Wednesday, July 25, 2012

NASAA Proposes Revisions to Form ADV Part 1B

The North American Securities Administrators Association (NASAA) has released for public comment a proposal to revise Form ADV Part 1B. Form ADV is used by investment advisers to register and report with the appropriate state securities regulators and the SEC. Investment advisers registering with one or more states must complete Form ADV and also Part 1B.

Form ADV had been significantly revised by the SEC in 2011, largely to carry out the provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act. NASAA's proposed revisions to Part 1B of the Form ADV are designed to: (1) eliminate information that is now captured in other questions within the Form ADV; (2) capture limited additional information, and (3) make technical updates.

Among the proposed changes, Item 2A, which requests information on the person responsible for supervision and compliance, would be amended from a mandatory item to an item required when applicable. NASAA observed that information on the adviser's Chief Compliance Officer (CCO) is now captured in the Form ADV. Despite this addition, however, the person responsible for supervision in the state of registration may not be the CCO of the adviser.  Accordingly, Item 2.A is now designed to capture such information.

Item 2G, concerning the investment adviser's other business activities, is being amended to delete information collected in other places on the ADV and to add categories to collect information about the adviser, its affiliates, and management persons. As amended, Item 2G would require the adviser to disclose whether the adviser, any advisory affiliate, or any management person is actively engaged in business as: an issuer of securities; sponsor or syndicator of limited partnerships; sponsor, general partner, managing member of pooled investment vehicles; real estate adviser; bookkeeper; or bill payment service provider.

The disclosures concerning custody in Item 2I would be amended to include additional information not currently captured in Part 1B, including information on “independent party” as used in the NASAA Custody Requirements for Investment Advisers (Model Rule 102(e)(1)-1)).  Item 2I would also be amended to ask whether the adviser or a related person acts as trustee for any trust in which the firm's advisory clients are beneficiaries of the trust.

New Item 2.K will collect information on advisers organized other than as a sole proprietorship, including the adviser's date of formation and IRS Employer Identification Number. The Disclosure Reporting Pages are being amended to require additional disclosures of advisory affiliates and management persons.

The public comment period will remain open until August 13, 2012.  Comments should be submitted to the individuals listed in the proposal as well as to the NASAA Legal Department. NASAA also welcomes any general comments on any other provisions in Part 1B.