers disclose about 
their business and provide a more complete picture of groups of private 
fund advisers that operate as a single business, thus allowing for 
greater comparability across private fund advisers that rely on 
umbrella registration.\332\ As of May 16, 2016, approximately 743 
registered advisers indicated on Form ADV that they relied on the 2012 
ABA Letter. Additional advisers may be eligible to use umbrella 
registration but do not currently do so.
---------------------------------------------------------------------------

    \332\ See supra Section II.A.3.
---------------------------------------------------------------------------

    Several commenters suggested that the Commission expand the 
eligibility for umbrella registration to even more advisers. For 
example, many commenters recommended expanding eligibility for umbrella 
registration to non-U.S. filing advisers,\333\ and other commenters 
suggested expanding eligibility for umbrella registration to exempt 
reporting advisers.\334\ Other commenters recommended that we expand 
the eligibility for umbrella registration to apply to all related 
persons of a filing adviser.\335\ Although expanding the eligibility 
for umbrella registration to all related persons might decrease the 
aggregate costs of filing Form ADV, as we discussed above, we do not 
believe umbrella registration is appropriate for advisers that are 
related but that operate separate advisory businesses as it would 
compromise data quality and complicate analyses that rely on data from 
Form ADV.
---------------------------------------------------------------------------

    \333\ ABA Committee Letter; AIMA Letter; Dechert Letter; NYSBA 
Committee Letter; Schulte Letter; Shearman Letter.
    \334\ ABA Committee Letter; ACG Letter; AIMA Letter; ASG Letter; 
MFA Letter; NYSBA Committee Letter; SBIA Letter; Schulte Letter; 
Shearman Letter.
    \335\ ACG Letter; Capital Research Letter; Dechert Letter; 
Morgan Letter; NRS Letter; NYSBA Committee Letter.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that each adviser that files 
Schedule R will incur average costs of approximately $255,\336\ for a 
total aggregate cost of $189,465.\337\ We do not believe the amendments 
to provide for umbrella registration will impose significant costs on 
investment advisers because advisers currently relying on the 2012 ABA 
Letter are already reporting much of the information that will be 
reported on Schedule R. We believe that the additional information that 
will be reported for relying advisers on Schedule R, such as the basis 
for SEC registration and form of organization, will be readily 
available to filing advisers.\338\
---------------------------------------------------------------------------

    \336\ We estimate that for purposes of the PRA, the filing 
adviser will spend on average 1 hour completing Schedule R on behalf 
of its relying advisers. We expect that the performance of this 
function will most likely be equally allocated between a senior 
compliance examiner and a compliance manager. Data from the SIFMA 
Management and Professional Earnings Report, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead, suggest that costs for a senior compliance 
examiner and a compliance manager are $221 and $288 per hour, 
respectively. (.5 hours x $221 = $111) + (.5 hours x $288 = $144) = 
$255.
    \337\ 743 advisers x $255 = $189,465.
    \338\ One commenter was concerned that relying advisers would in 
effect be forced to share the details of employee compensation on a 
public filing. See Shearman Letter. The ownership information 
required of relying advisers, however, is consistent with the 
ownership information currently required of filing advisers.

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[[Page 60446]]

e. Clarifying, Technical and Other Amendments to Form ADV
    The clarifying, technical and other amendments to Form ADV will 
make the filing process clearer and therefore more efficient for 
advisers, and increase the reliability and the consistency of 
information provided by investment advisers. More reliable and 
consistent information will improve our staff's ability to interpret 
and evaluate the information provided by advisers, make comparisons 
across investment advisers, and better identify the investment advisers 
that may need additional outreach or examination. To the extent the 
clarifying and technical amendments we adopt today would make Form ADV 
easier to understand and complete, the amendments will decrease future 
filing costs, especially for those investment advisers registering with 
us for the first time.
    As proposed, we are adding questions to Form ADV that request an 
entity's legal entity identifier, if any.\339\ As discussed above, the 
legal entity identifier is a unique identifier associated with a single 
entity and is intended to provide a uniform international standard for 
identifying parties to financial transactions. This information will 
help our examination staff more readily identify the use of particular 
custodians by separately managed accounts and private funds. 
Furthermore, the reporting of legal entity identifier information on 
Form ADV facilitates the ability of investors and the Commission to 
link the data reported with data from other filings or sources that is 
reported elsewhere as legal entity identifiers become more widely used 
by regulators and the financial industry. For example, this could aid 
in the performance of market analysis studies, surveillance activities, 
and systemic risk monitoring by the Commission.\340\
---------------------------------------------------------------------------

    \339\ Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(3)(f) 
(requesting the LEI, if any, for a custodian of separately managed 
accounts that is not a broker-dealer or that is a broker-dealer but 
does not have an SEC registration number) and 7.B.(1), Question 25g 
(similar question for private fund custodians); Schedule R, Section 
1.G. (requesting LEI for relying adviser).
    \340\ We note that, as of May 31, 2016, approximately 6.80% of 
all registered investment advisers report a legal entity identifier 
when filing Form ADV.
---------------------------------------------------------------------------

    We do not believe that the clarifying, technical and other 
amendments to Form ADV will result in any additional costs for 
investment advisers and could result in some cost savings to the extent 
that advisers have fewer questions to research when completing the 
form. We have identified provisions of Form ADV that have caused 
confusion among filers in the past or that have resulted in 
inconsistent or unreliable information. As we discussed above, we 
believe that the clarifications and revisions to the questions and 
instructions of Form ADV will increase the efficiency of investment 
advisers to disclose information, and our ability to oversee investment 
advisers. Finally, given the nature of the clarifying, technical and 
other amendments to Form ADV that we are adopting today, we do not 
believe that these amendments will have an impact on capital formation 
or competition in the asset management industry or the markets in 
general.
f. Exempt Reporting Advisers
    We believe the amendments to Form ADV will have a limited economic 
effect on exempt reporting advisers, including on their costs.\341\ 
Exempt reporting advisers are currently required to complete only a 
limited number of items in Part 1A of Form ADV (consisting of Items 1, 
2.B., 3, 6, 7, 10, 11 and corresponding schedules). We are adopting 
limited amendments to the items that exempt reporting advisers are 
required to complete, including the amendments to Item 1 regarding the 
use of social media and the reporting of information on up to 25 
offices.\342\ We do not know the extent of social media use by exempt 
reporting advisers, and we recognize that these advisers will incur 
some costs associated with social media account reporting. We believe 
these costs will be limited based on the nature of exempt reporting 
adviser clients, which include venture capital funds and private funds. 
Approximately 15 of the approximately 3,248 exempt reporting advisers 
that file information with the Commission on Form ADV reported that 
they had five or more other offices. Thus, although exempt reporting 
advisers will incur costs to report the additional information, based 
on our staff's experience and given the nature of the clients these 
funds advise, we expect that the amendments should result in a limited 
increase in reporting costs relative to other advisers.
---------------------------------------------------------------------------

    \341\ See supra Section II.A.2.c. for a discussion of exempt 
reporting advisers and Amended Form ADV, Part 1A, Schedule D, 
Section 7.B.(1), Question 15(b).
    \342\ Exempt reporting advisers will not be eligible to file new 
Schedule R.
---------------------------------------------------------------------------

C. Amendments to Investment Advisers Act Rules

    As discussed above, we are adopting amendments to the Advisers Act 
books and records rule, and technical amendments to several other rules 
to remove transition provisions where the transition process is 
complete. The discussion below focuses on the amendments to the 
Advisers Act books and records rule, because the technical amendments 
are clarifying or ministerial in nature and therefore should have 
little, if any, economic effects.
    The amendments to rule 204-2 will require investment advisers to 
maintain additional materials related to the calculation and 
distribution of performance information. The amendments to rule 204-
2(a)(16) will require each adviser to maintain the materials listed in 
rule 204-2(a)(16) that demonstrate the calculation of the performance 
or rate of return in any communication that the adviser circulates or 
distributes, directly or indirectly, to any person, rather than ten or 
more persons as currently required by the rule. The amendments to rule 
204-2(a)(7) will require each adviser to maintain originals of all 
written communications received and copies of written communications 
sent by the adviser relating to the performance or rate of return of 
any or all managed accounts or securities recommendations. We believe, 
based on our staff's experience, and several commenters agreed, that 
most investment advisers currently maintain the information that will 
be required to be maintained under amended rule 204-2.\343\ Under the 
amendments, each respondent will be required to retain records in the 
same manner and for the same period of time as currently required under 
rule 204-2.
---------------------------------------------------------------------------

    \343\ ABA Committee Letter; Morningstar Letter; PCA Letter.
---------------------------------------------------------------------------

1. Economic Baseline and Affected Market Participants
    As noted above, the regulatory regime as it exists today for 
investment advisers serves as the economic baseline against which the 
costs and benefits, as well as the impact on efficiency, competition, 
and capital formation, of the amendments to the Advisers Act books and 
records rule (rule 204-2) will be evaluated. The parties that will be 
directly affected by the amendments to rules under the Advisers Act 
include: Investment advisers registered with the Commission; the 
Commission; and current and future investment advisory clients. As 
discussed above, approximately 12,024 investment advisers are currently 
registered with the Commission.

[[Page 60447]]

2. Analysis of the Effects of the Amendments to the Advisers Act Books 
and Records Rule
    The amendments to the Advisers Act books and records rule (rule 
204-2) will benefit the clients and prospective clients of investment 
advisers by improving our ability to oversee investment advisers and 
making available to our examination staff all records necessary to 
evaluate performance information.
    The amendments to the books and records rule will provide our 
enforcement and examination staff with additional information to review 
an adviser's performance communications, regardless of the number of 
clients or prospective clients that receive performance communications. 
The rule amendments may increase investor protection by increasing the 
disincentive for misleading or fraudulent communications, which may 
reduce incidents of fraud. In addition, investors may benefit from the 
amendments to the recordkeeping rule as these records will assist our 
staff in uncovering fraudulent or misleading communications regarding 
performance.
    As we discussed in the Proposing Release, to the extent that the 
amendments to the rule reduce misleading or fraudulent communications, 
the competitive position of investment advisers could be improved 
because clients and potential clients will receive more accurate 
information regarding an adviser's performance and thus will be better 
able to differentiate among advisers.\344\ In addition, to the extent 
that the amendments to the rule improve the ability of clients and 
potential clients to differentiate among advisers, potential clients 
may be more likely to obtain investment advice from an investment 
adviser, which will increase the ability of investment advisers to 
compete for investor capital. The amendments could improve the ability 
of investors to better or more efficiently allocate capital across 
investments to the extent that the current allocation of capital is 
based on misleading or fraudulent information, which in turn could 
promote capital formation.
---------------------------------------------------------------------------

    \344\ Proposing Release, supra footnote 3 at Section III.C.2.
---------------------------------------------------------------------------

    An alternative suggested by several commenters would be to exclude 
from the rule one-on-one communications that are ``customized responses 
from investors or one-on-one communications with sophisticated 
investors or clients'' about their own account performance.\345\ 
Another alternative would be to require maintenance of records 
supporting performance claims in communications that are distributed or 
circulated to less than the current threshold of ten persons. As 
discussed above, we believe the veracity of performance information is 
important regardless of whether it is a personalized client 
communication or in an advertisement sent to ten or more persons, and 
the absence of such records can reduce our ability to examine and 
monitor advisers.\346\
---------------------------------------------------------------------------

    \345\ PEGCC Letter. See also Berlin Letter; LPL Letter.
    \346\ See supra Section II.B.1.
---------------------------------------------------------------------------

    Several commenters felt the proposed amendments would be 
unnecessary and a burden on investment advisers. Some raised concerns 
regarding the potential burden to comply with the amendments to rule 
204-2,\347\ and one commenter noted that while the amendments were not 
themselves burdensome, when aggregated with other recordkeeping 
obligations, could lead to overall compliance burdens for smaller 
advisers.\348\ Based on our staff's experience and our analysis of the 
comments to the Proposing Release, however, we believe that most 
advisers already maintain this information.\349\ We also believe that 
this information is useful to the examination and oversight of 
advisers.\350\
---------------------------------------------------------------------------

    \347\ See ACG Letter; Anonymous Letter; ASG Letter; NRS Letter; 
PEGCC Letter; SBIA Letter.
    \348\ SBIA Letter.
    \349\ ABA Committee Letter; Morningstar Letter; PCA Letter.
    \350\ See, e.g., ABA Committee Letter; Morningstar Letter; PCA 
Letter. See also IAA Letter.
---------------------------------------------------------------------------

    We estimate that, for purposes of the PRA, advisers will incur an 
aggregate cost of approximately $1,071,338 per year for the total hours 
advisory personnel will spend in complying with the amended 
recordkeeping requirements.\351\ A possible non-quantifiable cost as a 
result of the amended recordkeeping requirements will be discouraging 
advisers from creating and communicating custom performance information 
to individual clients, who will then lose the benefit of having that 
information available to them. Although we believe that such a response 
to the rule will be unlikely, a decrease in communications could reduce 
the ability of clients and potential clients to compare advisers and 
potentially decrease competition.
---------------------------------------------------------------------------

    \351\ We estimate that for purposes of the PRA, the amendments 
to rule 204-2 will increase the burden by 1.5 hours per adviser 
annually. We expect that the function of recording and maintaining 
records of performance information and communications will be 
performed by a combination of compliance clerks and general clerks 
at a cost of $65 per hour and $58 per hour, respectively. We 
anticipate that compliance clerks would perform an estimated 0.3 
hours of the work created by the amendments to rule 204-2 and 
general clerks would perform the additional 1.2 hours. Therefore, 
the total cost per adviser would be (0.3 hours x $65 = $19.50) + 
(1.2 hours x $58 = $69.60) = approximately $89.10 for a total cost 
of $1,071,338 (12,024 advisers x $89.10).
---------------------------------------------------------------------------

    We expect that these costs will vary among firms, depending on a 
number of factors, including the degree to which advisers already 
maintain correspondence, performance information, and the inputs and 
worksheets used to generate performance information. Compliance costs 
also will vary depending on the degree to which performance figure 
determination and the recordkeeping process is automated, and the 
amount of updating to the adviser's recordkeeping policy that will be 
required.

V. Paperwork Reduction Act Analysis

    The amendments that we are adopting today contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\352\ In the Proposing Release, we 
solicited comment on the proposed collection of information 
requirements. We also submitted the proposed collections of information 
to the Office of Management and Budget (``OMB'') for review in 
accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The titles for the 
collections of information we are amending are: (i) ``Form ADV;'' and 
(ii) ``Rule 204-2 under the Investment Advisers Act of 1940.'' An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.
---------------------------------------------------------------------------

    \352\ 44 U.S.C. 3501-3520.
---------------------------------------------------------------------------

A. Form ADV

    Form ADV (OMB Control No. 3235-0049) is the two-part investment 
adviser registration form. Part 1 of Form ADV contains information used 
primarily by Commission staff, and Part 2 is the client brochure. We 
are not adopting changes to Part 2. We use the information to determine 
eligibility for registration with us and to manage our regulatory and 
examination programs. Clients use certain of the information to 
determine whether to hire or retain an adviser. The collection of 
information is necessary to provide advisory clients, prospective 
clients, and the Commission with information about the adviser and its 
business, conflicts of interest and personnel. Rule 203-1 under the 
Advisers Act requires every person applying for investment adviser 
registration with the Commission to file Form ADV. Rule 204-4 under the

[[Page 60448]]

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 May 16, 
2016, approximately 12,024 investment advisers are registered with the 
Commission, and 3,248 exempt reporting advisers file reports with the 
Commission.
    The currently approved total annual aggregate burden estimate for 
all advisers completing, amending and filing Form ADV (Part 1 and Part 
2) with the Commission is 154,402 hours with a monetized cost of 
$36,670,427. This collection is based on: (i) Total annual collection 
of information burden for SEC-registered advisers to file and complete 
Form ADV (Part 1 and Part 2), including private fund reporting, plus 
the burden associated with amendments to the form, preparing brochure 
supplements and delivering codes of ethics to clients; and (ii) the 
total annual collection of information burden for exempt reporting 
advisers to file and complete the required items of Part 1A of Form 
ADV, including the private fund reporting, plus the burden associated 
with amendments to the form.
    As discussed above, we are adopting amendments to Form ADV that are 
designed to provide additional information about investment advisers 
and their clients, including clients in separately managed accounts, 
provide for umbrella registration for private fund advisers and clarify 
and address technical and other issues in certain Form ADV items and 
instructions. The amendments we are adopting will increase the 
information requested in Part 1A of Form ADV, and we expect that this 
will correspondingly increase the average burden on an adviser filing 
Form ADV.
    As discussed in Sections II.A. and II.B. of this Release, we 
received several comments that addressed whether the amendments to Form 
ADV and Rule 204-2 are necessary, whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected, and 
whether we could further minimize the burden. Certain commenters 
addressed the accuracy of our burden estimates for the proposed 
collections of information, suggesting in general that our estimates 
were too low.\353\ We have considered these comments and have made 
certain modifications designed to address these and other comments 
received, and we are increasing our PRA burden estimates related to the 
amendments.
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    \353\ ACG Letter; Adrian Day Letter; ASG Letter; Anonymous 
Letter; IAA Letter; NRS Letter; PEGCC Letter; PCA Letter; SBIA 
Letter. See also AIMA Letter (discussed reputational and marketing 
costs associated with separately managed account reporting).
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    We discuss below, in three subsections, the estimated revised 
collection of information requirements for Form ADV: First, we provide 
estimates for the revised burdens resulting from the amendments to Part 
1A; second, we determine how those estimates will be reflected in the 
annual burden attributable to Form ADV; and third, we calculate the 
total revised burdens associated with Form ADV. The paperwork burdens 
of filing an amended Form ADV, Part 1A will vary among advisers, 
depending on factors such as the size of the adviser, the complexity of 
its operations, and the number or extent of its affiliations.
1. Changes in Average Burden Estimates
    As a result of the differing burdens on advisers to complete Form 
ADV, we have divided the effect of the amendments to the form into 
three subsections; first we address the change to the collection of 
information for registered advisers as a result of our amendments to 
Part 1A of Form ADV excluding those changes related to private funds; 
second, we discuss the amendments to Form ADV related to registered 
advisers to private funds, including the amendments to Section 7.B. of 
Schedule D and the new Schedule R that will implement umbrella 
registration; and third, we address the amendments to Form ADV 
affecting exempt reporting advisers.
a. Estimated Change in Burden Related to Part 1A Amendments (Not 
Including Private Fund Reporting)
    We are adopting amendments to Part 1A, some of which are merely 
technical changes or very simple in nature, and others that will 
require more time for an adviser to prepare a response. Advisers should 
have ready access to all the information necessary to respond to the 
items we are adopting today in their normal course of operations, 
because they likely maintain and use the requested information in 
connection with managing client assets. We anticipate that the 
responses to many of the questions will be unlikely to change from year 
to year, which will minimize the ongoing reporting burden associated 
with these questions.
i. Amendments Related to Reporting of Separately Managed Account 
Information
    The amendments to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 
5.K.(4) and Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3) are 
designed to collect information about the separately managed accounts 
managed by advisers. These amendments will enhance existing information 
we receive and permit us to conduct more robust risk monitoring with 
respect to advisers of separately managed accounts. As discussed above, 
the information collected about separately managed accounts will 
include regulatory assets under management reported by asset type, 
borrowings and derivatives information, and the identity of custodians 
that hold at least ten percent of separately managed account regulatory 
assets under management. We believe that advisers to separately managed 
accounts may maintain and use this or similar information for 
operational reasons (e.g., trading systems) and for customary account 
reporting to clients in separately managed accounts.
    Although we understand that much of the requested information may 
be used by advisers for operational reasons or account reporting, we 
expect that these amendments may subject advisers, particularly those 
that advise a large number of separately managed accounts and engage in 
borrowings and derivatives transactions on behalf of separately managed 
accounts, to an increased paperwork burden. We are adopting new Items 
5.K.(1) through (4) and Sections 5.K.(1) and 5.K.(3) largely as 
proposed with certain modifications in response to comments we 
received. With respect to Section 5.K.(2), in order to minimize the 
burden on advisers

[[Page 60449]]

with a smaller amount of separately managed account assets under 
management, we initially proposed to require: (1) Advisers with 
regulatory assets under management attributable to separately managed 
accounts of at least $150 million but less than $10 billion to report 
borrowings and derivatives information as of the date the adviser 
calculates its regulatory assets under management for purposes of its 
annual updating amendment; and (2) advisers with regulatory assets 
under management attributable to separately managed accounts of at 
least $10 billion to report information as of that date and six months 
before that date. As we discussed above,\354\ at the suggestion of 
several commenters,\355\ we increased the proposed $150 million 
reporting threshold to $500 million in order to further alleviate the 
reporting burdens on smaller advisers without compromising our 
objectives.\356\ In response to commenters, we modified Section 5.K.(2) 
to base the reporting of borrowings and derivatives on regulatory 
assets under management in separately managed accounts, rather than the 
net asset value of the accounts, as proposed, because advisers may not 
characterize their separately managed accounts using net asset 
value.\357\ We also eliminated the requirement to report number of 
accounts. We believe that these changes will further decrease the 
burden on advisers to report information on separately managed 
accounts.
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    \354\ Supra Section II.A.1.
    \355\ IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter.
    \356\ Amended Form ADV, Part 1A, Schedule D, Section 5.K.(2).
    \357\ See IAA Letter.
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    In the Proposing Release, we estimated that each adviser would 
spend, on average, 2 hours completing the questions regarding 
separately managed accounts in the first year a new or existing 
investment adviser completes these questions.\358\ A number of 
commenters expressed concern that our estimate of the paperwork burdens 
associated with our proposed questions regarding separately managed 
accounts was too low.\359\ We are revising our estimate of the time 
that that it will take each adviser to complete the questions regarding 
separately managed accounts in the first year a new or existing adviser 
completes these questions from 2 hours to 3 hours.\360\ We have arrived 
at this burden estimate by considering the following: (1) The changes 
we are making to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) and 5.K.(4) 
and Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3); (2) our efforts 
to further alleviate the reporting burden on advisers that manage a 
smaller amount of separately managed account regulatory assets under 
management; and (3) the comments we received on our proposed burden 
estimate. We recognize that burdens will vary across advisers. Advisers 
that advise a large number of separately managed accounts, or that have 
significant regulatory assets under management attributable to 
separately managed accounts, will incur a greater burden than advisers 
that have no separately managed account clients or a limited number of 
such clients. Based on our review of advisers' separately managed 
account business and the new reporting requirements, we believe that, 
on average, 3 hours is an appropriate estimate.
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    \358\ Proposing Release, supra footnote 3 at Section IV.A.1.a.i.
    \359\ Adrian Day Letter; ASG Letter (one adviser suggested that 
outsourcing the work might be costly; another adviser reported 
having the required data but estimated that it would take 
approximately 1 hour to compile data in response to Sections 
5.K.1(a) and (b)); IAA Letter. See also NYSBA Committee Letter (the 
proposed amendments to Form ADV and the Advisers Act will 
significantly increase the reporting obligations for many advisers); 
NRS Letter (burden estimate for proposed amendments is completely 
unrealistic and extremely low); SIFMA II Letter (most exposure data 
is gathered at the client or account level and it would require 
significant systems work to aggregate these values at the adviser 
level).
    \360\ Based on IARD system data as of May 16, 2016, 
approximately 8,718 registered investment advisers, or approximately 
73% of all investment advisers registered with us, reported assets 
under management from clients other than registered investment 
companies, business development companies and pooled investment 
vehicles, indicating that they have assets under management 
attributable to separately managed accounts. Of those approximately 
8,718 advisers, we estimate that 2,538 (approximately 29%) reported 
at least $500 million and less than $10 billion in regulatory assets 
under management from separately managed accounts and 545 
(approximately 6%) reported at least $10 billion in regulatory 
assets under management from separately managed account clients.
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ii. Other Additional Information Regarding Investment Advisers
    We are adding several new questions and amending existing questions 
on Form ADV regarding an adviser's identifying information, advisory 
business, and financial industry affiliations. The revised questions 
primarily refine or expand existing questions or request information we 
believe that advisers already have for compliance purposes. For 
example, we are requiring each adviser to provide CIK Numbers if it has 
one or more such numbers and to provide the address of each of the 
adviser's social media pages. Other questions require advisers to 
provide readily available or easily accessible information, such as the 
amendment to Part IA, Item 1.O. that requires advisers to report their 
assets within ranges. However, some of the revised questions may take 
longer for advisers to complete, such as the amendments to Schedule D, 
Section 1.F that require information about an adviser's 25 largest 
offices other than its principal office and place of business. While 
this information should be readily available to an adviser because it 
should be aware of its offices, a clerk will be required to manually 
enter expanded information about the adviser's offices in the first 
year the adviser responds to the item and then make updates in 
subsequent years. Some commenters thought that additional office 
reporting would be a significant burden on advisers.\361\ As discussed 
above in Section II.A.2.a., we recognize that the burden on some large 
advisers might be significant, especially in the initial reporting 
cycle when they are required to report their additional offices for the 
first time. However, we believe that the burden will decrease after the 
initial filing because in subsequent filings, advisers will only be 
reporting changes to their previously reported additional office 
information. We have clarified that advisers will only be required to 
update the information in Section 1.F. on an annual basis, which should 
help address some of the concerns raised by commenters about the burden 
associated with this amendment.\362\
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    \361\ ACG Letter; CFA Letter; Morningstar Letter (for larger 
advisers, additional office reporting would require substantial 
time, although that burden would ease after the initial reporting 
period); NYSBA Committee Letter.
    \362\ ASG Letter (updating additional office reporting more than 
annually would be burdensome); Morningstar Letter (the Commission 
should clarify how often additional office reporting needs to be 
updated).
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    We are adopting a number of amendments to Item 5 in addition to the 
questions relating to separately managed accounts discussed above. Like 
other new or revised items, we believe several of these new Item 5 
questions will require advisers to provide readily available 
information, such as the number of clients and regulatory assets under 
management attributable to each category of clients during the last 
fiscal year. Advisers currently provide this information in ranges, and 
therefore likely already have available to them the more precise 
numbers to report. In addition, information such as whether the adviser 
uses different assets under management numbers in Part 1A vs. Part 2A 
of Form ADV should be readily available. Other revised items will 
likely present greater burdens for some

[[Page 60450]]

advisers but not others, depending on the nature and complexity of 
their businesses. For instance, the burden associated with the revised 
disclosure regarding wrap fee programs or non-U.S. clients will depend 
on whether and to what extent an adviser allocates client assets to 
wrap fee programs or the extent to which the adviser has non-U.S. 
clients.
    In the Proposing Release, we estimated that the proposed revisions 
to Part 1A of Form ADV and Schedule D would take each adviser 
approximately 1 hour, on average, to complete in the first year a new 
or existing adviser responds to the questions.\363\ Some commenters 
expressed concern that our burden estimate was too low,\364\ while 
others expressed concern about the impact of the increased overall 
compliance burden on smaller advisers.\365\ We are revising our 
estimate of the time that these amendments to Part 1A of Form ADV and 
Schedule D will take each adviser to complete in the first year a new 
or existing adviser responds to these questions from 1 hour to 2 hours. 
We have arrived at this revised burden estimate, in part, by 
considering the following: (1) The relative complexity and availability 
of the information required by the revised items to the current form 
and its approved burden; (2) the number and types of advisers affected 
by the proposed amendments; and (3) the comments we received on our 
proposed burden estimate. We understand that the burden will vary 
across advisers depending on their business and the factors discussed 
in this section. The burden for some advisers will exceed our estimate, 
and the burden for others will be less due to the nature of their 
business. We believe, on balance, that 2 hours is a reasonable 
estimate.
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    \363\ Proposing Release, supra footnote 3 at Section 
IV.A.1.a.ii.
    \364\ ASG Letter (amendments will increase the time required to 
prepare response to Item 5). See NYSBA Committee Letter (the 
proposed amendments to Form ADV and the Advisers Act will 
significantly increase the reporting obligations for many advisers); 
NRS Letter (burden estimate for proposed amendments is completely 
unrealistic and extremely low).
    \365\ PCA Letter (Commission grossly underestimated the 
potential cost for many advisers, particularly small advisers); SBIA 
Letter (Commission should consider the impact of the increased 
overall compliance burden on smaller private fund advisers).
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iii. Clarifying, Technical and Other Amendments
    As discussed above, we are adopting several further amendments to 
Form ADV that are designed to clarify the Form and its instructions and 
address technical issues. These changes primarily refine existing 
questions. For example, we are deleting the phrase ``newly formed 
adviser'' from Part IA, Item 2.A.(9) because of questions from filers 
about whether that phrase refers to only newly formed corporate 
entities. Similarly, we are amending Part IA, Item 8.B.(2) to clarify 
that the question applies to any related person who recommends the 
adviser to advisory clients or acts as a purchaser representative. 
Because these amendments do not change the scope or amount of 
information required to be reported on Form ADV, we do not believe that 
these clarifying, technical, and other amendments to Part 1A of Form 
ADV will increase or decrease the average total collection of 
information burden for advisers in their first year filing Form ADV. We 
did not receive comments regarding reporting burdens associated with 
these technical and clarifying amendments.
    As a result of the amendments to Form ADV Part 1A discussed above, 
including the amendments related to separately managed accounts, 
additional items, and technical and clarifying amendments, we estimate 
the average total collection of information burden will increase 5 
hours to 45.74 hours per adviser for the first year that an adviser 
completes Form ADV (Part 1 and Part 2).\366\
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    \366\ Currently approved estimate of the average total 
collection of information burden per SEC registered adviser for the 
first year that an adviser completes Form ADV (40.74 hours) + 3 
hours to complete the questions about separately managed accounts + 
2 hours to complete other additional information regarding 
investment advisers = 45.74 hours.
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b. Estimated Changes in Burden Related to Private Fund Reporting 
Requirements
    We are adopting several amendments to Part 1A, Schedule D, Section 
7.B. that will refine and enhance existing information we receive about 
advisers to private funds. In addition, as part of our codification of 
umbrella registration, we are adding a new schedule to Part 1A--
Schedule R--to be submitted by advisers to private funds that use 
umbrella registration to file a single Form ADV. We believe the 
information required by the amendments to Part 1A, Schedule D, Section 
7.B will be readily available or easily accessible to advisers to 
private funds. For example, the PCAOB assigned number for a private 
fund auditor should be readily available or easily accessible to that 
private fund's adviser. As discussed in Section II.A.2.c., we modified 
Part 1A, Schedule D, Section 7.B.(1). Question 15(b) regarding sales of 
private funds to qualified clients in response to commenters' concerns. 
The question is now limited to 3(c)(1) funds, and requires only a 
``yes'' or ``no'' answer, rather than requiring advisers to report the 
percentage of a private fund held by qualified clients. Other 
amendments to Section 7.B. are designed to make the questions easier to 
answer, but do not cause a change in reporting burden, including moving 
certain ``notes'' to questions and changes to the current question 
regarding unqualified opinions. The currently approved total annual 
burden estimate for advisers making their initial filing in completing 
Item 7.B. and Schedule D, Section 7.B. is 1 hour per private fund. We 
do not estimate that the amendments to Schedule D, Section 7.B, 
including the changes from the proposal, will increase or decrease the 
total annual burden because the information is readily available to 
advisers. Most of the comments on the amendments to Part 1A, Schedule 
D, Section 7.B. concerned the qualified client question, Question 
15(b), which we modified as discussed above.
    The incorporation of umbrella registration into Form ADV will 
codify a staff position and provide a method for certain private fund 
advisers that operate as a single advisory business to file a single 
registration form. Umbrella registration will only be available if the 
filing adviser and each relying adviser advise only private funds and 
clients in separately managed accounts that are qualified clients, as 
defined in rule 205-3 under the Advisers Act, that are otherwise 
eligible to invest in the private funds advised by the filing or a 
relying adviser. The filing and relying advisers will also have to 
satisfy certain requirements, including that each relying adviser is 
controlled by or under common control with the filing adviser. There 
has been staff guidance for single registration under defined 
circumstances since 2012,\367\ and the amendments to Form ADV will 
provide for umbrella registration and simplify the process of umbrella 
registration for advisers that operate as a single advisory business. 
We are adding a new schedule to Part 1A, Schedule R, that will need to 
be filed with respect to each relying adviser, as well as a new 
question to Schedule D, that will link a private fund reported on Form 
ADV to the specific (filing or relying) adviser that advises it. 
Schedule R will require identifying information, basis for Commission 
registration, and ownership information about each relying adviser.
---------------------------------------------------------------------------

    \367\ See 2012 ABA Letter, supra footnote 5.
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    We believe that much of the information we are requiring in

[[Page 60451]]

Schedule R will be readily available to private fund advisers because 
it is information that they are already reporting either on Form ADV 
filings for separate advisers or on a single Form ADV filing, in 
reliance on the staff guidance. Accordingly, although these new 
requirements will cause an increase in the information collected, the 
increased burden should largely be attributable to data entry and not 
data collection. Furthermore, some advisers who currently separately 
file Form ADV for each of their advisers may cumulatively have a 
reduced Form ADV burden by switching to umbrella registration. We also 
believe that new filing advisers using umbrella registration will 
readily have information available about their relying advisers, 
because they are operating as a single advisory business. In addition, 
filing advisers will be able to check a box indicating that the relying 
adviser's address is the same as the filing adviser, rather than 
provide the relying adviser's address. We did not receive comments on 
the burdens specific to Schedule R.
    There is no currently approved annual burden estimate for 
completing Schedule R because it is a new Schedule. Taking into account 
the scope of information we are requesting, our understanding that much 
of the information is readily available and currently required on Form 
ADV, and the fact that private fund advisers that file an umbrella 
registration in reliance on staff guidance had on average three relying 
advisers,\368\ we continue to estimate that advisers to private funds 
that elect to rely on umbrella registration will spend on average 1 
hour per filing adviser completing new Schedule R for the first time.
---------------------------------------------------------------------------

    \368\ Based on IARD system data as of May 16, 2016, 
approximately 743 investment advisers rely on the 2012 ABA Letter to 
file Form ADV on behalf of themselves and 2,587 relying advisers, an 
average of approximately 3 relying advisers per filing adviser.
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c. Estimated Changes in Burden Related to Exempt Reporting Adviser 
Reporting Requirements
    Exempt reporting advisers are required to complete a limited number 
of items in Part 1A of Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 
10, 11 and corresponding schedules), are not required to complete Part 
2 and will not be eligible to file new Schedule R. The amendments to 
Part 1A will revise only Items 1 and 7 for exempt reporting advisers. 
We believe that most exempt reporting advisers are unlikely to be 
required to do additional reporting in response to the new 
requirements. In addition, the information required by these revisions 
should be readily available to any adviser as part of their ongoing 
operations and management of client assets.\369\ For instance, we 
estimate that almost all exempt reporting advisers currently have five 
or fewer offices (the number of offices currently required by Form ADV) 
and thus will not have to provide information on additional 
offices.\370\ Accordingly, we do not expect that the amendments will 
increase or decrease the currently approved total annual burden 
estimate of two hours per exempt reporting adviser initially completing 
these items on Form ADV, other than Item 7.B. We also do not expect 
that the amendments will increase or decrease the currently approved 
total annual burden estimate of 1 hour per private fund per exempt 
reporting adviser initially completing Item 7.B. and Section 7.B. of 
Schedule D.
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    \369\ One commenter suggested that it would be burdensome for 
exempt reporting advisers to begin collecting information on the 
qualified client status of their investors. As discussed above, we 
have made revisions to address this concern. SBIA Letter.
    \370\ Based on IARD system data as of May 16, 2016, 
approximately 15 exempt reporting advisers reported on Form ADV that 
they had five or more other offices.
---------------------------------------------------------------------------

2. Annual Burden Estimates
a. Estimated Annual Burden Applicable to All Registered Investment 
Advisers
i. Estimated Initial Hour Burden (Not Including Burden Applicable to 
Private Funds) for First Year Adviser To Complete Form ADV (Part 1 and 
Part 2)
    We estimate that, as a result of the amendments to Form ADV Part 1A 
discussed above, other than those applicable to private funds, the 
average total collection of information burden per respondent will 
increase 5 hours to 45.74 hours per adviser for the first year that an 
adviser completes Form ADV (Part 1 and Part 2).
    Approximately 12,024 investment advisers are currently registered 
with the Commission.\371\ Not including private fund reporting, the 
estimated aggregate annual burden applicable to these advisers will be 
549,978 hours \372\ (60,120 hours of it attributable to the 
amendments).\373\ As with the Commission's prior Paperwork Reduction 
Act estimates for Form ADV, we believe that most of the paperwork 
burden will be incurred in advisers' initial submission of the amended 
Form ADV, and that over time this burden will decrease substantially 
because the paperwork burden will be limited to updating 
information.\374\ Amortizing the burden imposed by Form ADV over a 
three-year period to reflect the anticipated period of time that 
advisers will use the revised Form will result in an average annual 
burden of an estimated 183,326 hours per year \375\ (20,040 hours per 
year of it attributable to the amendments),\376\ or approximately 15.25 
hours per year for each adviser currently registered with the 
Commission.\377\
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    \371\ Based on IARD system data as of May 16, 2016. We include 
currently registered advisers in the estimated initial hour burden 
calculation because, for purposes of estimating burdens under the 
Paperwork Reduction Act, we assume that every new and existing 
registered adviser completes an initial registration in a three year 
period, which is the period after which estimates are required to be 
renewed.
    \372\ 45.74 hour per-adviser burden x 12,024 advisers = 549,978 
hours.
    \373\ 5 hour per-adviser additional burden x 12,024 advisers = 
60,120 hours.
    \374\ We discuss the burden for advisers making annual updating 
amendments to Form ADV in Section iii below.
    \375\ 549,978 hours/3 = 183,326 hours.
    \376\ 60,120 hours/3 = 20,040 hours.
    \377\ 183,326 hours/12,024 advisers = 15.25 hours.
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    Based on IARD system data, we estimate that there will be 
approximately 1,000 new investment advisers filing Form ADV with us 
annually. Therefore, we estimate that the total annual aggregate burden 
estimate applicable to these advisers for the first year that they 
complete Form ADV but excluding private fund reporting requirements is 
45,740 hours (1,000 advisers x 45.74 hours). Amortizing the burden 
imposed by Form ADV for new registrants over a three-year period to 
reflect the anticipated period of time that advisers will use the 
revised Form will result in an average annual aggregate burden estimate 
of 15,247 hours per year \378\ (1,667 of it attributable to the 
amendments).\379\ We therefore estimate the total annual aggregate hour 
burden to be 198,573 hours per year.\380\
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    \378\ 45,740 hours/3 = 15,247 hours.
    \379\ 5,000 hours/3 = 1,667 hours.
    \380\ 15,247 hours for new registrants + 183,326 hours for 
existing registrants = 198,573 hours.
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ii. Estimated Initial Hour Burden Applicable to Registered Advisers to 
Private Funds
    The amount of time that a registered adviser managing private funds 
will incur to complete Item 7.B. and Section 7.B. of Schedule D will 
vary depending on the number of private funds the adviser manages. Of 
the advisers currently registered with us, we estimate that 
approximately 4,469 registered advisers advise a total of 30,896 
private funds, and, on average, 300 Commission-registered advisers 
annually will make their initial filing with us reporting approximately 
1,100

[[Page 60452]]

private funds.\381\ The currently approved annual burden estimate for 
advisers making their initial filing in completing Item 7.B. and 
Schedule D, Section 7.B. is 1 hour per private fund. As a result, we 
estimate that the private fund reporting requirements that are 
applicable to registered investment advisers will add 31,996 hours to 
the overall annual aggregate burden estimate applicable to registered 
advisers.\382\ As noted above, we believe most of the paperwork burden 
will be incurred in connection with advisers' initial submission of 
Form ADV, and that over time the burden will decrease substantially 
because it will be limited to updating (instead of compiling) 
information. Amortizing this burden over three years, as we did above 
with respect to the initial filing of the rest of the form, results in 
an annual aggregate average estimated burden of 10,665 hours per 
year.\383\
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    \381\ Based on IARD system data as of May 16, 2016. We include 
existing funds of currently registered advisers in the estimated 
initial hour burden calculation because, for purposes of estimating 
burdens under the Paperwork Reduction Act, we assume that every 
existing registered adviser completes an initial filing completing 
Item 7.B. and Schedule D, Section 7.B. per fund in a three year 
period, which is the period after which estimates are required to be 
renewed.
    \382\ 1 hour x 30,896 private funds = 30,896 hours. 1 hour x 
1,100 private funds = 1,100 hours. 30,896 hours + 1,100 hours = 
31,996 hours.
    \383\ 31,996 hours/3 = 10,665 hours.
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    We also are adding a new Schedule R to Form ADV for umbrella 
registration. Of the advisers currently registered with us, we estimate 
based on current Form ADV filings that approximately 743 registered 
advisers currently submit a single Form ADV on behalf of themselves and 
approximately 2,587 relying advisers.\384\ Taking into account the 
scope of information we are requesting and our understanding that much 
of the information is readily available and is already reported by 
advisers, we estimate that advisers to private funds that elect to rely 
on umbrella registration will spend 1 hour per filing adviser 
completing new Schedule R. As a result, we estimate that umbrella 
registration will add 743 \385\ hours to the annual burden estimate 
applicable to registered advisers. We estimate that, on average, 51 SEC 
registered advisers annually will make their initial filing with us as 
filing advisers, increasing the overall annual burden for advisers to 
private funds an additional 51 hours, or 794 hours in total. Amortizing 
these hours for a three year period as with the rest of the burdens 
associated with Form ADV, results in an annual aggregate average burden 
of 265 additional hours per year.\386\
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    \384\ Based on IARD system data as of May 16, 2016.
    \385\ 743 filing advisers x 1 hour per completing Schedule R = 
743 hours.
    \386\ 794 hours/3 = 265 hours.
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iii. Estimated Annual Burden Associated With Amendments, New Brochure 
Supplements, and Delivery Obligations
    The current approved collection of information burden for Form ADV 
has three elements in addition to those discussed above: (1) The annual 
burden associated with annual and other amendments to Form ADV; (2) the 
annual burden associated with creating new Part 2 brochure supplements 
for advisory employees throughout the year; and (3) the annual burden 
associated with delivering codes of ethics to clients as a result of 
the offer of such codes contained in the brochure. We anticipate that 
our amendments to Form ADV will increase the currently approved annual 
burden estimate associated with annual amendments to Form ADV from 6 
hours to 8 hours per adviser, but will not impact interim updating 
amendments to Form ADV.\387\
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    \387\ Certain commenters were concerned about the burden on 
advisers of updating social media information via interim updating 
amendments. See BlackRock Letter; Oppenheimer Letter; SIFMA Letter. 
As discussed in Section II.A.2.a., we clarified that we are limiting 
the required social media reporting to an adviser's accounts on 
publicly available social media platforms where the adviser controls 
the content. We believe changes to such platforms will be less 
frequent than changes, for example, to platforms where an adviser 
does not control the content. Therefore, we do not believe that 
updating social media reporting via interim updating amendments will 
increase the currently approved annual burden estimate associated 
with interim updating amendments.
---------------------------------------------------------------------------

    We continue to estimate that, on average, each adviser filing Form 
ADV through the IARD will likely amend its form two times during the 
year. We estimate, based on IARD system data, that advisers, on 
average, make one interim updating amendment (at an estimated 0.5 hours 
per amendment) and one annual updating amendment each year. Our 
estimate for the annual updating amendment in the Proposing Release was 
7 hours per amendment each year. Based on the comments we received 
regarding separately managed account reporting that are discussed 
above,\388\ we are increasing the estimate to 8 hours per amendment 
each year.\389\
---------------------------------------------------------------------------

    \388\ AIMA Letter; ASG Letter; IAA Letter; SIFMA Letter. See 
also Adrian Day Letter; NRS Letter.
    \389\ (12,024 advisers x 0.5 hours/other than annual amendment) 
+ (12,024 advisers x 8 hours/annual amendment) = 102,204 hours.
---------------------------------------------------------------------------

    In addition, the currently approved annual burden estimates are 
that each investment adviser registered with us will, on average, spend 
1 hour per year making interim amendments to brochure supplements,\390\ 
and an additional 1 hour per year to prepare new brochure supplements 
as required by Part 2.\391\ The currently approved annual burden 
estimate is that advisers spend an average of 1.3 hours annually to 
meet obligations to deliver codes of ethics to clients upon 
request.\392\ We are not changing these estimates as the amendments do 
not affect these requirements. The increase in the annual burden 
estimate associated with annual amendments to Form ADV and the increase 
in the number of registered investment advisers since the last approval 
of this collection, increase the total annual burden for advisers 
registered with us attributable to amendments, brochure supplements and 
obligations to deliver codes of ethics to 141,883 hours.\393\
---------------------------------------------------------------------------

    \390\ 12,024 hours attributable to interim amendments to the 
brochure supplements = 12,024 advisers x 1 hour = 12,024 hours.
    \391\ 12,024 hours attributable to new brochure supplements = 
12,024 advisers x 1 hour = 12,024 hours.
    \392\ 15,631 hours for the delivery of codes of ethics = 12,024 
advisers x 1.3 hours = 15,631 hours.
    \393\ 102,204 hours + 12,024 hours + 12,024 hours + 15,631 hours 
= 141,883 hours.
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iv. Estimated Annual Cost Burden
    The currently approved total annual collection of information 
burden estimate for Form ADV has a one-time initial cost for outside 
legal and compliance consulting fees in connection with the initial 
preparation of Part 2 of Form ADV. We do not anticipate that the 
amendments we are adopting to Form ADV will affect the per adviser cost 
burden estimates for outside legal and compliance consulting fees. In 
addition to the estimated legal and compliance consulting fees, 
investment advisers of private funds incur costs with respect to the 
requirement for investment advisers to report the fair value of private 
fund assets. We did not receive any comments regarding these specific 
costs.
    We expect that 1,000 new advisers will register annually with the 
Commission. We estimate that the initial cost related to preparation of 
Part 2 of Form ADV will be $4,400 for legal services and $5,000 for 
compliance consulting services, in each case, for those advisers who 
engage legal counsel or consultants. We anticipate that a quarter of 
these advisers will seek the help of outside legal services and half 
will seek the help of compliance consulting services. Accordingly, we 
estimate that 250 of these advisers will use outside legal services, 
for a total annual aggregate cost burden of

[[Page 60453]]

$1,100,000,\394\ and 500 advisers will use outside compliance 
consulting services, for a total annual aggregate cost burden of 
$2,500,000,\395\ resulting in a total annual aggregate cost burden 
among all respondents of $3,600,000 for outside legal and compliance 
consulting fees related to drafting narrative brochures.\396\
---------------------------------------------------------------------------

    \394\ 25% x 1000 SEC registered advisers = approximately 250 
advisers. $4,400 for legal services x 250 advisers = $ 1,100,000.
    \395\ 50% x 1000 SEC registered advisers = 500 advisers. $5,000 
for consulting services x 500 advisers = $2,500,000.
    \396\ $1,100,000 + $2,500,000 = $3,600,000.
---------------------------------------------------------------------------

    We estimate that 6% of registered advisers have at least one 
private fund client that may not be audited. These advisers therefore 
may incur costs to fair value their private fund assets. Based on IARD 
system data as of May 16, 2016, 4,469 registered advisers currently 
advise private funds. We therefore estimate that approximately 268 
registered advisers may incur costs of $37,625 each on an annual basis, 
for an aggregate annual total cost of $10,083,500.\397\
---------------------------------------------------------------------------

    \397\ 268 advisers x $37,625 = $10,083,500.
---------------------------------------------------------------------------

    Together, we estimate that the total cost burden among all 
respondents for outside legal and compliance consulting fees related to 
third party or outside valuation services and for drafting outside 
legal and compliance consulting fees to be $13,683,500.\398\
---------------------------------------------------------------------------

    \398\ $3,600,000 + $10,083,500 = $13,683,500.
---------------------------------------------------------------------------

b. Estimated Annual Burden Applicable to Exempt Reporting Advisers
i. Estimated Initial Hour Burden
    Based on IARD system data as of May 16, 2016, there are 
approximately 3,248 exempt reporting advisers currently filing reports 
with the SEC.\399\ The paperwork burden applicable to these exempt 
reporting advisers consists of the burden attributable to 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.
---------------------------------------------------------------------------

    \399\ Based on IARD system data as of May 16, 2016. We include 
existing exempt reporting advisers and their private funds in the 
estimated initial hour burden calculation because, for the purpose 
of estimating burdens under the Paperwork Reduction Act, we assume 
that every new and existing exempt reporting adviser completes an 
initial Form ADV in a three year period, which is the period after 
which estimates are required to be renewed.
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    The currently approved estimate of the average total collection of 
information burden per exempt reporting adviser for the first year that 
an exempt reporting adviser completes a limited subset of Part 1 of 
Form ADV, other than Item 7.B. and Section 7.B. of Schedule D, is 2 
hours. As discussed above, we do not anticipate that our amendments to 
Form ADV will affect the per exempt reporting adviser burden estimate. 
Based on IARD system data, we estimate that there will be 500 new 
exempt reporting advisers filing Form ADV annually. Therefore, we 
estimate that the total aggregate annual burden applicable to the 
existing and new exempt reporting advisers for the first year that they 
complete Form ADV but excluding private fund reporting requirements 
increases to 7,496 hours.\400\ Amortizing the burden imposed by Form 
ADV over a three-year period to reflect the anticipated period of time 
that advisers will use the revised Form ADV results in an average 
annual aggregate burden estimate of 2,499 hours per year.\401\
---------------------------------------------------------------------------

    \400\ 2 hours x (3,248 reporting exempt reporting advisers + 500 
new exempt reporting advisers) = 7,496 hours.
    \401\ 7,496 hours/3 = 2,499 hours.
---------------------------------------------------------------------------

    As discussed above, we estimate the burden of completing Item 7.B. 
and Section 7.B. of Schedule D to be 1 hour per private fund. We do not 
anticipate that our amendments to Form ADV will affect the per exempt 
reporting adviser burden of completing Item 7.B. and Section 7.B. of 
Schedule D. Based on IARD system data as of May 16, 2016, we estimate 
that, on average, the 3,248 exempt reporting advisers report 11,915 
funds. In addition, we estimate that the 500 new exempt reporting 
advisers making their initial filing will report approximately 1,000 
funds, resulting in a total aggregate annual burden of 12,915 
hours.\402\ Amortizing this total burden over three years as we did 
above for registered advisers results in an average annual aggregate 
burden estimate of 4,305 hours per year,\403\ or approximately 1 hour 
per year, on average, for each exempt reporting adviser.\404\
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    \402\ 11,915 funds + 1,000 funds = 12,915 funds. 12,915 x 1 hour 
= 12,915 hours.
    \403\ 12,915 hours/3 years = 4,305 hours per year.
    \404\ 4,305 hours per year/3,748 exempt reporting advisers = 1.1 
hours per year.
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ii. Estimated Annual Burden Associated With Amendments and Final 
Filings
    In addition to the burdens associated with initial completion and 
filing of the portion of the form that exempt reporting advisers are 
required to prepare, we estimate that, based on IARD system data, each 
exempt reporting adviser will amend its form 2 times per year. On 
average, these consist of one interim updating amendment (at an 
estimated 0.5 hours per amendment) \405\ and one annual updating 
amendment (at an estimated 1 hour per amendment) \406\ each year. In 
addition, we anticipate 200 final filings by exempt reporting advisers 
annually (at an estimated 0.1 hours per filing).\407\ We do not 
anticipate that our amendments to Form ADV will affect the per exempt 
reporting adviser burden for amendments or final filings. However, 
based on the increase in the number of exempt reporting advisers, the 
total annual burden associated with exempt reporting advisers filing 
amendments and final filings has increased to 4,892 hours.\408\
---------------------------------------------------------------------------

    \405\ 3,248 exempt reporting advisers x .5 hours = 1,624 hours.
    \406\ 3,248 exempt reporting advisers x 1 hour = 3,248 hours.
    \407\ 200 final filings x 0.1 hours = 20 hours.
    \408\ 1,624 hours + 3,248 hours + 20 hours = 4,892 hours. Exempt 
reporting advisers are not required to complete Part 2 of Form ADV 
and so will not incur an hour burden to prepare new brochure 
supplements or the cost for preparation of the brochure. Exempt 
reporting advisers also do not have an obligation to deliver codes 
of ethics to clients when requested as required by Part 2 of Form 
ADV.
---------------------------------------------------------------------------

3. Total Revised Burdens
    The revised total annual aggregate collection of information burden 
for SEC registered advisers to file and complete the revised Form ADV 
(Parts 1 and 2), including the initial burden for both existing and 
anticipated new registrants, private fund reporting, plus the burden 
associated with filing amendments to the form, preparing brochure 
supplements and delivering codes of ethics to clients, is estimated to 
be approximately 351,386 hours per year, for a monetized total of 
approximately $89,427,737.\409\
---------------------------------------------------------------------------

    \409\ 198,573 hours per year attributable to initial preparation 
of Form ADV + 10,665 hours per year attributable to initial private 
fund reporting requirements + 265 hours per year for initial 
umbrella registration + 141,883 hours per year attributable to 
filing amendments, brochure supplements and obligations to deliver 
codes of ethics = 351,386 hours. One commenter stated that the work 
of compliance is generally carried out by the Chief Compliance 
Officer with limited assistance from others. PCA Letter. However, 
based on our experience, we expect that at most Commission 
registered advisers, the performance of this function will most 
likely be equally allocated between a senior compliance examiner and 
a compliance manager, or persons performing similar functions. Data 
from the SIFMA Management and Professional Earnings Report, modified 
by Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead, suggest that costs for these 
positions are $221 and $288 per hour, respectively. (175,693 hours x 
$221) + (175,693 hours x $288) = $89,427,737.
---------------------------------------------------------------------------

    The revised total annual collection of information burden for 
exempt reporting advisers to file and complete the required Items of 
Part 1A of Form

[[Page 60454]]

ADV, including the burdens associated with private fund reporting, 
amendments to the form and final filings, will be approximately 11,696 
hours per year, for a monetized total of $2,976,632.\410\
---------------------------------------------------------------------------

    \410\ 2,499 hours per year attributable to initial preparation 
of Form ADV + 4,305 hours per year attributable to initial private 
fund reporting requirements + 4,892 hours per year for amendments 
and final filings = 11,696 hours. We expect that the performance of 
this function will most likely be equally allocated between a senior 
compliance examiner and a compliance manager, or persons performing 
similar functions. Data from the SIFMA Management and Professional 
Earnings Report, modified by Commission staff to account for an 
1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits and overhead, 
suggest that costs for these positions are $221 and $288 per hour, 
respectively. (5,848 x $221) + (5,848 x $288) = $2,976,632.
---------------------------------------------------------------------------

    We estimate that with today's amendments to Form ADV, the revised 
total aggregate annual hour burden for the form will be approximately 
363,082 hours and the monetized total will be approximately 
$92,404,369.\411\ This is an increase of 208,680 hours and $55,733,942 
from the currently approved annual aggregate burden estimates,\412\ 
which is attributable primarily to the currently approved burden 
estimates not considering the amortized annual burden of Form ADV on 
existing registered advisers and exempt reporting advisers; but also to 
the larger registered investment adviser and exempt reporting adviser 
population since the most recent approval, adjustments for inflation, 
and the amendments to Form ADV. The resulting blended average per 
adviser burden for Form ADV is 23.77 hours (for a monetized total of 
$6,051),\413\ which consists of an average annual burden of 29.22 hours 
\414\ for each of the estimated 12,024 SEC registered advisers, and 
3.60 hours \415\ for each of the estimated 3,248 exempt reporting 
advisers.
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    \411\ 351,386 hours + 11,696 hours = 363,082 hours. $89,427,737 
+ $2,976,632 = $92,404,369.
    \412\ 363,082 hours-154,402 hours = 208,680 hours. $92,404,369-
$36,670,427 (currently approved monetized burden estimate) = 
$55,733,942.
    \413\ 363,082 hours/(12,024 registered advisers + 3,248 exempt 
reporting advisers) = 23.77 hours. $92,404,369/(12,024 registered 
advisers + 3,248 exempt reporting advisers) = $6,051.
    \414\ 351,386 hours/12,024 registered advisers = 29.22 hours.
    \415\ 11,696 hours/3,248 exempt reporting advisers = 3.60 hours.
---------------------------------------------------------------------------

    Registered investment advisers are also expected to incur an annual 
cost burden of $13,683,500, an increase of $10,083,500 from the current 
approved cost burden estimate of $3,600,000. The increase in annual 
cost burden is attributable to the currently approved burden not 
considering the cost to advisers to fair value private fund assets.

B. Rule 204-2

    Rule 204-2 (OMB Control No. 3235-0278) requires investment advisers 
registered, or required to be registered under section 203 of the Act, 
to keep certain books and records relating to their advisory business. 
The collection of information under rule 204-2 is necessary for the 
Commission staff to use in its examination and oversight program. The 
information provided to the Commission in connection with staff 
examinations, investigations and oversight programs would be kept 
confidential subject to the provisions of applicable law. The 
collection of information is mandatory.
    The amendments to rule 204-2 will require investment advisers to 
make and keep the following records: (i) Documentation necessary to 
demonstrate the calculation of the performance the adviser distributes 
to any person, and (ii) all written communications received or sent 
relating to the adviser's performance.
    The currently approved total annual burden for rule 204-2 is based 
on an estimate of 10,946 registered advisers subject to rule 204-2 and 
an estimated average burden of 181.45 burden hours each year per 
adviser, for a total annual aggregate burden estimate of 1,986,152 
hours. Based upon updated IARD system data as of May 16, 2016, the 
approximate number of investment advisers is 12,024. As a result of the 
increase in the number of advisers registered with the Commission since 
the current total annual burden estimate was approved, the total burden 
estimate has increased by 195,603 hours.\416\ We estimate that most 
advisers provide, or seek to provide, performance information to their 
clients. Under the amendments, each adviser will be required to retain 
the records in the same manner, and for the same period of time, as 
other books and records under the rule.\417\ We believe based on staff 
experience, and several commenters confirmed,\418\ that the 
documentation necessary to support the performance calculations is 
customarily maintained, or required to be maintained by advisers 
already in account statements or portfolio management systems. We also 
believe that most advisers already maintain this information in their 
books and records, in order to show compliance with the Advisers Act 
advertising rule, rule 206(4)-1. In the Proposing Release, we estimated 
that the proposed amendments to rule 204-2 would increase the burden by 
approximately .5 hours per adviser annually. We received several 
comments suggesting that our estimated burden increase was 
significantly too low.\419\ While we continue to believe that most 
advisers currently maintain this information, after considering the 
commenters' concerns, we now estimate that the amendments to rule 204-2 
will increase the burden by approximately 1.5 hours per adviser 
annually for a total annual aggregate increase of 18,036 hours.\420\ 
The revised annual aggregate burden estimate will be 2,199,791 
hours.\421\ The revised average burden estimate of the recordkeeping 
requirements under rule 204-2 per SEC-registered adviser will be 
approximately 183 hours per year.\422\ The burden may be less than 1.5 
hours for those advisers that currently maintain this information, and 
we acknowledge that the burden may be greater than 1.5 hours for 
advisers that frequently provide performance information to clients and 
do not currently maintain this information. We believe that, on 
average, 1.5 hours is an appropriate estimate for this collection of 
information.
---------------------------------------------------------------------------

    \416\ 12,024 advisers x 181.45 hours = 2,181,755 hours. 
2,181,755 hours - 1,986,152 hours = 195,603 hours.
    \417\ Specifically, the records must be maintained in an easily 
accessible place for at least five years from the end of the fiscal 
year during which the last entry was made in such record, the first 
two years in an appropriate office of the investment adviser. See 
rule 204-2(e)(1).
    \418\ See, e.g., ABA Committee Letter; Morningstar Letter; PCA 
Letter.
    \419\ ACG Letter; Anonymous Letter (estimates a training burden 
of 4-8 hours per effected employee in the first year; estimates that 
there will be additional expenses for data analysis and storage); 
PEGCC Letter (argues that, with respect to the proposed amendments 
to rule 204-2, the Commission significantly understated the burden 
on advisers and presented little evidence to support its burden 
estimate). See ASG Letter.
    \420\ 12,024 advisers x 1.5 hours = 18,036 hours.
    \421\ 1,986,152 (current approved burden) + 195,603 (burden for 
additional registrants) + 18,036 (burden for amendments) = 2,199,791 
hours.
    \422\ 2,199,791 hours / 12,024 advisers = 183 hours.
---------------------------------------------------------------------------

    Advisers will likely use a combination of compliance clerks and 
general clerks to make and keep the information and records required 
under the rule. The currently approved total annual aggregate cost 
burden is $108,708,557.10. We estimate the hourly wage for compliance 
clerks to be $65 per hour, including benefits, and the hourly wage for 
general clerks to be $58 per hour, including benefits.\423\ For

[[Page 60455]]

each adviser, 183 annual burden hours will be required to make and keep 
the information and records required under the rule. We anticipate that 
compliance clerks will perform an estimated 32 hours of this work, and 
general clerks will perform the remaining 151 hours. The total annual 
cost per respondent therefore will be an estimated $10,838,\424\ for a 
total annual aggregate burden cost estimate of approximately 
$130,316,112,\425\ an increase of $21,607,555 from the currently 
approved total annual aggregate cost per respondent.\426\ The increase 
in cost is attributable to a larger registered investment adviser 
population since the most recent PRA approval, an adjustment for 
inflation in the hourly wage estimates for a compliance clerk and 
general clerk, and the rule 204-2 amendments discussed in this Release.
---------------------------------------------------------------------------

    \423\ Our hourly wage rate estimate for a compliance clerk and 
general clerk is based on data from the SIFMA Office Salaries in the 
Securities Industry Report 2013 (``SIFMA Office Salaries Report''), 
modified by Commission staff to account for an 1,800-hour work-year 
and inflation, and multiplied by 2.93, to account for bonuses, firm 
size, employee benefits and overhead.
    \424\ (32 hours per compliance clerk x $65) + (151 hours per 
general clerk x $58) = ($2,080 + $8,758) = $10,838.
    \425\ $10,838 per adviser x 12,024 advisers = approximately 
$130,316,112.
    \426\ $130,316,112 - $108,708,557 = $21,607,555.
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VI. Final Regulatory Flexibility Analysis

    The Commission has prepared the following Final Regulatory 
Flexibility Act Analysis, in accordance with section 4(a) of the 
Regulatory Flexibility Act, in relation to our amendments to Form ADV 
and rule 204-2 and our technical amendments to certain other rules 
under the Advisers Act.\427\ We prepared an Initial Regulatory 
Flexibility Analysis (``IRFA'') in the Proposing Release.\428\
---------------------------------------------------------------------------

    \427\ 5 U.S.C. 604(a).
    \428\ See Proposing Release, supra footnote 3 at Section V.
---------------------------------------------------------------------------

A. Need for and Objectives of the Amendments

    We are adopting amendments to Form ADV that are designed to provide 
the Commission with additional information about registered investment 
advisers, including information about separately managed accounts, 
provide for umbrella registration for multiple investment advisers 
operating as a single advisory business, and provide technical, 
clarifying and other amendments to certain Form ADV provisions. The 
amendments to Form ADV will improve the depth and quality of the 
information provided by investment advisers to the Commission and the 
public.
    We are also amending the Advisers Act books and records rule to 
require advisers to make and keep supporting documentation that 
demonstrates performance calculations or rates of return in any written 
communications that the adviser circulates or distributes, directly or 
indirectly, to any person. We believe that the amendments to the books 
and records rule will improve investor protections by providing useful 
information in examining and evaluating advisers' performance claims.
    Finally, we are adopting technical amendments to certain rules 
under the Advisers Act to remove transition provisions where the 
transition process is complete.

B. Significant Issues Raised by Public Comments

    The Commission is sensitive to the burdens that the Form ADV and 
rule amendments may have on small advisers. In the Proposing Release, 
we requested comment on matters discussed in the IRFA. In particular, 
we sought comments on the number of small entities, particularly small 
advisers, to which the amendments to Form ADV and Advisers Act rules 
would apply, and the impact of those amendments on the small entities, 
including whether the effects would be economically significant.
    The Commission received one comment letter specifically addressing 
the IRFA \429\ in addition to several comment letters that discussed 
the impact of the proposed amendments to Form ADV on smaller 
advisers.\430\ With respect to the reporting on Form ADV regarding 
separately managed accounts, several commenters suggested decreasing 
the burden on small advisers by increasing the threshold for reporting 
derivatives and borrowings information in Schedule D, Section 5.K.(2) 
to $500 million from the proposed $150 million.\431\ As discussed 
above, we are persuaded by commenters that this is a sensible 
accommodation that would allow us to meet our regulatory objectives 
while alleviating reporting burdens on smaller advisers, and have 
raised the minimum threshold for reporting information about the use of 
borrowings and derivatives in separately managed accounts to advisers 
with at least $500 million in separately managed account regulatory 
assets under management, from the proposed threshold of $150 
million.\432\ A commenter also suggested not requiring advisers with 
less than $150 million in separately managed account assets to report 
any separately managed account information, including in Sections 
5.K.(1) and 5.K.(3).\433\ As discussed in Section II.A.1. of this 
Release, we recognize that this reporting will impose some burden on 
all advisers with separately managed accounts, but we believe that 
gathering this information is important for us to gain a full 
understanding of assets held in separately managed accounts managed by 
investment advisers of different sizes. We also have limited both the 
scope of information to be reported and the frequency of reporting, 
which lessens the burden on small advisers.
---------------------------------------------------------------------------

    \429\ PCA Letter.
    \430\ Adrian Day Letter; AIMA Letter; Diercks Letter; IAA 
Letter; SBIA Letter; Schwab & Co. Letter.
    \431\ IAA Letter; NYSBA Committee Letter; Schwab & Co. Letter.
    \432\ See Amended Form ADV, Part 1A, Schedule D, Section 
5.K.(2).
    \433\ AIMA Letter; see also ASG Letter (suggesting establishing 
a minimum regulatory assets under management threshold above which 
reporting requirements would be imposed).
---------------------------------------------------------------------------

    One commenter described more generally the burdens of the 
amendments to Form ADV on smaller private fund advisers.\434\ Other 
commenters noted that smaller advisers may not have additional staff to 
meet any increased burdens in reporting, and that smaller advisers may 
not have the staffing that we assume in calculating monetary burdens on 
advisers.\435\ Another commenter noted that the requirement to report 
information about additional offices may have a disproportionate impact 
on smaller advisers.\436\
---------------------------------------------------------------------------

    \434\ See SBIA Letter.
    \435\ Adrian Day Letter; Diercks Letter; PCA Letter.
    \436\ NRS Letter.
---------------------------------------------------------------------------

    With respect to the amendments that we proposed to the Books and 
Records rule, one commenter noted that while the amendments were not 
themselves burdensome, when aggregated with other recordkeeping 
obligations, could lead to overall compliance burdens for smaller 
advisers.\437\ While we acknowledge commenters' concerns, records from 
advisers of all sizes are required for our staff to be able to conduct 
its oversight of advisers, including examinations and investigations. 
Further, based on our staff's experience and the information provided 
by several commenters,\438\ we believe that most advisers already 
maintain this information. Thus, we are adopting the amendments largely 
as proposed.
---------------------------------------------------------------------------

    \437\ SBIA Letter.
    \438\ See, e.g., ABA Committee Letter; Morningstar Letter; PCA 
Letter.
---------------------------------------------------------------------------

    With respect to the amendments to Form ADV and the Advisers Act 
rules generally, we believe that they will improve the depth and 
quality of information provided by investment advisers to the 
Commission and the public and our oversight of advisers.

[[Page 60456]]

Information about advisers of all sizes is required for the Commission 
and its staff to perform their roles in overseeing advisers. 
Accordingly, we are not modifying the reporting requirements for 
smaller advisers.

C. Small Entities Subject to the Rule and Rule Amendments

    The amendments to Form ADV and the Advisers Act rules affect all 
advisers registered with the Commission and exempt reporting advisers, 
including small entities. Under Commission rules, for the purposes of 
the Advisers Act and the Regulatory Flexibility Act, an investment 
adviser generally is a small entity if it: (1) Has assets under 
management having a total value of less than $25 million; (2) did not 
have total assets of $5 million or more on the last day of the most 
recent fiscal year; and (3) does not control, is not controlled by, and 
is not under common control with another investment adviser that has 
assets under management of $25 million or more, or any person (other 
than a natural person) that had total assets of $5 million or more on 
the last day of its most recent fiscal year.\439\
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    \439\ Rule 0-7(a) under the Advisers Act.
---------------------------------------------------------------------------

    Our rule and Form ADV amendments will not affect most advisers that 
are small entities (``small advisers'') because they are generally 
registered with one or more state securities authorities and not with 
us. Under section 203A of the Advisers Act, most small advisers are 
prohibited from registering with the Commission and are regulated by 
state regulators. Based on IARD system data, we estimate that as of May 
16, 2016, approximately 526 advisers that are small entities are 
registered with the Commission.\440\ Because these advisers are 
registered, they, like all SEC-registered investment advisers, will all 
be subject to the amendments to Form ADV, rule 204-2 and other Advisers 
Act rules.
---------------------------------------------------------------------------

    \440\ Based on SEC-registered investment adviser responses to 
Form ADV, Item 5.F and Item 12.
---------------------------------------------------------------------------

    The only small entity exempt reporting advisers that are subject to 
the amendments are exempt reporting advisers that maintain their 
principal office and place of business in Wyoming or outside the United 
States. Advisers with less than $25 million in assets under management 
generally are prohibited from registering with us unless they maintain 
their principal office and place of business in Wyoming or outside the 
United States. Exempt reporting advisers are not required to report 
regulatory assets under management on Form ADV and therefore we do not 
have a precise number of exempt reporting advisers that are small 
entities. Exempt reporting advisers are required to report in Part 1A, 
Schedule D the gross asset value of each private fund they manage.\441\ 
Based on responses to that question, we estimate that there is 
approximately 1 exempt reporting adviser with its principal office and 
place of business in Wyoming that meets the definition of small entity. 
Advisers with their principal office and place of business outside the 
United States may have additional assets under management other than 
what is reported in Schedule D. Based on IARD filings, approximately 
14.3% of registered investment advisers with their principal office and 
place of business outside the U.S. are small entities. Based on IARD 
system data as of May 16, 2016, there are approximately 1,428 exempt 
reporting advisers with their principal office and place of business 
outside the U.S. We estimate that 14.3% of those advisers, 
approximately 204 exempt reporting advisers, are small entities.
---------------------------------------------------------------------------

    \441\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A., 
Question 11.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The amendments to Form ADV and rule 204-2 impose certain reporting, 
recordkeeping, and compliance requirements on all Commission-registered 
advisers, including small advisers. All Commission-registered small 
advisers are required to file Form ADV and include the new information 
required by the amendments, and all Commission-registered small 
advisers are subject to the amended recordkeeping requirements. Our 
technical amendments to other Advisers Act rules do not impose 
different reporting, recordkeeping, or other compliance requirements on 
small advisers.
Form ADV Amendments
    The amendments to Form ADV require registered investment advisers 
to report different or additional information than what is currently 
required. Approximately 526 small advisers currently registered with us 
are subject to these requirements. We expect these 526 small advisers 
to spend, on average, 5 hours to respond to the new and amended 
questions, not including items relating to private fund reporting, 
which is discussed below.\442\ We expect the aggregate cost to small 
advisers associated with this process is $669,335.\443\
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    \442\ See Section V. of this Release.
    \443\ We expect that performance of this function will most 
likely be equally allocated between a senior compliance examiner and 
a compliance manager. Data from the SIFMA Management and 
Professional Earnings Report, modified by Commission staff to 
account for an 1,800-hour work year and inflation, and multiplied by 
5.35 to account for bonuses, firm size, employee benefits, and 
overhead, suggest that costs for these positions are $221 and $288 
per hour, respectively. 526 small advisers x 5 hours = 2,630 hours. 
[1,315 hours x $221 = $290,615] + [1,315 hours x $288 = $378,720] = 
$669,335.
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    In addition, of these 526 small advisers, we estimate that 3 small 
advisers currently rely on the 2012 ABA Letter to act as filing 
advisers for their relying advisers.\444\ We expect that our changes to 
codify umbrella registration will take 3 hours \445\ in the aggregate, 
at a cost to small advisers of $764.\446\ We do not know how many 
additional small advisers will use umbrella registration as 
incorporated into Form ADV.
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    \444\ Based on IARD system data as of May 16, 2016.
    \445\ For purposes of the Paperwork Reduction Act, we estimated 
in Section V of this Release that amendments to codify umbrella 
registration will take an additional 1 hour per filing adviser.
    \446\ As discussed in connection with the Paperwork Reduction 
Act, we expect that performance of this function will most likely be 
equally allocated between a senior compliance examiner and a 
compliance manager. Data from the SIFMA Management and Professional 
Earnings Report, modified by Commission staff to account for an 
1,800-hour work year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead, 
suggest that costs for these positions are $221 and $288 per hour, 
respectively. 3 filing advisers x 1 hour = 3 hour. [1.5 hours x $221 
= $332] + [1.5 hours x $288 = $432] = $764.
---------------------------------------------------------------------------

    We do not estimate any increase or decrease in burden related to 
our amendments for small private fund advisers, other than the hours 
related to Schedule R, or for exempt reporting advisers. The total 
estimated costs associated with our amendments to Form ADV that we 
expect will be borne by small advisers is $670,099.\447\
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    \447\ $669,335 + $764 = $670,099. These costs are discussed in 
Paperwork Reduction Act Analysis in Section V. of this Release.
---------------------------------------------------------------------------

Amendments to Books and Records Rule
    Our amendments to rule 204-2's performance information 
recordkeeping provisions require investment advisers to make and keep 
the following records: (i) Documentation necessary to demonstrate the 
calculation of the performance the adviser distributes to any person, 
and (ii) all written communications received or sent relating to the 
adviser's performance. These amendments will create reporting, 
recordkeeping, and other compliance requirements for small advisers. As 
discussed in the Paperwork Reduction Act Analysis in Section V. above, 
the amendments to rule 204-2 will increase the burden by

[[Page 60457]]

approximately 1.5 hours per adviser. We expect the aggregate cost to 
small advisers associated with our amendments is $46,700.\448\
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    \448\ As discussed in connection with the Paperwork Reduction 
Act, we expect that performance of this function will most likely be 
allocated between compliance clerks and general clerks with 
compliance clerks performing 17% of the function and general clerks 
performing 83% of the function. Data from the SIFMA Office Salaries 
Report modified by Commission staff to account for an 1,800-hour 
work year and inflation, and multiplied by 2.93 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
costs for these positions are $65 per hour and $58 per hour, 
respectively. 526 small advisers x 1.5 hours = 789 hours. [0.17 x 
789 hours x $65 = $8,718] + [0.83 x 789 hours x $58 = $37,982] = 
$46,700.
---------------------------------------------------------------------------

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small entities. In 
connection with the Form ADV and rule amendments, the Commission 
considered the following alternatives: (i) The establishment of 
differing compliance or reporting requirements that take into account 
the resources available to small advisers; (ii) the clarification, 
consolidation, or simplification of compliance and reporting 
requirements under the Form ADV and rule amendments for such small 
entities; (iii) the use of performance rather than design standards; 
and (iv) an exemption from coverage of the Form ADV and rule 
amendments, or any part thereof, for such small entities.
    Regarding the first and second alternatives, the adopted amendments 
require reporting on separately managed accounts on Schedule 5.K.(2) of 
Form ADV only for advisers with $500 million or more of regulatory 
assets under management attributable to separately managed accounts. 
Further, we require semi-annual information filed annually for those 
advisers with regulatory assets under management attributable to 
separately managed accounts of at least $10 billion, and annual 
information for other advisers.\449\ Requiring no reporting on these 
items for advisers with less than $500 million, and less detailed 
reporting for advisers with less than $10 billion, is designed to 
balance our regulatory needs for this type of information while seeking 
to minimize the reporting burden on advisers that manage a smaller 
amount of separately managed account assets where appropriate.
---------------------------------------------------------------------------

    \449\ Amended Form ADV, Part 1A, Schedule D, Sections 5.K.(1).
---------------------------------------------------------------------------

    Regarding the first and fourth alternatives for the other 
amendments to Form ADV and Advisers Act rules, we do not believe that 
different compliance or reporting requirements or an exemption from 
coverage of the Form ADV and rule amendments, or any part thereof, for 
small entities, would be appropriate. Information about advisers of all 
sizes is required for the Commission and its staff to perform their 
role in overseeing investment advisers. Accordingly, we are not 
modifying the reporting requirements for smaller advisers.
    Regarding the second alternative for the other amendments to Form 
ADV and the Advisers Act rules, we considered whether further 
clarification, consolidation, or simplification of the compliance 
requirements was feasible or necessary. In response to commenters, we 
clarified certain instructions and items, which apply to all advisers 
filing Form ADV. The remaining Form ADV amendments do not change that 
all SEC-registered advisers use a single form, Form ADV, and an 
existing filing system, IARD, for reporting and registration purposes, 
and this does not change for small entities. With respect to the rule 
204-2 amendments, we believe that the same requirements should apply to 
all advisers to permit our staff to more effectively examine them.
    Regarding the third alternative, we considered using performance 
rather than design standards with respect to the amendments to Form ADV 
and rule 204-2 but, for the Commission and its staff to perform their 
role in overseeing advisers, advisers must provide certain registration 
information and maintain books and records in a uniform and 
quantifiable manner so that it is useful to our regulatory and 
examination program.

VII. Statutory Authority

    The Commission is adopting amendments to Form ADV under section 
19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) 
and 28(e)(2) of the Securities Exchange Act of 1934 [15 U.S.C. 78w(a) 
and 78bb(e)(2)], section 319(a) of the Trust Indenture Act of 1939 [15 
U.S.C. 7sss(a)], section 38(a) of the Investment Company Act of 1940 
[15 U.S.C. 80a-37(a)], and section 203(c)(1), 204 and 211(a) of the 
Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)]. The Commission is amending rule 204-2 pursuant to the authority 
set forth in sections 204 and 211 of the Advisers Act [15 U.S.C. 80b-4 
and 80b-11]. The Commission is amending rule 202(a)(11)(G)-1 pursuant 
to authority in sections 202(a)(11)(G) and 206A of the Advisers Act [15 
U.S.C. 80b-2(a)(11)(G) and 80b-6A]. The Commission is amending rule 
203-1 pursuant to authority in section 206A of the Advisers Act [15 
U.S.C. 80b-6A]. The Commission is rescinding rule 203A-5 and amending 
rule 204-1 pursuant to authority in sections 204 and 211(a) of the 
Advisers Act [15 U.S.C. 80b-4 and 80b-11(a)]. The Commission is 
amending rule 204-3 pursuant to authority in sections 204, 206(4) and 
211(a) of the Advisers Act [15 U.S.C. 80b-4, 80b-6(4) and 80b-11(a)].

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

Text of Rule and Form Amendments

    For the reasons set forth in the preamble, title 17, chapter II of 
the Code of Federal Regulations is amended as follows.

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

0
1. The general authority citation for part 275 continues to read as 
follows, and the sectional authority for Sec.  275.230A-5 is removed.

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless 
otherwise noted.
* * * * *


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

0
2. Amend Sec.  275.202(a)(11)(G)-1 by removing paragraph (e).
0
3. Section 275.203-1 is amended 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. Section 275.203A-5 is removed and reserved.

[[Page 60458]]

Sec.  275.204-1  [Amended]

0
5. Section 275.204-1 is amended 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. Section 275.204-2 is amended 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''.
    The revision reads as follows:


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:
    (i) Any recommendation made or proposed to be made and any advice 
given or proposed to be given;
    (ii) Any receipt, disbursement or delivery of funds or securities;
    (iii) The placing or execution of any order to purchase or sell any 
security;
    (iv) The performance or rate of return of any or all managed 
accounts or securities recommendations: Provided, however:
    (A) That the investment adviser shall not be required to keep any 
unsolicited market letters and other similar communications of general 
public distribution not prepared by or for the investment adviser, and
    (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.
* * * * *


Sec.  275.204-3  [Amended]

0
7. Section 275.204-3 is amended by:
0
a. Removing paragraph (g); and
0
b. Redesignating paragraph (h) as paragraph (g).

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

0
8. The authority citation for Part 279 continues to read as follows:

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


0
9. Form ADV [referenced in Sec.  279.1] is amended by:
0
a. In the instructions to the form, revising the sections entitled 
``Form ADV: General Instructions.'' The revised version of Form ADV: 
General Instructions is attached as Appendix A;
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: August 25, 2016.
Brent J. Fields,
Secretary.
BILLING CODE 8011-01-P

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[FR Doc. 2016-20832 Filed 8-31-16; 8:45 am]
 BILLING CODE 8011-01-C

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