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



[[Page 33717]]

Vol. 80

Friday,

No. 113

June 12, 2015

Part III





Securities and Exchange Commission





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17 CFR Parts 275 and 279





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

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

[[Page 33718]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

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


Amendments to Form ADV and Investment Advisers Act Rules

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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

DATES: Comments should be received on or before August 11, 2015.

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

Electronic Comments

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

Paper Comments

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

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

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

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

Table of Contents

I. Background
II. Discussion
    A. Proposed Amendments to Form ADV
    1. Information Regarding Separately Managed Accounts
    2. Additional Information Regarding Investment Advisers
    3. Umbrella Registration
    4. Proposed Clarifying, Technical and Other Amendments to Form 
ADV
    B. Proposed Amendments to Investment Advisers Act Rules
    1. Proposed Amendments to Books and Records Rule
    2. Proposed Technical Amendments to Advisers Act Rules
III. Economic Analysis
    A. Introduction
    B. Proposed Amendments to Form ADV
    1. Economic Baseline and Affected Market Participants
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any paragraph of the Advisers Act, we are referring 
to 15 U.S.C. 80b of the United States Code, at which the Advisers 
Act is codified, and when we refer to rules under the Advisers Act, 
or any paragraph of these rules, we are referring to title 17, part 
275 of the Code of Federal Regulations [17 CFR 275], in which these 
rules are published.
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    2. Benefits
    3. Costs
    4. Alternatives
    C. Proposed Amendments to Advisers Act Rules
    1. Economic Baseline and Affected Market Participants
    2. Benefits
    3. Costs
    4. Alternatives
    D. Request for Comment
IV. Paperwork Reduction Act Analysis
    A. Form ADV
    1. Changes in Average Burden Estimate and New Burden Estimates
    2. Annual Burden Estimates
    3. Total Revised Burdens
    B. Rule 204-2
    C. Request for Comment
V. Initial Regulatory Flexibility Analysis
    A. Reason for the Proposed Action
    B. Objectives and Legal Basis
    C. Small Entities Subject to the Rule and Rule Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comments
VI. Consideration of Impact on the Economy
VII. Statutory Authority
Text of Rule and Form Amendments
Appendix A: Form ADV: General Instructions
Appendix B: Form ADV: Instructions for Part 1A
Appendix C: Form ADV: Glossary of Terms
Appendix D: Form ADV, Part 1A

I. Background

    Form ADV is used by investment advisers to register with the 
Commission and with the states. The information collected on Form ADV 
serves a vital role in our regulatory program and our ability to 
protect investors. Our staff uses Form ADV data to prepare for, 
conduct, and implement our risk-based examination program of investment 
advisers, and that data also assists our staff in conducting 
investigations and bringing enforcement actions. In addition to 
providing information about each investment adviser, Form ADV data is 
also aggregated by our staff across investment advisers to obtain 
census data and to monitor industry trends. Census data and industry 
trend information inform our regulatory program and the assessment of 
emerging risks. Importantly, Form ADV also benefits clients and 
prospective clients because the information filed by advisers is 
available to the public on our Web site.\2\
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    \2\ Information on Form ADV is available to the public through 
the Investment Adviser Public Disclosure System (``IAPD''), which 
allows the public to access the most recent Form ADV filing made by 
an investment adviser and is available at http://www.adviserinfo.sec.gov.

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    We have amended Form ADV several times to improve our ability to 
oversee investment advisers. Most recently we significantly enhanced 
reporting requirements for advisers to private funds in connection with 
the Dodd-Frank Wall Street Reform and Consumer Protection Act's 
(``Dodd-Frank Act's'') \3\ private fund adviser registration 
requirements.\4\ Today, we are proposing a more limited set of 
amendments to Part 1A of Form ADV in three areas: Revisions to fill 
certain data gaps and to enhance current reporting requirements; 
amendments to incorporate ``umbrella registration'' for private fund 
advisers; and clarifying, technical and other amendments to existing 
items and instructions.\5\
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    \3\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \4\ See Rules Implementing Amendments to the Investment Advisers 
Act of 1940, Investment Advisers Act Release No. 3221 (June 22, 
2011), [76 FR 42950 (July 19, 2011)] (``Implementing Release'').
    \5\ In general, this release discusses the Commission's proposed 
rule and form amendments that would affect advisers registered with 
the Commission. We understand that the state securities authorities 
intend to consider similar changes that affect advisers registered 
with the states, who are also required to complete Form ADV Part 1B 
as part of their state registrations. We will accept any comments 
and forward them to the North American Securities Administrators 
Association (``NASAA'') for consideration by the state securities 
authorities. We request that you clearly indicate in your comment 
letter which of your comments relate to these items. Commenters 
alternatively may send comments relating to these items directly to 
NASAA at the following email address: NASAAcomments@nasaa.org.
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    Several of the proposed amendments to Form ADV relate to separately 
managed accounts. Investment advisers manage assets of pooled 
investment vehicles, including registered and unregistered funds. 
Advisers also manage assets of other clients, such as pension plans, 
endowments, foundations, other institutional clients and retail 
clients, through separately managed accounts. We currently collect 
detailed information about pooled investment vehicles,\6\ but little 
specific information regarding separately managed accounts. The 
proposed amendments to Form ADV would require an adviser to provide 
certain aggregate information on separately managed accounts it 
advises, including information on regulatory assets under management, 
investments and use of derivatives and borrowings.\7\ Other examples of 
information we propose to collect from advisers include information on 
the use of social media and information on an adviser's other 
offices.\8\ These items, and others discussed below, are designed to 
improve the depth and quality of the information we collect on 
investment advisers and to facilitate our risk monitoring initiatives.
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    \6\ See, e.g., Form ADV, Part 1A, Section 7.B.(1) of Schedule D; 
and Form PF [17 CFR 279.9].
    \7\ Proposed Form ADV, Part 1A, Item 5.K.(1)-(4) and Section 
5.K.(1)-(3) of Schedule D.
    \8\ Proposed Form ADV, Part 1A, Items 1.I. and 1.F and Sections 
1.I. and 1.F of Schedule D.
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    We also are proposing amendments to Part 1A that would establish a 
more efficient method for the registration of multiple private fund 
adviser entities operating a single advisory business on one Form ADV 
(``umbrella registration''). Form ADV was designed to accommodate the 
typical registration of an investment adviser that is a single legal 
entity. Advisers of private funds frequently are organized using 
multiple legal entities, and the staff has provided guidance to private 
fund advisers regarding umbrella registration within the confines of 
the current form.\9\ The proposed amendments to incorporate umbrella 
registration into Form ADV would make the availability of umbrella 
registration more widely known to advisers. Uniform filing requirements 
for umbrella registration in Form ADV also would provide more 
consistent data about, and create a clearer picture of, groups of 
advisers that operate as a single business by grouping Form ADV data 
for each legal entity registered under the umbrella. Uniform filing 
requirements also would allow for greater comparability across private 
fund advisers.
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    \9\ See American Bar Association, Business Law Section, SEC 
Staff Letter (Jan. 18, 2012), available at http://www.sec.gov/divisions/investment/noaction/2012/aba011812.htm (the ``2012 ABA 
Letter'').
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    The last group of amendments we are proposing to Part 1A are 
clarifying, technical, and other amendments that are informed by our 
staff's experience with the form and responding to inquiries by 
advisers and their service providers. Among other things, these 
amendments should assist filers and their service providers by making 
the form easier to understand and complete.
    We also are proposing several amendments to Advisers Act rules 
unrelated to the revisions to Form ADV described above. First, we are 
proposing amendments to the books and records rule, rule 204-2, that 
would require advisers to make and keep supporting documentation that 
demonstrates performance calculations or rates of return in any written 
communications that the adviser circulates or distributes, directly or 
indirectly, to any person. The proposed amendments also would require 
advisers to maintain originals of all written communications received 
and copies of written communications sent by an investment adviser 
related to the performance or rate of return of any or all managed 
accounts or securities recommendations.\10\ As discussed more fully 
below, we believe that these proposed amendments would better protect 
investors from fraudulent performance claims. Finally, we are proposing 
several technical amendments to rules under the Advisers Act to remove 
transition provisions that were adopted in conjunction with previous 
rulemaking initiatives, but that are no longer necessary.
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    \10\ Rule 204-2 under the Advisers Act.
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    We note that in December 2014, the Financial Stability Oversight 
Council (``FSOC'') issued a notice requesting comment on aspects of the 
asset management industry, which includes, among other entities, 
registered investment advisers. Although this rulemaking proposal is 
independent of FSOC, the notice included requests for comment on 
additional data or information that would be helpful to regulators and 
market participants. In response to the notice, several commenters 
discussed issues concerning data that are relevant to this proposal, 
including data regarding separately managed accounts and are cited in 
the discussion below.\11\
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    \11\ See Notice Seeking Comment on Asset Management Products and 
Activities, 79 FR 77488 (Dec. 24, 2014) (``FSOC Request for 
Comment'').
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II. Discussion

A. Proposed Amendments to Form ADV

1. Information Regarding Separately Managed Accounts
    Several of the amendments to Form ADV that we are proposing today 
are designed to collect more specific information about advisers' 
separately managed accounts.\12\ For purposes of reporting on Form ADV, 
we consider advisory accounts other than those that are pooled 
investment vehicles (i.e., registered investment companies, business 
development companies, and pooled investment vehicles that are not 
investment companies (i.e., private

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funds)) to be separately managed accounts. We currently collect 
detailed information about pooled investment vehicles that advisers 
manage, but little specific information regarding separately managed 
accounts.\13\ The proposed amendments are designed to enhance our 
staff's ability to effectively carry out our risk-based examination 
program and other risk assessment and monitoring activities with 
respect to these separately managed accounts and their investment 
advisers.
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    \12\ In response to the FSOC Request for Comment, supra note 11, 
some commenters expressed support for collecting additional 
information regarding separately managed accounts. See, e.g., 
Comment Letter of Americans for Financial Reform (March 27, 2015); 
Comment Letter of State Street Corporation (March 25, 2015); and 
Comment Letter of The Systemic Risk Council (March 25, 2015). Other 
commenters did not support additional reporting regarding separately 
managed accounts. See, e.g., Comment Letter of Money Management 
Institute (March 25, 2015) and Comment Letter of Wellington 
Management Group LLP (March 25, 2015).
    \13\ Registered investment companies and business development 
companies report information about their portfolio holdings and 
investment strategies on reports filed with the Commission, 
including in their registration statements and shareholder reports. 
Today, in a contemporaneous release, we are proposing rule and form 
amendments for registered investment companies that are designed to 
modernize the reporting of information to the Commission. See 
Investment Company Reporting Modernization, Investment Company Act 
Release No. 31610, May 20, 2015. Investment advisers to private 
funds file reports with the Commission on Form PF. Form PF also 
collects information about private fund parallel managed accounts.
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    The proposed amendments regarding separately managed accounts would 
require more detailed information than we currently receive in response 
to Item 5 of Part 1A and Section 5 of Schedule D.\14\ Item 5 and 
Section 5 currently require advisers to provide information about their 
advisory business including percentages of types of clients and assets 
managed for those clients. We propose to collect information 
specifically about separately managed accounts, including types of 
assets held, and the use of derivatives and borrowings in the accounts. 
Advisers that report that they have regulatory assets under management 
attributable to separately managed accounts in response to Item 5.K.(1) 
would be required to complete several questions in Sections 5.K.(1), 
5.K.(2) and 5.K.(3) of Schedule D regarding those accounts.
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    \14\ See section II.A.2. for a discussion of other proposed 
amendments to Item 5 of Part 1A.
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    First, we propose to require advisers to report the approximate 
percentage of separately managed account regulatory assets under 
management invested in ten broad asset categories, such as exchange-
traded equity securities and U.S. government/agency bonds.\15\ These 
categories are designed to collect general information about the broad 
categories of assets held in separately managed accounts. We believe 
that collecting information about the types of assets held in these 
accounts would allow us to better monitor this segment of the 
investment advisory industry by, for instance, allowing us to identify 
advisers that specialize in certain asset classes. Advisers would 
report this information annually. For advisers with at least $10 
billion in regulatory assets under management attributable to 
separately managed accounts, we propose to collect both mid-year and 
year-end data on an annual basis.
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    \15\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(1)(a)-
(b). The Glossary to Proposed Form ADV includes ``Sovereign Bonds,'' 
``Investment Grade'' and ``Non-Investment Grade,'' which are terms 
used in the list of asset categories. The definitions are consistent 
with those in Form PF.
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    Second, we propose to require advisers with at least $150 million 
in regulatory assets under management attributable to separately 
managed accounts to report information on the use of borrowings and 
derivatives in those accounts.\16\ For advisers with at least $150 
million but less than $10 billion in regulatory assets under management 
attributable to separately managed accounts, we propose reporting of 
the number of accounts that correspond to certain categories of gross 
notional exposure, and the weighted average amount of borrowings (as a 
percentage of net asset value) in those accounts.\17\ For purposes of 
this proposed item, gross notional exposure is the percentage obtained 
by dividing (i) the sum of (a) the dollar amount of any borrowings and 
(b) the gross notional value of all derivatives, by (ii) the net asset 
value of the account. Reporting on the use of borrowings and 
derivatives would only be required with respect to separately managed 
accounts with a net asset value of at least $10 million. Advisers with 
at least $10 billion in regulatory assets under management attributable 
to separately managed accounts would have to report the gross notional 
exposure and borrowing information described above, as well as the 
weighted average gross notional value of derivatives (as a percentage 
of the net asset value) in each of six different categories of 
derivatives.\18\ We are proposing to collect information about gross 
notional exposure, borrowings, and gross notional value of derivatives 
because we believe it is important for us to better understand the use 
of derivatives and borrowings by advisers in separately managed 
accounts.\19\ We are proposing to use these measures because they are 
commonly used metrics in assessing the use of derivatives and are 
comparable to information collected on Form PF regarding private funds. 
This reporting would be required for advisers managing at least $150 
million in regulatory assets under management attributable to 
separately managed accounts, but all advisers to separately managed 
accounts would be required to report in Section 5.K.(1) the percentage 
of separately managed account assets held in derivatives.
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    \16\ The $150 million threshold is consistent with Form PF, 
which requires investment advisers registered with the Commission 
that advise one or more private funds and have at least $150 million 
in private fund assets under management to file Form PF.
    \17\ The Glossary to Proposed Form ADV includes ``gross notional 
value'', ``borrowings'' and ``net asset value.'' The Glossary to 
Proposed Form ADV defines ``borrowings'' as ``[S]ecured borrowings 
and unsecured borrowings, collectively. Secured borrowings are 
obligations for borrowed money in respect of which the borrower has 
posted collateral or other credit support and should include any 
reverse repos (i.e., any sale of securities coupled with an 
agreement to repurchase the same (or similar) securities at a later 
date at an agreed price). Unsecured borrowings are obligations for 
borrowed money in respect of which the borrower has not posted 
collateral or other credit support.'' The Glossary to Proposed Form 
ADV defines ``gross notional value'' as ``The gross nominal or 
notional value of all transactions that have been entered into but 
not yet settled as of the reporting date. For contracts with 
variable nominal or notional principal amounts, the basis for 
reporting is the nominal or notional principal amounts as of the 
reporting date. For options, use delta adjusted notional value.'' 
The Glossary to Proposed Form ADV defines ``net asset value'' as 
``With respect to any client, the gross assets of the client's 
accounts minus any outstanding indebtedness or other accrued but 
unpaid liabilities.'' These definitions are consistent with those in 
Form PF.
    \18\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a).
    \19\ In response to the FSOC Request for Comment, supra note 11, 
several commenters discussed a variety of measures for reporting 
leverage (which includes derivatives and borrowings). See, e.g., 
Comment Letter of the Asset Management Group of the Securities 
Industry and Financial Markets Association and the Investment 
Adviser Association (March 25, 2015); Comment Letter of BlackRock, 
Inc. (March 25, 2015); Comment Letter of Fidelity Investments (March 
25, 2015); and Comment Letter of Managed Funds Association (March 
25, 2015).
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    Advisers would be required to update the derivatives and borrowings 
information annually when filing their annual updating amendment to 
Form ADV, which is consistent with the requirement for updating other 
information in Item 5 of Form ADV. In addition, advisers with at least 
$10 billion in separately managed account regulatory assets under 
management would be required to report both mid-year and year-end 
information as part of their annual filing.\20\ Note that we are not 
proposing that advisers file information semi-annually. Rather, when 
filing an annual amendment, the adviser would be required to provide 
information as of each semi-annual period. Requiring less detailed 
reporting for advisers that manage less than $10 billion in separately 
managed account assets, and requiring reporting on borrowings and 
derivatives only with respect to separately managed accounts with a net 
asset value of at least $10

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million, are designed to balance our regulatory need for this 
information while seeking to minimize the reporting burden on smaller 
advisers where appropriate. Our staff estimates that approximately six 
percent of advisers that manage separately managed accounts would be 
required to provide the more detailed semi-annual information.\21\ The 
proposed amendments are designed to provide mid-year and end of year 
data points to assist our staff in identifying the use of borrowings 
and derivative exposures in large separately managed accounts as part 
of the staff's risk assessment and monitoring programs, and to allow 
Commission staff to identify and monitor trends in borrowings and 
derivatives transactions in separately managed accounts.
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    \20\ Proposed Form ADV, Part 1A, Schedule D, Section 5.K.(2)(a).
    \21\ We propose to focus the proposed semi-annual reporting 
requirements on the top five to ten percent of registered investment 
advisers to separately managed accounts. Based on IARD data as of 
April 1, 2015, of the 8,500 registered investment advisers that 
reported regulatory assets under management from clients other than 
registered investment companies, business development companies and 
pooled investment vehicles (indicating that they have assets under 
management attributable to separately managed accounts) 
approximately 535 (approximately 6.3%) reported at least $10 billion 
in regulatory assets under management attributable to separately 
managed account clients. Having additional information about these 
larger advisers assists the staff in risk assessment.
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    Finally, we propose to require advisers to identify any custodians 
that account for at least ten percent of separately managed account 
regulatory assets under management, and the amount of the adviser's 
regulatory assets under management attributable to separately managed 
accounts held at the custodian.\22\ Information about assets held, 
custodians and the use of borrowings and derivatives in separately 
managed accounts is similar to information collected about pooled 
investment vehicles, and it would significantly improve our 
understanding of this segment of advisers' accounts. This information 
would allow examination staff to identify advisers whose clients use 
the same custodian in the event, for example, a concern is raised about 
a particular custodian.\23\ Advisers frequently have client accounts at 
many custodians as a result of client requirements. Accordingly, we are 
proposing a ten percent threshold in order to focus the proposed 
reporting requirements on the identification of custodians that serve a 
significant number of advisers' separately managed account clients.
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    \22\ Proposed Form ADV, Part 1A, Item 5.K.(4) and Schedule D, 
Section 5.K.(3). We acknowledge that advisers that have custody (or 
whose related persons have custody) of client assets also currently 
report the number of persons who act as qualified custodians for 
their clients in connection with advisory services provided to 
clients in response to Part 1A, Item 9.F. The proposed item would 
provide the Commission with more detailed information about 
custodians by requiring advisers to separately managed accounts to 
identify all custodians, not just qualified custodians, that service 
ten percent or greater of separately managed account client assets, 
and would require a response whether or not the adviser or the 
adviser's related person has custody of assets in separately managed 
accounts.
    \23\ Information about custodians of separately managed accounts 
also would complement similar information that we obtain for pooled 
investment vehicles. See Form ADV, Part 1A, Schedule D, Section 
7.B.(1), Question 25. Registered investment companies are required 
to identify their custodians, see, e.g., Form N-1A, Item 19(h)(3) 
[17 CFR 274.11A].
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    We request comment on the changes we propose to make to Form ADV 
regarding separately managed accounts.
     Advisers would be required to update separately managed 
account information annually. Should we require more frequent 
reporting, such as quarterly reporting? Should an adviser be required 
to update information on separately managed accounts any time the 
adviser files an other-than-annual amendment to Form ADV? Is it 
appropriate to require semi-annual data in annual reporting instead of 
semi-annual reporting for advisers that manage at least $10 billion in 
separately managed accounts? Why or why not?
     In order to better understand the use of derivatives in 
separately managed accounts, would we need more data points from each 
adviser than the annual and semi-annual proposed data points? Why or 
why not?
     Are the $10 million, $150 million and $10 billion 
thresholds appropriate? Why or why not? Should we require advisers that 
manage less than $150 million in assets under management attributable 
to separately managed accounts to report additional information about 
those accounts or report semi-annual information?
     Should we ask about the investment strategies used in 
separately managed accounts as opposed or in addition to asset types? 
If so, how should we define the investment strategies so that 
information reported to us is meaningful? Should we use some or all of 
the investment strategies listed in Form PF for private funds? \24\ Is 
there other information about separately managed accounts that we 
should consider instead?
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    \24\ See, e.g., Form PF, Section 1c, Item B., Question 20.
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     Is there any overlap among the proposed asset types? If 
so, which particular types? Are there any additional asset types that 
should be included?
     Would disclosure of aggregate holdings, derivatives and 
borrowings in separately managed accounts raise concerns, in light of 
Section 210(c) of the Advisers Act, regarding the identity, 
investments, or affairs of any clients owning those accounts when 
clients are not identified? If so, please explain, and address whether 
there are ways in which the Commission could address these concerns and 
still request comparable information.
     Would the disclosure of information about separately 
managed accounts in the aggregate be useful for risk monitoring and 
data analysis purposes? Why or why not?
     Are the proposed definitions related to Schedule D, 
Section 5.K.(1) and (2) sufficiently clear to allow advisers to provide 
the requested information? If not, please explain why and provide 
alternative definitions or suggestions. Would a definition of 
``derivatives'' improve the reporting requirements? If so, how should 
that term be defined? For instance, should it be defined broadly to 
include instruments whose price is dependent on or derives from one or 
more underlying assets? Alternatively, should it be defined to mean 
futures and forward contracts, options, swaps, security-based swaps, 
combinations of the foregoing, or any similar instruments, or should it 
be defined in some other manner? If, so, how?
     Are gross notional exposures and gross notional values 
appropriate measures of the use of derivatives? Are there alternative 
or additional measures that we should consider?
     Would the disclosure of information about separately 
managed accounts affect or influence business or other decisions by 
advisers?
     Is ten percent an appropriate threshold for information on 
custodians that serve a significant number of separately managed 
accounts? Should it be higher or lower? If so, why?
     Should we require advisers to report information about the 
use of securities lending and repurchase agreements in separately 
managed accounts? If so, is there specific information we should 
collect, and should we require information only from advisers that 
manage a large amount of separately managed account assets? Are 
securities lending arrangements and repurchase agreements used by 
separately managed accounts to such an extent that we should require 
all advisers that manage separately managed accounts to report this 
information?
     Is there additional information we should collect that 
would assist us in

[[Page 33722]]

learning more about separately managed accounts?
     Is the information required to answer these proposed 
questions readily available to advisers? If not, why?
2. Additional Information Regarding Investment Advisers
    In addition to the proposals outlined above regarding separately 
managed accounts, we are proposing to add several new questions and 
amend existing questions on Form ADV regarding identifying information, 
an adviser's advisory business, and affiliations. These items, 
developed through our staff's experience in examining and monitoring 
investment advisers, are designed to enhance our understanding and 
oversight of investment advisers and to assist our staff in its risk-
based examination program.
Additional Identifying Information
    We propose several amendments to Item 1 of Part 1A of Form ADV to 
improve certain identifying information that we obtain. Item 1 
currently requires an adviser to provide a Central Index Key number 
(``CIK Number'') in Item 1.N only if the adviser is a public reporting 
company under Sections 12 or 15(d) of the Securities Exchange Act of 
1934.\25\ We propose to remove this question from Item 1.N. and add a 
question to Item 1.D. that would require an adviser to provide all of 
its CIK Numbers if it has one or more such numbers assigned,\26\ 
regardless of public reporting company status.\27\ Requiring 
registrants to provide all of their assigned CIK numbers, if any, would 
improve our staff's ability to use and coordinate Form ADV information 
with information from other sources to investigate relationships 
relating to investment advisers.
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    \25\ Form ADV, Part 1A, Item 1.N.
    \26\ The SEC assigns CIK numbers in EDGAR not only to identify 
entities as public reporting companies, but also when an entity is 
registered with the SEC in another capacity, such as a transfer 
agent.
    \27\ Proposed Form ADV, Part 1A, Item 1.D.(3).
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    Item 1.I of Part 1A of Form ADV currently asks whether an adviser 
has one or more Web sites, and Section 1.I. of Schedule D requests the 
Web site address. We propose to amend Item 1.I. to ask whether the 
adviser has one or more Web sites or Web sites for social media 
platforms, such as Twitter, Facebook and LinkedIn, and request the 
social media addresses in addition to the adviser's Web site address in 
Section 1.I. of Schedule D.\28\ Along with Web sites, advisers 
increasingly utilize social media to communicate and it would be useful 
for this information to be available to us and the general public. Our 
staff could use this information to help prepare for examinations of 
investment advisers and compare information that advisers disseminate 
across different social media platforms as well as identifying and 
monitoring new platforms. Current and prospective clients could use 
this information to learn more about advisers and make more informed 
decisions regarding the selection of advisers.
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    \28\ Proposed Form ADV, Part 1A, Item 1.I. and Section 1.I. of 
Schedule D.
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    We propose amending Item 1.F of Part 1A of Form ADV and Section 
1.F. of Schedule D to expand the information provided about an 
adviser's offices other than its principal office and place of 
business. We currently require an adviser to provide contact and other 
information about its principal office and place of business, and, if 
an adviser conducts advisory activities from more than one location, 
about its largest five offices in terms of number of employees.\29\ In 
order to assist Commission examination staff to learn more about an 
investment adviser's business and identify locations to conduct 
examinations, we are now proposing that advisers provide us with the 
total number of offices at which they conduct investment advisory 
business and provide information in Schedule D about their 25 largest 
offices in terms of number of employees.\30\ We propose 25 offices as 
the number to be reported because it would provide a complete listing 
of offices for the vast majority of investment advisers, and provide 
valuable information about the main business locations for the few 
advisers that have a very large number of offices.\31\
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    \29\ Form ADV, Part 1A, Item 1.F. and Section 1.F. of Schedule 
D.
    \30\ Proposed Form ADV, Part 1A, Item 1.F. and Section 1.F. of 
Schedule D.
    \31\ IAPD Investment Adviser Registered Representative State 
Data as of April 1, 2015 shows that a majority of SEC-registered 
advisers (approximately 98%) have 25 or fewer offices, but that many 
of the remaining two percent have many multiples of 25 offices.
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    In addition to providing contact information for the 25 largest 
offices, we propose to amend Section 1.F. of Schedule D to require 
advisers to report each office's CRD branch number (if applicable) and 
the number of employees who performed advisory functions from each 
office, identify from a list of securities-related activities the 
business activities conducted from each office, and describe any other 
investment-related business conducted from each office. This 
information would help our staff assess risk, because it provides a 
better understanding of an investment adviser's operations and the 
nature of activities conducted in its top 25 offices. In addition, if 
the staff wanted to focus on offices that conducted a combination of 
activities, such as those that engaged in municipal advisory activities 
as well as investment advisory activities, it would have that 
information readily available.
    Item 1.J. of Form ADV currently requires each adviser to provide 
the name and contact information for the adviser's chief compliance 
officer. We propose to amend Item 1.J. to require an adviser to report 
whether its chief compliance officer is compensated or employed by any 
person other than the adviser (or a related person of the adviser) for 
providing chief compliance officer services, and, if so, to report the 
name and IRS Employer Identification Number (if any) of that other 
person. Our examination staff has observed a wide spectrum of both 
quality and effectiveness of outsourced chief compliance officers and 
firms. Identifying information for these third-party service providers, 
like others on Form ADV,\32\ would allow us to identify all advisers 
relying on a particular service provider and could be used to improve 
our ability to assess potential risks.
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    \32\ For example, advisers provide the names and addresses of 
independent public accountants that perform audits or surprise 
examinations and that prepare internal control reports on Form ADV, 
Part 1A, Schedule D, Section 9.C.
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    We propose to amend Item 1.O. to require advisers to report their 
own assets within a range.\33\ We added this item in 2011, and it 
currently requires an adviser to check a box to indicate if it has 
assets of $1 billion or more, in connection with the Dodd-Frank Act's 
requirements concerning certain incentive-based compensation 
arrangements.\34\ Requiring advisers to report assets within a given 
range would provide more accurate data for use in Commission rulemaking 
arising from ongoing Dodd-Frank Act implementation.\35\
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    \33\ Proposed Form ADV, Part 1A, Item 1.O.
    \34\ See Implementing Release, supra note 4; Section 956 of the 
Dodd-Frank Act. We also propose to move the instruction for how to 
report ``assets'' for the purpose of Item 1.O. from the Instructions 
for Part 1A to Form ADV to Item 1.O. in order to emphasize this 
instruction.
    \35\ See, e.g., Section 165(i) of the Dodd-Frank Act, which 
requires the Commission and other financial regulators to establish 
methodologies for the conduct of stress tests required by section 
165 of the Act.
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    We request comment on the proposed changes to Item 1 of Part 1A and 
Section 1 of Schedule D.

[[Page 33723]]

     Are there concerns with providing all CIK numbers assigned 
to an adviser? If so, please explain those concerns.
     Are there concerns with providing social media information 
for advisers? If so, please explain those concerns. Are there ways that 
we could address these concerns and still request comparable 
information?
     Would the proposed social media information be useful to 
investors? Why or why not?
     Is there additional social media information that we 
should collect? Should we ask advisers whether they permit employees to 
have social media accounts associated with the advisers' business? And, 
if so, should we ask advisers to identify the number or percentage of 
employees that have those accounts? How burdensome would it be for 
advisers to report that information?
     As proposed, information would be required regarding an 
adviser's 25 largest offices. We selected 25 in order to balance the 
burden to investment advisers with providing this information with our 
need for information about additional offices. If instead we were to 
require all offices to be reported, would the burden on advisers be 
significant? Should we decrease the number of offices or provide 
another standard to identify the offices that should be reported?
     Would additional information about an adviser's offices be 
helpful to investors? Why or why not?
     Are there concerns related to disclosure of information 
regarding outsourced chief compliance officers? If so, please explain 
those concerns.
     In addition to the identification of outsourced chief 
compliance officers, should we also request information about advisers' 
use of third-party compliance auditors? If so, what information should 
we request?
     Are there any concerns related to disclosing the range of 
an adviser's own assets? If so, please explain those concerns. Should 
the ranges be different than proposed? Why or why not?
     Are the proposed requirements clearly stated?
     Do advisers readily have access to the data and 
information requested by these proposed changes?
Additional Information About Advisory Business
    In addition to the proposed amendments to Item 5 regarding 
separately managed accounts discussed above, we are proposing a number 
of other amendments to Item 5. Item 5 currently requires an adviser to 
provide approximate ranges for three important data points concerning 
the adviser's business--the number of advisory clients, the types of 
advisory clients, and regulatory assets under management attributable 
to client types.\36\ We propose to amend these items to require an 
adviser to report the number of clients and amount of regulatory assets 
under management attributable to each category of clients as of the 
date the adviser determines its regulatory assets under management.\37\ 
Replacing ranges with more precise information would provide more 
accurate information about investment advisers and would significantly 
enhance our ability to analyze data across investment advisers because 
providing actual numbers of clients and regulatory assets under 
management allows us to see the scale and concentration of assets by 
client type. It will also allow us to determine the regulatory assets 
under management attributable to separately managed accounts. We 
believe that the information needed for providing the number of clients 
and amount of regulatory assets under management should be readily 
available to advisers because, among other reasons, advisers are 
producing this data to answer the current iterations of these questions 
on Form ADV, and advisers typically base their advisory fees on client 
assets under management. We also propose to require reporting on the 
number of clients for whom an adviser provided advisory services but 
does not have regulatory assets under management in order to obtain a 
more complete understanding of the adviser's advisory business.\38\ 
This information also would assist in our risk assessment process and 
increase the effectiveness of our examinations.
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    \36\ Form ADV, Part 1A, Item 5.C.(1), Item 5.D.(1)-(2).
    \37\ Proposed Form ADV, Part 1A, Item 5.D.(1)-(2). The 
categories of clients are the same as those in Item 5.D. of the 
current Form ADV, except that we propose adding ``sovereign wealth 
funds and foreign official institutions'' as a client category, and 
specifying that state or municipal government entities include 
government pension plans, and that government pension plans should 
not be counted as pension and profit sharing plans.
    \38\ Proposed Form ADV, Part 1A, Item 5.C.(1). An example of a 
situation where an adviser provides investment advice but does not 
have regulatory assets under management is a nondiscretionary 
account or a one-time financial plan, depending on the facts and 
circumstances.
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    We are proposing several targeted additions to Item 5 and Section 5 
of Schedule D to inform our risk-based exam program and other risk 
monitoring initiatives. An adviser that elects to report client assets 
in Part 2A of Form ADV differently from the regulatory assets under 
management it reported in Part 1A of Form ADV would be required to 
check a box noting that election.\39\ This information would allow our 
examination staff to review across advisers the extent to which 
advisers report assets under management in Part 2A that differ from the 
regulatory assets under management reported in Part 1A of Form ADV. 
Having this information would allow our staff to better understand the 
situations in which the calculations differ, and assist us in analyzing 
whether those differences require a regulatory response. In addition, 
we propose to add a question asking the approximate amount of an 
adviser's regulatory assets under management that is attributable to 
non-U.S. clients \40\ to complement the current requirement that each 
adviser report the percentage of its clients that are non-U.S. persons, 
which, based on our experience, is not always a reliable indicator of 
an adviser's relationships with non-U.S. clients.\41\ Our examination 
staff could use this information to better understand the extent of 
investment advice provided to non-U.S. clients which would assist us in 
our risk assessment process.
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    \39\ Proposed Form ADV, Part 1A, Item 5.J.(2). Form ADV, Part 
2A, Item 4.E. requires an investment adviser to disclose the amount 
of client assets it manages on a discretionary basis and on a non-
discretionary basis. The method used by an adviser to compute the 
amount of client assets it manages can be different from the method 
used to compute regulatory assets under management required for Item 
5.F. in Part 1A. As discussed in the proposing release for Part 2, 
the regulatory assets under management calculation for Part 1A is 
designed for a particular purpose (i.e., for making a bright line 
determination about whether an adviser should register with the 
Commission or with the states) and permitting a different 
calculation for Part 2 disclosure may be appropriate to enable 
advisers to make disclosure that is more indicative to clients about 
the nature of their business. See Amendments to Form ADV, Investment 
Advisers Act Release No. 2711 (March 3, 2008) [73 FR 13958 (March. 
14, 2008)].
    \40\ Proposed Form ADV, Part 1A, Item 5.F.(3).
    \41\ Form ADV, Part 1A, Item 5.C.(2). For example, an adviser 
may report a significant percentage of clients that are non-U.S. 
persons, but the regulatory assets under management attributable to 
those clients is a small percentage of the adviser's regulatory 
assets under management.
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    Section 5.G.(3) of Schedule D currently requires the SEC File 
Number for registered investment companies and business development 
companies advised by the adviser. We propose adding to Section 5.G.(3) 
a requirement that advisers report the regulatory assets under 
management of all parallel managed accounts related to a registered 
investment company or business development company that is advised by 
the adviser.\42\ This information

[[Page 33724]]

would be helpful because it would permit our staff to assess the 
accounts and consider how an adviser manages conflicts of interest 
between parallel managed accounts and registered investment companies 
or business development companies advised by the adviser. This 
information also would show the extent of any shift in assets between 
parallel managed accounts and registered investment companies or 
business development companies.
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    \42\ Proposed Form ADV, Part 1A, Section 5.G.(3) of Schedule D. 
The Glossary to Proposed Form ADV includes ``parallel managed 
account,'' which would be defined as: ``With respect to any 
registered investment company or business development company, a 
parallel managed account is any managed account or other pool of 
assets that you advise and that pursues substantially the same 
investment objective and strategy and invests side by side in 
substantially the same positions as the identified investment 
company or business development company that you advise.''
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    Finally, we propose to amend Item 5 to obtain additional 
information concerning wrap fee programs.\43\ Item 5.I. of Part 1A 
currently requires an adviser to indicate whether it serves as a 
sponsor of or portfolio manager for a wrap fee program. We propose to 
amend Item 5.I. to require an adviser to report the total amount of 
regulatory assets under management attributable to acting as a sponsor 
and/or portfolio manager of a wrap fee program.\44\ Section 5.I.(2) of 
Schedule D currently requires advisers to list the name and sponsor of 
each wrap fee program for which the adviser serves as portfolio 
manager. We propose amending Section 5.I.(2) to add questions that 
would require an adviser to provide any SEC File Number and CRD Number 
for sponsors to those wrap fee programs.\45\ This information would 
help us better understand a particular adviser's business and assist in 
our risk assessment and examination process by making it easier for our 
staff to identify the extent to which the firm acts as sponsor or 
portfolio manager of wrap fee programs and collect information across 
investment advisers involved in a particular wrap fee program. Wrap fee 
accounts are held by a large number of retail clients, and we believe 
additional information about the capacity in which advisers serve these 
accounts would help us better protect investors.
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    \43\ Form ADV, Glossary defines a wrap fee program as ``[a]ny 
advisory program under which a specified fee or fees not based 
directly upon transactions in a client's account is charged for 
investment advisory services (which may include portfolio management 
or advice concerning the selection of other investment advisers) and 
the execution of client transactions.'' We are not proposing any 
change to this definition.
    \44\ Proposed Form ADV, Part 1A, Item 5.I.
    \45\ Proposed Form ADV, Part 1A, Section 5.I.(2) of Schedule D.
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    We request comment on the additional changes we propose to make to 
Item 5 and related sections of Schedule D.
     Please describe any benefits or concerns with using more 
precise numbers in Item 5, rather than ranges.
     Is there any overlap among the categories of clients, and 
if so, among which particular categories? How could we address any 
overlaps?
     Please describe any concerns with providing information 
on: (a) The number of clients for whom investment advisers provide 
advisory services but do not have regulatory assets under management; 
(b) the regulatory assets under management attributable to non-U.S. 
clients; or (c) parallel managed accounts. Are there other types of 
information advisers could report that would meet our goals?
     Would the additional information on wrap fee programs be 
helpful to investors and other market participants? Should any 
additional information be required?
     Would advisers readily have access to the data requested?
     Are the proposed requirements clearly stated?
Additional Information About Financial Industry Affiliations and 
Private Fund Reporting
    Part 1A, Section 7.A. of Schedule D requires information on an 
adviser's financial industry affiliations and Section 7.B.(1) of 
Schedule D requires information on private funds managed by the 
adviser. We are proposing amendments to Sections 7.A. and 7.B.(1) of 
Schedule D that would require advisers to provide identifying numbers 
(e.g., Public Company Accounting Oversight Board (``PCAOB'') 
registration numbers \46\ and CIK numbers \47\) in several questions to 
allow us to better compare information across data sets and understand 
relationships of advisers to other financial service providers. We are 
also proposing a new question that would require advisers to report the 
percentage of a private fund owned by qualified clients, as defined in 
rule 205-3 under the Advisers Act.\48\ This information would help us 
better understand the nature of investors in private funds.
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    \46\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23(e).
    \47\ Proposed Form ADV, Part 1A, Section 7.A of Schedule D, 
Question 4(b).
    \48\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 15(b).
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    We request comment on the proposed changes to Sections 7.A. and 
7.B.(1) of Schedule D.
     Would advisers readily have access to the data requested?
     Please describe any concerns with providing: (a) 
Identifying numbers; or (b) the percentage of a private fund owned by 
qualified clients.
     Are the requirements clearly stated?
3. Umbrella Registration
    The Dodd-Frank Act, among other things, repealed the private 
adviser exemption that used to be in section 203(b)(3) of the Advisers 
Act.\49\ As a result, many previously unregistered advisers to private 
funds,\50\ including hedge funds and private equity funds, were 
required to register under the Advisers Act. Today, about 4,364 
registered investment advisers provide advice on approximately $10.1 
trillion in assets to approximately 28,532 private funds clients.\51\
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    \49\ Section 403 of the Dodd-Frank Act. Section 203(b)(3) of the 
Advisers Act (the ``private adviser exemption'') previously exempted 
any investment adviser from registration if the investment adviser 
(i) had fewer than 15 clients in the preceding 12 months, (ii) did 
not hold itself out to the public as an investment adviser and (iii) 
did not act as an investment adviser to a registered investment 
company or a company that elected to be a business development 
company.
    \50\ Section 202(a)(29) of the Advisers Act defines the term 
``private fund'' as ``an issuer that would be an investment company, 
as defined in section 3 of the Investment Company Act of 1940 (15 
U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act.''
    \51\ Based on IARD data as of April 1, 2015.
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    For a variety of tax, legal and regulatory reasons, advisers to 
private funds may be organized as a group of related advisers that are 
separate legal entities but effectively operate as--and appear to 
investors and regulators to be--a single advisory business. Although 
these separate legal entities effectively operate as a single advisory 
business,\52\ Form ADV is designed to accommodate the registration 
request of an adviser structured as a single legal entity. As a result, 
a private fund adviser organized as a group of related advisers could 
have to file multiple registration forms for the same advisory 
business. Multiple Form ADVs for a single advisory business may distort 
the data we collect on Form ADV and use in our regulatory program, be 
less efficient and more costly for advisers, and may be confusing to 
the public researching an adviser on our Web site.
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    \52\ We will treat as a single adviser two or more affiliated 
advisers that are separate legal entities but are operationally 
integrated, which could result in a requirement for one or both 
advisers to register. See Exemptions for Advisers to Venture Capital 
Funds, Private Fund Advisers With Less Than $150 Million in Assets 
Under Management, and Foreign Private Advisers, Investment Advisers 
Act Release No. 3222 (June 22, 2011) [76 FR 39646 (July 6, 2011)] 
(``Exemptions Release''); see also In the Matter of TL Ventures 
Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) 
(settled action).
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    Our staff provided guidance to private fund advisers before the 
compliance date of the Dodd-Frank Act private fund adviser registration 
requirements

[[Page 33725]]

designed to address concerns raised by advisers.\53\ The guidance 
provided conditions under which the staff believed one adviser (the 
``filing adviser'') may file a single Form ADV on behalf of itself and 
other advisers that are controlled by or under common control with the 
filing adviser (each, a ``relying adviser''), provided that they 
conduct a single advisory business (collectively an ``umbrella 
registration''). We believe that the staff's position has been 
successful in addressing the registration concerns that can arise from 
the legal structures of private fund advisers. Most advisers that can 
rely on umbrella registration are doing so, with approximately 750 
filing advisers and approximately 2,500 relying advisers filing 
umbrella registrations.\54\
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    \53\ See 2012 ABA Letter. The Division of Investment Management 
previously provided no-action relief to enable a special purpose 
vehicle (``SPV'') that acts as a private fund's general partner or 
managing member to essentially rely upon its parent adviser's 
registration with the Commission rather than separately register. 
See American Bar Association Subcommittee on Private Investment 
Entities, SEC Staff Letter (Dec. 8, 2005), Question G1, available at 
http://www.sec.gov/divisions/investment/noaction/aba120805.htm (the 
``2005 ABA Letter'').
    \54\ Based on IARD data as of April 1, 2015.
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    The method outlined in the staff guidance for filing Form ADV on 
behalf of multiple entities is limited, however, by the form being 
designed for a single legal entity, and in some cases complicates data 
collection and analysis on umbrella registrants and can confuse filers 
and the public.\55\ The amendments to Part 1A that we propose would 
yield additional and more consistent data about, and create a clearer 
picture of, groups of private fund advisers that operate as a single 
business, while codifying the concept of umbrella registration and 
simplifying the process of registration for such advisers. The 
amendments also would allow for greater comparability across private 
fund advisers.
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    \55\ Under the guidance provided by the staff, for example, 
umbrella registration is appropriate where a relying adviser is not 
prohibited from registering with the Commission by section 203A of 
the Advisers Act. See 2012 ABA Letter, supra note 9. However, a 
relying adviser does not currently have a way to answer Item 2 
regarding the basis on which it is eligible for SEC registration. In 
addition, relying advisers often must list owners and executive 
officers in a confusing manner in Schedules A and B which were not 
designed to accommodate multiple advisers and do not always provide 
the Commission staff with useful information on the owners of each 
relying adviser. Also, the filing adviser currently discloses its 
reliance on the 2012 ABA Letter in the Miscellaneous Section of 
Schedule D.
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    Under the amendments we are proposing, umbrella registration would 
be available where a filing adviser and one or more relying advisers 
conduct a single private fund advisory business and each relying 
adviser is controlled by or under common control with the filing 
adviser. As proposed, umbrella registration would only be available in 
the scenario of a private fund adviser operating as a single business 
through multiple legal entities. At this time, we do not believe 
umbrella registration would be appropriate for advisers that are 
related but that operate separate advisory businesses as it would 
compromise data quality and complicate analyses that rely on data from 
Form ADV.\56\ In addition, providing for disparate businesses to 
register on a single Form ADV as it is designed today would limit 
investors' ability to assess information on investment advisers 
because, based on our experience, reporting information about multiple 
advisers' businesses together on a single form would make Part 1A 
difficult to understand.
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    \56\ The filing of a single Form ADV for exempt reporting 
advisers in a manner similar to the filing of an umbrella 
registration for registered advisers also would not be available as 
the conditions of a single advisory business are designed, in part, 
to reflect requirements that only apply to registered advisers, 
including the requirement for compliance policies and procedures 
pursuant to rule 206(4)-7 under the Advisers Act and for a code of 
ethics pursuant to rule 204A-1 under the Advisers Act. An exempt 
reporting adviser is an investment adviser that qualifies for the 
exemption from registration under section 203(l) of the Advisers Act 
because it is an adviser solely to one or more venture capital 
funds, or under rule 203(m)-1 under the Advisers Act because it is 
an adviser solely to private funds and has assets under management 
in the United States of less than $150 million. See Form ADV 
Glossary.
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    Accordingly, we are proposing amendments to Form ADV's General 
Instructions that would establish conditions for an adviser to assess 
whether umbrella registration is available. The conditions, which are 
indicia of a single advisory business, include the following:
    1. The filing adviser and each relying adviser advise only private 
funds and clients in separately managed accounts that are qualified 
clients (as defined in rule 205-3 under the Advisers Act) and are 
otherwise eligible to invest in the private funds advised by the filing 
adviser or a relying adviser and whose accounts pursue investment 
objectives and strategies that are substantially similar or otherwise 
related to those private funds;
    2. The filing adviser has its principal office and place of 
business in the United States and, therefore, all of the substantive 
provisions of the Advisers Act and the rules thereunder apply to the 
filing adviser's and each relying adviser's dealings with each of its 
clients, regardless of whether any client or the filing adviser or 
relying adviser providing the advice is a United States person; \57\
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    \57\ As we have previously stated, we do not apply most of the 
substantive provisions of the Advisers Act to the non-U.S. clients 
of a non-U.S. adviser registered with the Commission. See Exemptions 
Release, supra note 52, at section II.D. The Glossary to Form ADV 
provides that ``United States person'' has the same meaning as in 
rule 203(m)-1 under the Advisers Act, which includes any natural 
person that is resident in the United States.
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    3. Each relying adviser, its employees and the persons acting on 
its behalf are subject to the filing adviser's supervision and control 
and, therefore, each relying adviser, its employees and the persons 
acting on its behalf are ``persons associated with'' the filing adviser 
(as defined in section 202(a)(17) of the Advisers Act);
    4. The advisory activities of each relying adviser are subject to 
the Advisers Act and the rules thereunder, and each relying adviser is 
subject to examination by the Commission; and
    5. The filing adviser and each relying adviser operate under a 
single code of ethics adopted in accordance with rule 204A-1 under the 
Advisers Act and a single set of written policies and procedures 
adopted and implemented in accordance with rule 206(4)-(7) under the 
Advisers Act and administered by a single chief compliance officer in 
accordance with that rule.\58\
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    \58\ Under this approach, the code of ethics and written 
policies and procedures must be administered as if the filing 
adviser and each relying adviser are part of a single entity, 
although they may take into account, for example, that a relying 
adviser operating in a different jurisdiction may have obligations 
that differ from the filing adviser or another relying adviser.
---------------------------------------------------------------------------

    The conditions are drawn from our experience with examining 
investment advisers and are designed to capture advisers to private 
funds that operate as a single business through commonality of the 
application of the Advisers Act and rules to all entities, 
implementation of compliance requirements, and advisory services. They 
are designed to include advisers to private funds (as discussed in 
condition 1) that operate as a single business. Conditions 2 and 4 
provide assurance that our staff has access to and can readily examine 
the filing and relying advisers and that the Advisers Act and the rules 
thereunder fully apply to all advisers under the umbrella registration 
and clients of those advisers. Conditions 3 and 5 are designed to 
address the requirement that the filing and relying advisers operate as 
a single business. Advisers that operate under common supervision and 
control and have a single set of compliance policies and procedures and 
code of ethics are likely to operate as a

[[Page 33726]]

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

    \69\ Under the proposed amendments, multiple private advisers 
operating a single advisory business may elect to apply separately 
for registration.
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     Are the proposed amendments to the instructions and Form 
ADV sufficient to implement umbrella registration? If not, what 
amendments are necessary?
     Should we require more, less or different information on 
proposed Schedule R? What information should be added or deleted?
4. Proposed Clarifying, Technical and Other Amendments to Form ADV
    We are proposing several amendments to Form ADV that are designed 
to clarify the form and its instructions. We believe these proposed 
amendments to Form ADV would make the filing process clearer and 
therefore more efficient for advisers, and increase the reliability and 
the consistency of information provided by investment

[[Page 33727]]

advisers. More reliable and consistent information would improve our 
staff's ability to interpret, understand, and place in context the 
information provided by advisers, and also would allow our staff to 
make comparisons across investment advisers, and improve the risk 
assessment and examination program. Many of these proposed amendments 
are derived from questions frequently received by our staff.
Proposed Amendments to Item 2
    Item 2.A. of Part 1A of Form ADV requires an adviser to select the 
basis upon which it is eligible to register with the Commission, and 
Item 2.A.(9) includes as a basis that the adviser is eligible for 
registration because it is a ``newly formed adviser'' relying on rule 
203A-2(c) because it expects to be eligible for SEC registration within 
120 days.\70\ Section 2.A.(9) of Schedule D. is entitled ``Newly Formed 
Adviser'' and requests the adviser to make certain representations. Our 
staff has received questions about whether the exemption from the 
prohibition on Commission registration contained in rule 203A-2(c) 
under the Advisers Act applies only to entities that have been ``newly 
formed,'' i.e., newly created as corporate or other legal entities. It 
does not only apply to newly created entities and therefore we propose 
to delete the phrase ``newly formed adviser'' from Item 2.A.(9) and 
Section 2.A.(9) of Schedule D. Section 2.A.(9) would be renamed 
``Investment Advisers Expecting to be Eligible for Commission 
Registration within 120 Days.'' \71\
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    \70\ Form ADV, Part 1A, Item 2.A.(9) and Section 2.A.(9) of 
Schedule D.
    \71\ Proposed Form ADV, Part 1A, Item 2.A.(9); see rule 203A-
2(c) under the Advisers Act.
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Proposed Amendments to Item 4
    Item 4 of Part 1A of Form ADV addresses successions of investment 
advisers, and the Instructions to Item 4 provide that a new 
organization has been created under certain circumstances, including if 
the adviser has changed its structure or legal status (e.g., form of 
organization or state of incorporation). Our staff frequently receives 
questions from investment advisers regarding this item and we propose 
adding to Item 4 and Section 4 of Schedule D text that is currently 
contained in the Instructions to Item 4 that succeeding to the business 
of a registered investment adviser includes, for example, a change of 
structure or legal status (e.g., form of organization or state of 
incorporation).\72\
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    \72\ Proposed Form ADV, Part 1A, Item 4.A.
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Proposed Amendments to Item 7
    Item 7 of Part 1A of Form ADV and corresponding sections of 
Schedule D require advisers to report information about their financial 
industry affiliations and the private funds they advise. We propose 
several technical amendments to Item 7. We propose to revise Item 7.A., 
which requires advisers to check whether their related persons are 
within certain categories of the financial industry, to clarify that 
advisers should not disclose in response to this item that some of 
their employees perform investment advisory functions or are registered 
representatives of a broker-dealer, because this information should 
instead be reported on Items 5.B.(1) and 5.B.(2) of Part 1A, 
respectively. Items 5.B.(1) and 5.B.(2) request information about an 
adviser's employees. Adding this text to Form ADV should assist filers 
in filling out the form as well as provide more accurate data to us and 
the general public.\73\
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    \73\ Proposed Form ADV, Part 1A, Item 7. The staff has provided 
this clarification and it is currently available online at our 
staff's Frequently Asked Questions on Form ADV and IARD, available 
at http://www.sec.gov/divisions/investment/iard/iardfaq.shtml.
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    Item 7.B. of Part 1A of Form ADV asks whether the adviser serves as 
adviser to any private fund. Section 7.B.(1) of Schedule D requires 
advisers to provide information about the private funds they manage. We 
propose adding text to Item 7.B. clarifying that Section 7.B.(1) of 
Schedule D should not be completed if another SEC-registered adviser or 
SEC exempt reporting adviser reports the information required by 
Section 7.B.(1) of Schedule D. Currently the instructions only refer to 
another adviser. We also propose several amendments to Section 7.B.(1) 
of Schedule D. Question 8 of Section 7.B.(1) currently asks whether the 
private fund is a ``fund of funds,'' and if it is, whether the private 
fund invests in funds managed by the adviser or a related person of the 
adviser. Below those two questions there is currently a note informing 
advisers when they should answer yes to the first question regarding 
whether the private fund is a ``fund of funds.'' We propose renaming 
the first question as Question 8(a), moving the note to directly after 
Question 8(a), and making the second question Question 8(b).\74\ We 
believe these proposed changes would assist filers in answering 
Question 8.
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    \74\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Questions 8(a)-(b).
---------------------------------------------------------------------------

    Question 10 of Section 7.B.(1) of Schedule D asks the adviser to 
identify the category of the private fund. We propose to delete text in 
Question 10 that directs advisers to refer to the underlying funds of a 
fund of funds when selecting the type of fund, in order to reconcile 
differences with Form PF, which permits advisers to disregard any 
private fund's equity investments in other private funds.\75\ Question 
19 of Section 7.B.(1) of Schedule D asks whether the adviser's clients 
are solicited to invest in the private fund. We propose to add text to 
Question 19 to make clear that the adviser should not consider feeder 
funds as clients of the adviser to a private fund when answering 
whether the adviser's clients are solicited to invest in the private 
fund.\76\ This is a common question that our staff receives and the 
intent of Question 19 is not to capture affiliated feeder funds. 
Question 21 of Section 7.B.(1) of Schedule D asks whether the private 
fund relies on an exemption from registration of its securities under 
Regulation D of the Securities Act of 1933 and Question 22 asks for the 
private fund's Form D file number. We propose a clarifying revision to 
Question 21 to ask if the private fund has ever relied on an exemption 
from registration of its securities under Regulation D, in order to 
better reflect the intention of the Question.\77\ The current Question 
21, if answered in the negative, would not require the adviser to 
provide the private fund's Form D file number in Question 22, meaning 
we would not receive Form D file numbers in the event there was past 
reliance on Regulation D.\78\
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    \75\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 10. See General Instruction 7 to Form PF.
    \76\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 19.
    \77\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 21.
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    We propose a revision to Question 23(a)(2). Currently, this 
question requires an adviser to check a box to indicate whether the 
private fund's financial statements are prepared in accordance with 
U.S. generally accepted accounting principles (``GAAP'').\79\ We 
propose to add text instructing advisers that they are required to 
answer Question 23(a)(2) only if they answer ``yes'' to Question 
23(a)(1), which asks whether the private fund's financial statements 
are subject to an annual audit.\80\ This revision will clarify when an 
adviser is actually required to answer Question 23(a)(2). We also 
propose to

[[Page 33728]]

revise Question 23(g). The question currently asks whether the private 
fund's audited financial statements are distributed to private fund 
investors. We propose adding ``for the most recent fiscal year'' to 
clarify the question. In addition, we propose to revise Question 23(h). 
This question currently asks whether the report prepared by the 
auditing firm contains an unqualified opinion.\81\ This question has 
prompted questions from advisers regarding which report and what 
timeframe the question refers to. We propose to clarify the question to 
ask whether all of the reports prepared by the auditing firm since the 
date the adviser last filed its annual updating amendment contain 
unqualified opinions.\82\ Finally, we propose adding Question 25(g), 
which would request the legal entity identifier, if any, for a private 
fund custodian that is not a broker-dealer, or that is a broker-dealer 
but does not have an SEC registration number. This information would 
help our examination staff more readily identify the use of particular 
custodians by private funds.
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    \78\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
21.
    \79\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
23(a)(2).
    \80\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23(a)(2).
    \81\ Form ADV, Part 1A, Section 7.B.(1) of Schedule D, Question 
23(h).
    \82\ Proposed Form ADV, Part 1A, Section 7.B.(1) of Schedule D, 
Question 23(h).
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Proposed Amendments to Item 8
    In order to address a frequent question from filers, we propose to 
clarify that advisers should answer Item 8 based on the types of 
participation and interest the adviser expects to engage in during the 
next year. Item 8.B.(2) of Part 1A of Form ADV currently asks whether 
the adviser or any related person of the adviser recommended purchase 
of securities to advisory clients for which the adviser or any related 
person of the adviser serves as underwriter, general or managing 
partner, or purchaser representative.\83\ The current wording has 
caused confusion regarding the treatment of purchaser representatives. 
We are proposing to reword the question to ask whether the adviser or 
any related person of the adviser recommends to advisory clients or 
acts as a purchaser representative for advisory clients with respect to 
the purchase of securities for which the adviser or any related person 
of the adviser serves as underwriter or general or managing partner. 
This proposed edit is designed to clarify that the question applies to 
any related person who recommends to advisory clients or acts as a 
purchaser representative for advisory clients with respect to the 
purchase of securities for which the adviser or any related person of 
the adviser serves as underwriter, general or managing partner.\84\
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    \83\ Form ADV, Part 1A, Item 8.B.(2).
    \84\ Proposed Form ADV, Part 1A, Item 8.B.(2).
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    Item 8.H. of Part 1A of Form ADV asks whether the adviser or any 
related person of the adviser, directly or indirectly, compensates any 
person for client referrals. We are proposing revisions to Item 8.H. to 
break the question into two parts to increase our understanding of 
compensation for client referrals. Proposed Item 8.H.(1) would cover 
compensation to persons other than employees for client referrals.\85\ 
Proposed Item 8.H.(2) would cover compensation to employees, in 
addition to employees' regular salaries, for obtaining clients for the 
firm.\86\ Item 8.I. asks whether the adviser or any related person of 
the adviser directly or indirectly receives compensation from any 
person for client referrals. We have also proposed wording to clarify 
that Item 8.I. is not designed to include the regular salary that the 
adviser pays to an employee.\87\ We have proposed these edits to better 
understand how advisers compensate both their staff and third parties 
for client referrals. The proposed revisions to this item do not change 
the scope of the information collected, but instead provide more 
precise information about compensation for client referrals.
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    \85\ Proposed Form ADV, Part 1A, Item 8.H.(1).
    \86\ Proposed Form ADV, Part 1A, Item 8.H.(2).
    \87\ Proposed Form ADV, Part 1A, Item 8.I.
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Proposed Amendments to Section 9.C. of Schedule D
    Section 9.C. of Schedule D requests information about independent 
public accountants that perform surprise examinations in connection 
with the Advisers Act custody rule, rule 206(4)-2. We propose two 
changes to Section 9.C. of Schedule D. First, we propose to add text 
requiring an adviser to provide the PCAOB registration number of the 
adviser's independent public accountant to improve our staff's ability 
to cross-reference information submitted through other systems and 
monitor compliance with the custody rule.\88\ Section 9.C.(6) currently 
requires advisers to report whether any report prepared by an 
independent public accountant that audited a pooled investment vehicle 
or examined internal controls contained an unqualified opinion. We 
propose to amend Section 9.C.(6) in a manner similar to Section 7.B.(1) 
of Schedule D, Question 23(h) as described above to provide clarity to 
filers. Accordingly, the question would now ask whether all of the 
reports prepared by the independent public accountant since the date of 
the last annual updating amendment have contained unqualified 
opinions.\89\
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    \88\ Proposed Form ADV, Part 1A, Section 9.C.(3) of Schedule D.
    \89\ Proposed Form ADV, Part 1A, Section 9.C.(6) of Schedule D.
---------------------------------------------------------------------------

Proposed Amendments to Disclosure Reporting Pages
    Item 11 of Part 1A of Form ADV requires registered advisers and 
exempt reporting advisers to provide information about their 
disciplinary history and the disciplinary history of their advisory 
affiliates. Those advisers who report an event for purposes of Item 11 
are directed to complete a Disclosure Reporting Page (``DRP'') to 
provide the details of the event. DRPs can be removed from Form ADV 
under certain circumstances, including when ``the adviser is registered 
or applying for registration with the SEC and the event was resolved in 
the adviser's or advisory affiliate's favor.'' \90\ We propose amending 
this text in each DRP to add ``or reporting as an exempt reporting 
adviser with the SEC'' after ``applying for registration with the SEC'' 
to clarify that both registered and exempt reporting advisers may 
remove a DRP from their Form ADV record if a criminal, regulatory or 
civil judicial action was resolved in the adviser's (or advisory 
affiliate's) favor.\91\ This proposal would make disciplinary reporting 
uniform across registered and exempt reporting advisers, consistent 
with requiring exempt reporting advisers to report disciplinary events 
on Form ADV.
---------------------------------------------------------------------------

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

Proposed Amendments to Instructions and Glossary
    Together with the proposed amendments to Part 1A, we are also 
proposing conforming amendments to the General Instructions and the 
Glossary for Form ADV. As discussed above, we propose to amend the 
General Instructions to include instructions regarding umbrella 
registration. We also propose to remove outdated references to 
``Special One-Time Dodd-Frank Transition Filing for SEC Registered 
Advisers'' and ``recent'' amendments to Form ADV Part 2 that are no 
longer needed. We propose to update the definition of ``Legal Entity 
Identifier'' to reflect recent advancements in this protocol.\92\
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    \92\ The proposed definition of Legal Entity Identifier is: A 
``legal entity identifier'' assigned or recognized by the Global LEI 
Regulatory Oversight Committee (ROC) or the Global LEI Foundation 
(GLEIF). See Proposed Form ADV: Glossary. In Item 1, we propose 
removing outdated text referring to the ``legal entity identifier'' 
as being ``in development'' in the first half of 2011.

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[[Page 33729]]

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

B. Proposed Amendments to Investment Advisers Act Rules

1. Proposed Amendments to Books and Records Rule
    We are proposing two amendments to the Advisers Act books and 
records rule, rule 204-2, that would require investment advisers to 
maintain additional materials related to the calculation and 
distribution of performance information.
    Rule 204-2(a)(16) currently requires advisers that are registered 
or required to be registered with us to maintain records supporting 
performance claims in communications that are distributed or circulated 
to ten or more persons.\93\ Although it has been our staff's experience 
that investment advisers routinely make and preserve communications 
containing performance information and records to support the 
performance claims, the books and records rule requires such records 
only when the communication is distributed to ten or more persons. We 
are proposing to amend rule 204-2(a)(16) by removing the ten or more 
persons condition and replacing it with ``any person.'' Accordingly, 
advisers would be required to maintain the materials listed in rule 
204-2(a)(16) that demonstrate the calculation of the performance or 
rate of return in any communication that the adviser circulates or 
distributes, directly or indirectly, to any person. The veracity of 
performance information is important regardless of whether it is a 
personalized client communication or in an advertisement sent to ten or 
more persons.
---------------------------------------------------------------------------

    \93\ Rule 204-2(a)(16) requires advisers to make and keep ``All 
accounts, books, internal working papers, and any other records or 
documents that are necessary to form the basis for or demonstrate 
the calculation of the performance or rate of return of any or all 
managed accounts or securities recommendations in any notice, 
circular, advertisement, newspaper article, investment letter, 
bulletin or other communication that the investment adviser 
circulates or distributes, directly or indirectly, to 10 or more 
persons (other than persons connected with such investment adviser); 
provided, however, that, with respect to the performance of managed 
accounts, ``the retention of all account statements, if they reflect 
all debits, credits, and other transactions in a client's account 
for the period of the statement, and all worksheets necessary to 
demonstrate the calculation of the performance or rate of return of 
all managed accounts shall be deemed to satisfy the requirements of 
this paragraph.''
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    Rule 204-2(a)(7) currently requires advisers that are registered or 
required to be registered with us to maintain certain categories of 
written communications received and copies of written communications 
sent by such advisers.\94\ We are proposing to amend rule 204-2(a)(7) 
to require advisers to also maintain originals of all written 
communications received and copies of written communications sent by an 
investment adviser relating to the performance or rate of return of any 
or all managed accounts or securities recommendations. We believe these 
records would be useful in examining and evaluating adviser performance 
claims. A recent enforcement action demonstrated to us the 
disadvantages of not requiring investment advisers to maintain records 
forming the basis of performance calculations or performance 
communications sent to individuals.\95\
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    \94\ Rule 204-2(a)(7) requires advisers to make and keep: 
``Originals of all written communications received and copies of all 
written communications sent by such investment adviser relating to 
(i) any recommendation made or proposed to be made and any advice 
given or proposed to be given, (ii) any receipt, disbursement or 
delivery of funds or securities, or (iii) the placing or execution 
of any order to purchase or sell any security.''
    \95\ In the Matter of Michael R. Pelosi, Investment Advisers Act 
Release No. 3141 (Jan. 14, 2011); Initial Decision Release No. 448 
(Jan. 5, 2012); Investment Advisers Act Release No. 3805 (Mar. 27, 
2014) (Commission opinion dismissing proceeding against associated 
person of registered investment adviser charged with providing false 
and misleading performance information because the record lacked an 
evidentiary basis from which to determine that the performance 
information was materially false or misleading).
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    Based on our staff's experience, we believe that most advisers 
already maintain this information as part of their compliance with rule 
206(4)-1 under the Advisers Act, which regulates advertisements by 
investment advisers. The proposed amendments would provide our 
examination staff with additional information to review an adviser's 
compliance with rule 206(4)-1 and would assist us in enforcing rule 
206(4)-1 in cases of fraudulent advertising. Investors would benefit to 
the extent that the proposed amendments reduce the incidence of 
misleading or fraudulent advertising.
    We request comment on the proposed amendments to rule 204-2.
     Do investment advisers currently maintain these records? 
If so, are there concerns with making these required records?
     Are there alternate means that would be sufficient to 
collect performance information and client communications regarding 
performance?
     Are there exceptions that we should consider?
2. Proposed Technical Amendments to Advisers Act Rules
    We are proposing technical amendments to several rules under the 
Advisers Act and the withdrawal of transition rule 203A-5 under the 
Advisers Act. The proposed amendments would remove transition 
provisions from rules where the transition process is complete. Three 
of the provisions were added as part of the implementation of the Dodd-
Frank Act. Two provisions were added when we amended Form ADV and 
several Advisers Act rules to require advisers to electronically file 
their brochures with the Commission.
Rule 203A-5
    The Dodd-Frank Act amended section 203A of the Advisers Act to 
prohibit from SEC registration ``mid-sized'' advisers that generally 
have assets under management of between $25 million and $100 
million.\96\ Rule 203A-5 provided a temporary exemption from the 
prohibition on registration for mid-sized advisers to facilitate their 
transition to state registration.\97\ We propose withdrawing rule 203A-
5 because the transition of mid-sized advisers from SEC to state 
registration was completed in June 2012.
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    \96\ See Section 410 of the Dodd-Frank Act.
    \97\ See Implementing Release, supra note 4.
---------------------------------------------------------------------------

Rule 202(a)(11)(G)-1(e)
    Section 409 of the Dodd-Frank Act created a new exclusion from the 
definition of ``investment adviser'' in

[[Page 33730]]

section 202(a)(11)(G) of the Advisers Act for family offices. The 
Commission adopted rule 202(a)(11)(G)-1 \98\ defining a family office 
and provided two extended transition periods for family offices with 
certain charitable organization clients and family offices relying on 
the rescinded ``private adviser'' exemption.\99\ We propose removing 
paragraph (e) of rule 202(a)(11)(G)-1 because subparagraph (1) of the 
transition provisions provided for by it expired on December 31, 2013 
and subparagraph (2) expired on March 30, 2012.
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    \98\ Family Offices, Investment Advisers Act Release No. 3220 
(June 22, 2011) [76 FR 37983 (June 29, 2011)].
    \99\ Section 203(b)(3) of the Advisers Act as in effect before 
July 21, 2011, repealed by section 403 of the Dodd-Frank Act.
---------------------------------------------------------------------------

Rule 203-1(e)
    Rule 203-1 outlines the procedures for advisers to register with 
the Commission. Paragraph (e) of the rule was added as part of the 
implementation of the Dodd-Frank Act and allowed companies that were 
relying on the rescinded ``private adviser'' exemption \100\ to remain 
exempt from registration until March 30, 2012 under certain 
conditions.\101\ We propose removing paragraph (e) from Rule 203-1 
because the transition for private advisers is now complete.
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    \100\ Id.
    \101\ See Implementing Release, supra note 4. The rule 203-1(e) 
exemption from registration requires not only reliance on the former 
private adviser exemption but also that an adviser have fifteen or 
fewer clients in the preceding twelve months and neither hold itself 
out to the public as an investment adviser nor act as an investment 
adviser to a registered investment company or business development 
company.
---------------------------------------------------------------------------

Rule 203-1(b) and Rule 204-1(c)
    Rule 203-1 and Rule 204-1 were amended in 2010 to provide 
transition periods for advisers to file narrative brochures required by 
Part 2A of Form ADV electronically with the Investment Adviser 
Registration Depository (``IARD'').\102\ Rule 203-1(b), entitled 
``transition to electronic filing,'' requires investment advisers 
applying for registration after January 1, 2011 to file their brochures 
electronically unless they receive a continuing hardship 
exemption.\103\ Rule 204-1(c) requires investment advisers that are 
required to file a brochure and had a fiscal year that ended on or 
after December 31, 2010 to electronically file a Part 2A brochure as 
part of their next annual updating amendment. We propose removing 
paragraph (b) from rule 203-1 and paragraph (c) from rule 204-1 because 
the transition to electronic filing is now complete.\104\
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    \102\ Amendments to Form ADV, Investment Advisers Act Release 
No. 3060 (July 28, 2010) [75 FR 49233 (Aug. 12, 2010)].
    \103\ The continuing hardship exemption under rule 203-3 will 
not be withdrawn by these technical amendments.
    \104\ We propose redesignating current paragraphs (c) and (d) of 
Rule 203-1 as (b) and (c) and redesignating current paragraphs (d) 
and (e) of Rule 204-1 as (c) and (d).
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    We request comment on these proposed changes.
     Is there any benefit to keeping any of these provisions?

III. Economic Analysis

A. Introduction

    The Commission is sensitive to the benefits and costs of its rules. 
The following economic analysis identifies and considers the benefits 
and costs--including the effects on efficiency, competition, and 
capital formation--that would result from the proposed amendments to 
Form ADV and the proposed amendments to and rescission of certain rules 
under the Investment Advisers Act. The economic effects of the proposed 
amendments are discussed below and have informed the policy choices 
described in this release.
    We are proposing amendments to Form ADV and the Advisers Act books 
and records rule 204-2, and technical amendments to several other rules 
under the Advisers Act. In summary, and as discussed in greater detail 
in section II. above, we are proposing the following amendments to Form 
ADV and Advisers Act rules:
     Amendments to Form ADV that are designed to fill certain 
data gaps and enhance current reporting provided by investment advisers 
in order to improve the depth and quality of the information we collect 
on investment advisers and to facilitate our risk monitoring 
objectives;
     Amendments to Form ADV to incorporate ``umbrella 
registration'' for private fund advisers;
     Clarifying, technical and other amendments to Part 1A of 
Form ADV;
     Amendments to the Advisers Act books and records rule that 
would require advisers to make and keep supporting documentation that 
demonstrates performance calculations or rates of return in any written 
communications that the investment adviser circulates or distributes; 
and
     Technical amendments to several rules under the Advisers 
Act to remove transition provisions that are no longer necessary.
    We rely on information reported by investment advisers to us on 
Form ADV to monitor trends, assess emerging risks, inform policy 
choices and rulemaking, and assist Commission staff in examination and 
enforcement efforts. We believe that the proposed amendments to Form 
ADV would improve the information provided by investment advisers to 
the Commission, clients and prospective clients and would improve 
investor protection by informing policy choices and focusing 
examination activities. We also believe that the proposed amendments to 
the Advisers Act books and records rule would improve investor 
protections by providing useful information to evaluate advisers' 
performance claims.
    The regulatory regime as it exists today for investment advisers 
serves as the economic baseline against which the costs and benefits, 
as well as the impact on efficiency, competition, and capital formation 
of the proposed amendments are discussed. The baseline includes the 
current requirement for investment advisers to file Form ADV, the staff 
guidance that permits filing advisers to file a single Form ADV on 
behalf of itself and each relying adviser,\105\ the current 
requirements for investment advisers to maintain books and records, and 
other current rules under the Advisers Act. The parties that would be 
affected by the proposed amendments are investment advisers that file 
Form ADV, including private fund advisers that rely on, or will rely 
on, umbrella registration, and investment advisers that currently 
manage, or will manage, separately managed accounts, the Commission, 
current and future advisory clients and other current and future users 
of investment adviser information reported on Form ADV, including 
third-party information providers.
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    \105\ See 2012 ABA Letter, supra note 9.
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    Based on IARD system data as of April 2015, approximately 11,600 
investment advisers are registered with the Commission, and 2,914 
exempt reporting advisers file reports with the Commission. 
Approximately 8,500 investment advisers registered with us (73%) 
reported assets under management attributable to separately managed 
account clients. Of those 8,500 advisers, approximately 5,366 advisers 
reported regulatory assets under management attributable to separately 
managed account clients of at least $150 million but less than $10 
billion and approximately 535 advisers reported regulatory assets under 
management attributable to separately managed account clients of at 
least $10 billion.\106\

[[Page 33731]]

Advisers with at least $10 billion in regulatory assets under 
management attributable to separately managed accounts would be subject 
to proposed additional reporting on separately managed accounts on Form 
ADV. Approximately 750 registered advisers to private funds currently 
submit a single Form ADV on behalf of themselves and 2,500 relying 
advisers, relying on the 2012 ABA Letter. All investment advisers 
registered or required to be registered with us are subject to the 
Advisers Act books and records rule.
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    \106\ Based on IARD data as of April 1, 2015. These estimates 
are approximations because Form ADV currently collects information 
about assets under management by client type and the number of 
clients of each type in broad ranges. Proposed Item 5.D.(1)-(2) 
would require advisers to specify their assets under management and 
number of clients by client type, which will benefit our ability to 
understand and oversee the investment advisers that advise these 
accounts and recognize potential risks.
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    We have sought, where possible, to quantify the costs, benefits, 
and effects on efficiency, competition, and capital formation expected 
to result from the proposed amendments to Form ADV and Investment 
Advisers Act rules, and reasonable alternatives. As discussed below, in 
certain cases, we are unable to quantify the economic effects because 
we lack the information necessary to provide reasonable estimates. The 
economic effects of the proposal also depend upon a number of factors 
some of which we cannot estimate, such as the extent to which investor 
protection and our ability to oversee investment advisers will improve, 
and the extent to which investors would utilize the information in Form 
ADV to choose or retain an investment adviser. Therefore, some of the 
discussion below is qualitative in nature. We request comment on all 
aspects of the economic effects of the amendments that we are 
proposing, such as the costs and benefits, effects on efficiency, 
competition and capital formation, and reasonable alternatives to the 
proposed amendments. We request that commenters identify sources of 
data and information as well as provide data and information to assist 
us in analyzing the economic consequences of the proposed rulemaking.

B. Proposed Amendments to Form ADV

    Some of the proposed amendments to Form ADV are designed to address 
certain gaps in information, such as information about advisers' 
separately managed accounts. We are also proposing to collect 
additional information on Form ADV on topics such as social media, 
offices, foreign clients, and wrap fee accounts. These items are 
designed to improve the depth and quality of information that we 
collect on investment advisers, which would be important for oversight 
activities. We are also proposing amendments to Form ADV to establish a 
more efficient method for advisers to private funds that are organized 
as multiple legal entities to register with us using a single Form ADV 
(``umbrella registration''). Finally, we are proposing a number of 
clarifying, technical and other amendments to Form ADV.
1. Economic Baseline and Affected Market Participants
    As noted above, the investment adviser regulatory regime currently 
in effect serves as the economic baseline against which the costs and 
benefits, as well as the impact on efficiency, competition, and capital 
formation, of the proposed amendments to Form ADV are discussed. Form 
ADV is used by investment advisers to register with the SEC and with 
the states. Once registered, an investment adviser is required to file 
an annual amendment within 90 days of the end of its fiscal year end, 
and more frequently if required by the instructions to Form ADV.\107\ 
Form ADV is also used by exempt reporting advisers to submit, and 
periodically update, reports to us by completing a limited subset of 
items on Form ADV. Information filed on Form ADV is publicly available 
through the IAPD Web site.\108\ The parties that would be directly 
affected by the proposed amendments to Form ADV are: Investment 
advisers that file Form ADV with the Commission; the Commission; 
current and future advisory clients; and other current and future users 
of information filed on Form ADV, including third-party information 
providers.
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    \107\ See Rule 204-1(a) under the Advisers Act.
    \108\ Certain personal identifying information is not made 
public.
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2. Benefits
    As discussed in section II. above, the proposed amendments to Form 
ADV would improve our ability to oversee investment advisers and 
identify potential risks by increasing the amount, usefulness, 
consistency, and reliability of the information disclosed by investment 
advisers, which would enhance our staff's ability to effectively carry 
out the risk-based examination program and other risk monitoring 
activities, and could improve investor protection by informing policy 
choices and focusing examination activities. The enhanced reporting 
requirements should also improve the ability of clients and potential 
clients of investment advisers to make more informed decisions about 
the selection and retention of investment advisers.
    We are proposing that advisers report additional information on 
Form ADV regarding separately managed accounts, which are clients other 
than registered investment companies, business development companies 
and other pooled investment vehicles, such as private funds, and are 
designed to meet the needs of institutional and individual investors. 
Based on IARD data, more than 73% of investment advisers registered 
with us indicate that they manage assets of separately managed 
accounts.\109\ We do not currently collect additional information 
specific to separately managed accounts managed by investment advisers. 
We currently collect detailed information about registered investment 
companies and private funds, but only limited information regarding the 
management of separately managed accounts. The absence of information 
about separately managed accounts, such as information about 
investments, compared to the information we receive describing 
registered investment companies and private funds, limits our ability 
to understand, monitor and oversee the investment advisers that advise 
these accounts, and recognize the potential risks relating to these 
accounts.\110\
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    \109\ Based on IARD data as of April 1, 2015.
    \110\ See, e.g., Form N-1A for investment companies and Form PF 
for private funds.
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    The proposed amendments are intended to enhance our ability to 
effectively carry out our risk-based examination program and other 
risk-monitoring activities in relation to advisers of separately 
managed accounts. The additional information regarding separately 
managed accounts would assist us in addressing regulatory issues, 
anticipating the implications of various regulatory actions that we may 
consider, and identifying areas for additional examination and 
enforcement activities. The proposed amendments are also intended to 
improve our ability to monitor risks related to those advisers that 
manage greater amounts of regulatory assets under management in 
separately managed accounts, while reducing the potential reporting 
burden for those advisers that manage lesser amounts of regulatory 
assets under management in these accounts.
    In addition to information regarding separately managed accounts, 
the proposed amendments to Form ADV include requests for additional 
information that we believe would be useful to our risk assessment, 
examination and oversight of

[[Page 33732]]

investment advisers. For example, we propose requesting information 
regarding social media platforms used by investment advisers. This 
information would assist our staff with examinations and provide them 
with better awareness of an adviser's social media activities and how 
advisers use social media to communicate with their clients and 
prospective clients. We also are proposing to request additional 
information about an adviser's participation in and assets under 
management attributable to wrap fee programs. These programs are widely 
used by individual retail clients, and we believe it would be useful 
for us and the public to learn more about an adviser's participation in 
these programs. For example, if our staff identifies an issue with a 
particular wrap fee program, then this information also would assist 
the staff in identifying other advisers associated with the program. 
Other proposed items that would assist our examination activities 
include replacing ranges with more precise information about the number 
of advisory clients and related assets under management, the total 
number of offices that conduct investment advisory business, and 
information regarding each adviser's top 25 largest offices in terms of 
employees.
    For several items, we are proposing additional identifying 
information, such as the CIK numbers for all advisers that have 
obtained one or more of them, PCAOB registration numbers for auditing 
firms, and the SEC file number and the CRD number for sponsors of wrap 
fee programs. The identifiers will improve our ability and that of 
other current and future users of Form ADV information to cross-
reference information from Form ADV with information from other sources 
to investigate and obtain a more complete understanding of the business 
and relationships of investment advisers.
    The proposed amendments to Form ADV that would incorporate the 
concept of umbrella registration and establish a method on Form ADV for 
certain private fund advisers to use umbrella registration would 
clarify, simplify, and therefore make more efficient the filing 
procedures for these advisers and provide greater certainty about the 
availability of umbrella registration. The proposed amendments also 
would improve the consistency and quality of the information that 
private fund advisers disclose about their business and provide a more 
complete picture of groups of private fund advisers that operate as a 
single business, thus allowing for greater comparability across private 
fund advisers. As of April 1, 2015, approximately 750 registered 
advisers indicated on Form ADV that they relied on the 2012 ABA Letter. 
Additional advisers may be eligible to use umbrella registration but do 
not currently do so.
    The proposed clarifying, technical and other amendments to Form ADV 
would make the filing process clearer and therefore more efficient for 
advisers, and increase the reliability and the consistency of 
information provided by investment advisers. More reliable and 
consistent information would improve our staff's ability to interpret 
and evaluate the information provided by advisers, make comparisons 
across investment advisers, and better identify the investment advisers 
that may need additional outreach or examination. To the extent the 
proposed clarifying and technical amendments would make Form ADV easier 
to understand and complete, the proposed amendments would decrease 
future costs, especially for those investment advisers registering with 
us for the first time.
    As discussed above, an improvement in our ability to oversee the 
business and assess the risks of investment advisers would benefit 
clients and prospective clients of investment advisers. To the extent 
that these proposed amendments would allow our staff to identify 
potential risks at investment advisers before any clients are 
disadvantaged, clients and potential clients would benefit. In 
addition, an increase in the amount, consistency and usefulness of 
information disclosed by investment advisers would allow advisory 
clients and potential advisory clients to make more informed decisions 
about the selection and retention of investment advisers. For example, 
these proposed amendments should allow prospective clients to review, 
either directly from Form ADV or through third-party information 
providers, additional or more precise information about the number of 
clients and amount of regulatory assets under management attributable 
to various client types which may provide useful information about an 
adviser's experience and business practices. As another example, the 
proposed amendments should allow clients and potential clients to 
identify the social media platforms of an investment adviser from which 
additional information about the adviser may be available. An increase 
in the ability of clients and potential clients to differentiate 
investment advisers could result in a limited increase in competition 
among investment advisers for clients. The proposed amendments would 
likely not have a significant effect on capital formation or on the 
ability of investors to efficiently allocate capital across investments 
because the proposed amendments do not directly relate to the amount of 
capital investors allocate to investments or their ability to allocate 
capital across investments.
3. Costs
    The proposed amendments to Form ADV would require investment 
advisers to provide additional information about certain aspects of 
their business, including separately managed accounts, social media 
platforms, wrap fee programs and offices. Reporting this additional 
information would impose additional costs on investment advisers, but 
we believe that much of the information we propose requesting on Form 
ADV would be readily available because, based on our experience, we 
understand that it is information used by advisers to conduct their 
business.
    Costs would vary across advisers, depending on the nature of an 
adviser's business and its business model. For example, advisers that 
manage a limited number of separately managed accounts or that manage 
smaller amounts of assets under management in those accounts would have 
fewer reporting requirements than advisers that manage a large number 
of or assets in such accounts. In addition, advisers with a large 
number of offices would be required to report more information on a 
greater number of offices than what is currently required in Form ADV. 
To the extent possible, we have attempted to quantify these costs. As 
discussed in section IV., for purposes of the increased Paperwork 
Reduction Act burden for Form ADV, we estimate that each adviser would 
incur average costs in connection with the proposed amendments to Form 
ADV of approximately $750,\111\ for a total aggregate cost of 
$8,700,000.\112\
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    \111\ We estimate that each adviser will spend, on average, 2 
hours to complete the proposed questions regarding separately 
managed accounts. We further estimate that the proposed amendments 
to Part 1A that request other additional information would take each 
adviser, on average, 1 hour to complete. As a result, we estimate a 
three hour increase in the total average time burden related to the 
proposed amendments to Form ADV. We expect that the performance of 
this function would most likely be equally allocated between a 
senior compliance examiner and a compliance manager. Data from the 
Securities Industry Financial Markets Association's Management & 
Professional Earnings in the Securities Industry 2013 (``SIFMA 
Management and Professional Earnings Report''), modified to account 
for an 1,800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits and overhead, suggest that 
costs for a senior compliance examiner and a compliance manager are 
$217 and $283 per hour, respectively. [1.5 hours x $217 = $325.5] + 
[1.5 hours x $283 = $424.5] = $750.
    \112\ 11,600 advisers x $750 = $8,700,000.
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    The proposed amendments regarding the reporting of information 
about

[[Page 33733]]

separately managed accounts may have a limited impact on competition 
between advisers that manage a significant number of separately managed 
accounts and those that manage a small number of such accounts. If 
disclosure of aggregate information about separately managed accounts 
resulted in public disclosure of sensitive information about a small 
number of clients' derivative exposures because an adviser has only one 
or a very small number of separately managed account clients, then that 
adviser could be competitively disadvantaged compared with an adviser 
with numerous separately managed account clients because of concerns 
that the public disclosure of derivatives exposures would indirectly 
reveal sensitive information about a particular separately managed 
account client. We believe that this possible concern is mitigated by 
the fact that the proposed item does not require the disclosure or 
reporting of positions or specific exposures or of client identities.
    Regarding the proposed amendments to Form ADV that would codify 
umbrella registration, we estimate that each adviser that files 
Schedule R would incur average costs of approximately $250,\113\ for a 
total aggregate cost of $187,500.\114\ We do not believe the proposed 
amendments to provide for umbrella registration would impose 
significant costs on investment advisers because advisers currently 
relying on the 2012 ABA Letter are already reporting much of the 
information that would be reported on proposed Schedule R. The 
additional information that would be reported for relying advisers on 
Schedule R, such as basis for SEC registration and form of 
organization, should be readily available to filing advisers.
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    \113\ We estimate that for purposes of the PRA, the filing 
adviser would spend on average 1 hour completing the proposed 
Schedule R on behalf of its relying advisers. We expect that the 
performance of this function would most likely be equally allocated 
between a senior compliance examiner and a compliance manager. Data 
from the SIFMA Management and Professional Earnings Report, modified 
to account for an 1,800- hour work-year and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits and overhead, 
suggest that costs for a senior compliance examiner and a compliance 
manager are $217 and $283 per hour, respectively. [.5 hours x $217 = 
$108.5] + [.5 hours x $283 = $141.5] = $250.
    \114\ 750 advisers x $250 = $187,500.
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    We do not believe that the proposed clarifying, technical and other 
amendments to Form ADV would result in any additional costs for 
investment advisers and could result in some cost savings to the extent 
that advisers have fewer questions to research when completing the 
form. We have identified provisions of Form ADV that have caused 
confusion among filers in the past or that have resulted in 
inconsistent or unreliable information. Discussed above, the proposed 
clarifications and revisions to the questions and instructions of Form 
ADV would increase the efficiency of investment advisers to disclose 
information, and our ability to oversee investment advisers. We do not 
anticipate that the proposed clarifying, technical and other amendments 
would have a significant impact on competition or capital formation 
because they do not directly relate to investors' ability to 
differentiate among investment advisers or the amount of capital that 
investors allocate to investments or their ability to efficiently 
allocate capital across securities.
    We do not believe the proposed amendments to Form ADV would 
increase costs for exempt reporting advisers. Exempt reporting advisers 
are required to complete only a limited number of items in Part 1A of 
Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and 
corresponding schedules) and would not be eligible to file proposed 
Schedule R. We are proposing limited amendments to the items that 
exempt reporting advisers are required to complete, including the 
proposed amendments to Item 1 regarding the use of social media and the 
reporting of information on up to 25 offices. Of the approximately 
2,914 exempt reporting advisers that file information with us on Form 
ADV, approximately 17 reported that they had five or more other 
offices. Therefore, there would be a minimal increase in costs for 
these advisers to report this information.
4. Alternatives
    Alternatives to the proposed amendments to Form ADV include the 
disclosure of different additional information from investment 
advisers. For example, with respect to separately managed accounts, we 
could have proposed requiring information as of each quarter, proposed 
other reporting thresholds to differentiate smaller and larger amounts 
of regulatory assets under management, or proposed narrower asset 
categories. Other examples include additional information describing an 
adviser's use of social media platforms, and additional information 
about the size and operations of offices.
    When determining the specific proposed amendments to Form ADV for 
purposes of this proposal, we considered what information would be 
important for our oversight activities and for advisory clients and 
prospective clients, and the costs to investment advisers to provide 
this information. Additional information could improve our ability to 
oversee investment advisers and protect advisory clients and potential 
advisory clients, and increase clients' ability to make more informed 
decisions about the selection and retention of investment advisers. 
However, we currently believe the one-time and ongoing reporting costs 
for investment advisers to provide this information in addition to what 
we have proposed could be significant when compared to its potential 
benefits. Another alternative to the proposed amendments to Form ADV 
would be for us not to require investment advisers to report additional 
information but instead for us to undertake targeted examinations of 
investment advisers. We believe it is more efficient to compile 
information about advisers that can then be utilized to identify 
specific advisers for examination. An absence of information about 
advisers would reduce our ability to identify industry trends and 
assess risks.

C. Proposed Amendments to Investment Advisers Act Rules

    As discussed above, we are proposing amendments to the Advisers Act 
books and records rule, and technical amendments to several other rules 
to remove transition provisions where the transition process is 
complete. The discussion below focuses on the proposed amendments to 
the Advisers Act books and records rule, because the technical 
amendments are clarifying or ministerial in nature and therefore should 
have little, if any, economic effects.
    The proposed amendments to rule 204-2 would require investment 
advisers to maintain records supporting performance claims in 
communications that are distributed or circulated to any person. 
Advisers also would be required to maintain originals of all written 
communications received and copies of all written communications sent 
relating to the performance or rate of return of any or all managed 
accounts or securities recommendations. The proposal would require 
investment advisers to maintain records that they have already created, 
rather than create new records. We believe that most investment 
advisers currently maintain the information proposed to be required 
under the rule, as part of their compliance with the Advisers Act 
advertising rule (rule 206(4)-1) or as a result of their implementation 
of recordkeeping controls to comply with the current requirements of 
rule 204-2. Under the proposed amendments, each

[[Page 33734]]

respondent would be required to retain records in the same manner and 
for the same period of time as currently required under rule 204-2.
1. Economic Baseline and Affected Market Participants
    As noted above, the investment adviser regulatory regime currently 
in effect serves as the economic baseline against which the costs and 
benefits, as well as the impact on efficiency, competition, and capital 
formation, of the proposed amendments to the Advisers Act books and 
records rule (rule 204-2). The parties that would be directly affected 
by the proposed amendments to rules under the Advisers Act include: 
Investment advisers registered with the Commission; the Commission; and 
current and future investment advisory clients. As discussed above, 
approximately 11,600 investment advisers are currently registered with 
the Commission.
2. Benefits
    The proposed amendments to the Advisers Act books and records rule 
(rule 204-2) would benefit the clients and prospective clients of 
investment advisers by improving our ability to oversee investment 
advisers and making available to our examination staff all records 
necessary to evaluate performance information.
    The proposed amendments to the books and records rule would provide 
our enforcement and examination staff with additional information to 
review an adviser's compliance with the Advisers Act advertising rule, 
rule 206(4)-1, regardless of the number of clients or prospective 
clients that receive performance communications. The increased 
efficiency in examining and enforcing the rule may increase investor 
protection by increasing the disincentive for misleading or fraudulent 
communications, which may reduce the incidence of fraud. In addition, 
investors may benefit from the proposed amendments to the books and 
records rule as these records would assist us in enforcing rule 206(4)-
1 against, for example, fraudulent performance advertising.
    To the extent that the proposed amendments to the rule reduce 
misleading or fraudulent communications, the competitive position of 
investment advisers could be improved because clients and potential 
clients would receive more accurate information regarding an adviser's 
performance and thus would be better able to differentiate advisers 
based on skill. In addition, to the extent that the proposed amendments 
to the rule improve the ability of clients and potential clients to 
differentiate advisers based on skill, potential clients may be more 
likely to obtain investment advice from an investment adviser, which 
would increase the ability of investment advisers to compete for 
investor capital. The proposed amendments could improve the ability of 
investors to better or more efficiently allocate capital across 
investments to the extent that the current allocation of capital is 
based on misleading or fraudulent information, which in turn could 
promote capital formation.
3. Costs
    We estimate that for purposes of the PRA, advisers would incur an 
aggregate cost of approximately $324,800 per year for the total hours 
advisory personnel would spend in complying with the proposed 
recordkeeping requirements.\115\ A possible non-quantifiable cost as a 
result of the proposed recordkeeping requirements would be discouraging 
advisers from creating and communicating custom performance information 
to individual clients, who would then lose the benefit of having that 
information available to them. Although we believe that such a response 
to the rule would be unlikely, a decrease in communications could 
reduce the ability of clients and potential clients to compare advisers 
and potentially decrease competition.
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    \115\ We estimate that for purposes of the PRA, the proposed 
amendments to rule 204-2 would increase the burden by 0.5 hours per 
adviser annually. We expect that the function of recording and 
maintaining records of performance information and communications 
would be performed by a combination of compliance clerks and general 
clerks at a cost of $64 per hour and $53 per hour, respectively. We 
anticipate that compliance clerks will perform an estimated 0.1 
hours of this work and clerical staff will perform the remaining 0.4 
hours. Therefore the total cost per adviser would be (0.1 hours x 
$64 per hour = $6.4) + (0.4 hour x $53 = $21.2) = approximately $28 
for a total cost of $324,800 (11,600 advisers x $28).
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    Included in this cost estimate is our expectation that these costs 
would vary among firms, depending on a number of factors, including the 
degree to which advisers already maintain correspondence, performance 
information, and the inputs and worksheets used to generate performance 
information. Compliance costs also would vary depending on the degree 
to which performance figure determination and the recordkeeping process 
is automated, and the amount of updating to the adviser's recordkeeping 
policy that would be required.
4. Alternatives
    An alternative to the proposed amendments to rule 204-2 would be to 
not propose the amendments. The proposed amendments are designed to 
address a potential recordkeeping gap that could limit our ability to 
examine and oversee advisers and ultimately protect investors. The 
proposed amendment to require maintenance of the performance 
calculations and communications regardless of the number of clients or 
potential clients that receive the information would address this 
issue. An alternative that would require maintenance of records 
supporting performance claims in communications that are distributed or 
circulated to less than the current threshold of ten persons could 
reduce our ability to examine and oversee advisers. We believe that the 
limited costs of these amendments are appropriate given its benefits.

D. Request for Comment

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

[[Page 33735]]

selection of an investment adviser? Please explain.

IV. Paperwork Reduction Act Analysis

    Certain provisions of our proposal contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA''),\116\ and we are submitting the 
proposed collections of information to the Office of Management and 
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507 and 5 CFR 
1320.11. The titles for the collections of information we are proposing 
to amend are: (i) ``Form ADV;'' and (ii) ``Rule 204-2 under the 
Investment Advisers Act of 1940.'' An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.
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    \116\ 44 U.S.C. 3501-3520.
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A. Form ADV

    Form ADV (OMB Control No. 3235-0049) is the two-part investment 
adviser registration form. Part 1 of Form ADV contains information used 
primarily by Commission staff, and Part 2 is the client brochure. We 
are not proposing changes to Part 2 at this time. We use the 
information to determine eligibility for registration with us and to 
manage our regulatory and examination programs. Clients use certain of 
the information to determine whether to hire or retain an adviser. The 
collection of information is necessary to provide advisory clients, 
prospective clients, and the Commission with information about the 
adviser and its business, conflicts of interest and personnel. Rule 
203-1 under the Advisers Act requires every person applying for 
investment adviser registration with the Commission to file Form ADV. 
Rule 204-4 under the Advisers Act requires certain investment advisers 
exempt from registration with the Commission (``exempt reporting 
advisers'') to file reports with the Commission by completing a limited 
number of items on Form ADV. Rule 204-1 under the Advisers Act requires 
each registered and exempt reporting adviser to file amendments to Form 
ADV at least annually, and requires advisers to submit electronic 
filings through the IARD. The paperwork burdens associated with rules 
203-1, 204-1, and 204-4 are included in the approved annual burden 
associated with Form ADV and thus do not entail separate collections of 
information.
    These collections of information are found at 17 CFR 275.203-1, 
275.204-1, 275.204-4 and 275.279.1 and are mandatory. Responses are not 
kept confidential. The respondents are investment advisers registered 
with the Commission or applying for registration with the Commission 
and exempt reporting advisers. Based on IARD system data as of April 
2015, approximately 11,600 investment advisers are registered with the 
Commission, and 2,914 exempt reporting advisers file reports with the 
Commission.
    The currently approved total annual burden estimate for all 
advisers of completing, amending and filing Form ADV (Part 1 and Part 
2) with the Commission is 154,402 hours. This burden is based on an 
average total hour burden of 40.74 hours per Commission-registered 
adviser for the first year that an adviser completes Form ADV but 
excluding private fund reporting.\117\
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    \117\ The currently approved one-time initial cost burden for 
outside legal and compliance consulting fees in connection with 
initial preparation of Part 2 of Form ADV is $3,600,000. We are not 
proposing any amendments to Part 2 of Form ADV and therefore we are 
not modifying this estimate.
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    As discussed above, we are proposing amendments to Form ADV that 
are designed to provide additional information about investment 
advisers and their clients, including clients in separately managed 
accounts, provide for umbrella registration for private fund advisers 
and clarify and address technical and other issues in certain Form ADV 
items and instructions. The amendments we are proposing would increase 
the information requested in Part 1A of Form ADV, and we expect that 
this would correspondingly increase the average burden to an adviser 
filing Form ADV.
    We discuss below, in three subsections, the estimated revised 
collection of information requirements for Form ADV: First, we provide 
estimates for the revised and new burdens resulting from the proposed 
amendments to Part 1A; second, we determine how those estimates will be 
reflected in the annual burden attributable to Form ADV; and third, we 
calculate the total revised burdens associated with Form ADV.
1. Changes in Average Burden Estimates and New Burden Estimates
    As a result of the differing burdens on advisers to complete Form 
ADV, we have divided the effect of the proposed amendments to the form 
into three subsections; first we address the change to the collection 
of information for registered advisers as a result of our proposed 
amendments to Part 1A of Form ADV excluding those changes related to 
private funds; second, we discuss the proposed amendments to Form ADV 
related to registered advisers to private funds, including the proposed 
amendments to Section 7.B. of Schedule D and the proposed new Schedule 
R that would implement umbrella registration; and third, we address the 
proposed amendments to Form ADV affecting exempt reporting advisers.
a. Estimated Change in Burden Related to Part 1A Proposed Amendments 
(Not Including Private Fund Reporting)
    We are proposing amendments to Part 1A, some of which are merely 
technical changes or very simple in nature, and others that would 
require more time for an adviser to prepare a response. The paperwork 
burdens of filing an amended Form ADV, Part 1A would vary among 
advisers, depending on factors such as the size of the adviser, the 
complexity of its operations, and the number or extent of its 
affiliations. Advisers should have ready access to all the information 
necessary to respond to the proposed items in their normal course of 
operations because, among other things, they likely maintain and use 
the proposed requested information in connection with managing client 
assets. We anticipate that the responses to many of the questions would 
be unlikely to change from year to year, which would minimize the 
ongoing reporting burden associated with these questions.
i. Proposed Amendments Related to Reporting of Separately Managed 
Account Information
    The proposed amendments to Part 1A, Items 5.K.(1), 5.K.(2), 5.K.(3) 
and 5.K.(4) and Schedule D, Sections 5.K.(1), 5.K.(2) and 5.K.(3) are 
designed to collect information about the separately managed accounts 
managed by advisers. Those proposed amendments would enhance existing 
information we receive and permit us to conduct more robust risk 
monitoring with respect to advisers of separately managed accounts. As 
discussed above, the information collected about separately managed 
accounts would include regulatory assets under management reported by 
asset type, borrowings and derivatives information, and the identity of 
custodians that account for at least ten percent of separately managed 
account regulatory assets under management. We believe much of this 
information is readily available to advisers to separately managed 
accounts because, among other things, they may maintain and use this or 
similar information for operational reasons (e.g., trading systems) and 
for customary account

[[Page 33736]]

reporting to clients in separately managed accounts.
    Although we understand that much of the proposed information is 
readily available to advisers to separately managed accounts, we expect 
that these amendments could subject advisers, particularly those that 
advise a large number of separately managed accounts and engage in 
borrowings and derivatives transactions on behalf of separately managed 
accounts, to an increased paperwork burden. For this and other reasons, 
as we explained above, we propose to minimize the burden on advisers 
with a smaller amount of separately managed account assets under 
management by proposing to require advisers with regulatory assets 
under management attributable to separately managed accounts of at 
least $150 million but less than $10 billion to report borrowings and 
derivatives information as of the date the adviser calculates its 
regulatory assets under management for purposes of its annual updating 
amendment, while those advisers with regulatory assets under management 
attributable to separately managed accounts of at least $10 billion 
would report information as of that date and six months before that 
date.
    Considering the proposed changes in Part 1A, Items 5.K.(1), 
5.K.(2), 5.K.(3) and 5.K.(4) and Schedule D, Sections 5.K.(1), 5.K.(2) 
and 5.K.(3) as well as our efforts to mitigate the reporting burden to 
advisers that manage a smaller amount of separately managed account 
regulatory assets under management, we estimate that each adviser will 
spend, on average, 2 hours to complete the questions regarding 
separately managed accounts in the first year a new or existing 
investment adviser completes these questions.\118\
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    \118\ Based on IARD data, as of April 1, 2015, approximately 
8,500 registered investment advisers, or approximately 73% of all 
investment advisers registered with us, reported assets under 
management from clients other than registered investment companies, 
business development companies and pooled investment vehicles, 
indicating that they have assets under management attributable to 
separately managed accounts. Of those approximately 8,500 advisers, 
we estimate approximately 535 (approximately 6.3%) reported at least 
$10 billion in regulatory assets under management from separately 
managed account clients.
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ii. Other Additional Information Regarding Investment Advisers
    We are proposing to add several new questions and amend existing 
questions on Form ADV regarding identifying information, an adviser's 
advisory business, and affiliations. The proposed questions primarily 
refine or expand existing questions or request information we believe 
that advisers already have for compliance purposes. For example, we 
propose to require each adviser to provide Central Index Key (CIK) 
numbers if it has one or more such numbers and to provide identifying 
information for social media platforms that it uses. Other proposed 
questions would require advisers to provide readily available or easily 
accessible information, such as the proposed amendment to Part IA, Item 
1.O. that would require advisers to report their assets within ranges. 
However, some of the proposed questions may take longer for advisers to 
complete, such as the proposed amendments to Schedule D, Section 1.F 
that would require information about an adviser's 25 largest offices 
other than its principal office and place of business. While this 
information is readily available to an adviser because it should be 
aware of its offices, a clerk would be required to manually enter 
expanded information about the adviser's offices in the first year the 
adviser responds to the proposed item and then make updates in 
subsequent years.
    We are proposing a number of amendments to Item 5 in addition to 
the questions relating to separately managed accounts discussed above. 
Like other new or revised items, we believe several of these new Item 5 
questions would merely require advisers to provide readily available or 
easily accessible information, such as the number of clients and 
regulatory assets under management attributable to each category of 
clients during the last fiscal year. Advisers currently provide this 
information in ranges, and therefore likely already have available to 
them the more precise numbers to report. In addition, information such 
as whether the adviser uses different assets under management numbers 
in Part 1A vs. Part 2A of Form ADV should be readily available. Other 
proposed items would likely present greater burdens for some advisers 
but not others, depending on the nature and complexity of their 
businesses. For instance, the burden associated with the proposed 
disclosure regarding wrap fee programs or non-U.S. clients would depend 
on whether and to what extent an adviser allocates client assets to 
wrap fee programs or the extent to which the adviser has non-U.S. 
clients.
    We estimate that these proposed amendments to Part 1A of Form ADV 
and Schedule D would take each adviser approximately 1 hour, on 
average, to complete in the first year a new or existing adviser 
responds to these proposed questions. We have arrived at this estimate, 
in part, by comparing the relative complexity and availability of the 
information required by the proposed amended items to the current form 
and its approved burden, and by considering the advisers affected by 
the proposed amendments.
iii. Proposed Clarifying, Technical and Other Amendments
    We are proposing several further amendments to Form ADV that are 
designed to clarify the Form and its instructions and address technical 
issues. These proposed changes primarily refine existing questions, 
such as deleting the phrase ``newly formed adviser'' from Part IA, Item 
2.A.(9) because of questions from filers about whether that phrase 
refers to only newly formed corporate entities, and the proposed 
amendments to Part IA, Item 8.B.(2) to clarify that the question 
applies to any related person who recommends the adviser to advisory 
clients or acts as a purchaser representative. Because these proposed 
changes do not change the scope or amount of information required to be 
reported on Form ADV, we do not believe that these proposed clarifying, 
technical and other amendments to Part 1A of Form ADV would increase or 
decrease the average total collection of information burden for 
advisers in their first year filing Form ADV.
    As a result of the proposed amendments to Form ADV Part 1A 
discussed above, including the proposed amendments related to 
separately managed accounts, additional items and technical and 
clarifying amendments, we estimate the average total collection of 
information burden would increase 3 hours to 43.74 hours per adviser 
for the first year that an adviser completes Form ADV (Part 1 and Part 
2).\119\
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    \119\ Currently approved estimate of the average total 
collection if information burden per SEC registered adviser for the 
first year that an adviser completes Form ADV (40.74 hours) + 2 
hours to complete the proposed questions about separately managed 
accounts + 1 hour to complete other additional information regarding 
investment advisers = 43.74 hours.
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b. Estimated Changes in Burden Related to Private Fund Reporting 
Requirements
    We propose several amendments to Part 1A, Schedule D, Section 7.B. 
that refine and enhance existing information we receive about advisers 
to private funds. In addition, as part of our proposal to provide for 
umbrella registration, we propose a new schedule to Part 1A--Schedule 
R--to be submitted by advisers to private funds that use umbrella 
registration to file a single Form ADV.

[[Page 33737]]

    We believe the information required by the few proposed amendments 
to Part 1A, Schedule D, Section 7.B would be readily available or 
easily accessible to advisers to private funds, such as information 
about the percentage of a private fund owned by qualified clients, and 
the PCAOB registration number for a private fund auditor. Other 
amendments to Section 7.B. are designed to make the questions easier to 
answer, but do not cause a change in reporting burden, including moving 
certain ``notes'' to questions and changes to the current question 
regarding unqualified opinions. The currently approved total annual 
burden estimate for advisers making their initial filing in completing 
Item 7.B. and Schedule D, Section 7.B. is 1 hour per private fund. We 
do not estimate that the proposed amendments to Schedule D, Section 7.B 
would increase or decrease the total annual burden because the 
information is readily available to advisers.
    The proposal to incorporate umbrella registration into Form ADV 
would codify a staff position and provide a method for certain private 
fund advisers that operate as a single advisory business to file a 
single registration form. Umbrella registration would only be available 
if the filing adviser and each relying adviser advise only private 
funds and clients in separately managed accounts that are qualified 
clients, as defined in rule 205-3 under the Advisers Act, that are 
otherwise eligible to invest in the private funds advised by the filing 
or a relying adviser. The filing and relying advisers would also have 
to satisfy certain requirements, including that each relying adviser is 
controlled by or under common control with the filing adviser. There 
has been staff guidance for single registration under defined 
circumstances since 2012,\120\ and the proposed amendments to Form ADV 
would provide for umbrella registration and simplify the process of 
umbrella registration for advisers constituting a single advisory 
business. We are proposing a new schedule to Part 1A, Schedule R, that 
would have to be filed with respect to each relying adviser, as well as 
a new question to Schedule D that would link private funds reported on 
Form ADV to the specific (filing or relying) adviser that advises it. 
Schedule R would require identifying information, basis for SEC 
registration, and ownership information about each relying adviser.
---------------------------------------------------------------------------

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

    We believe that much of the information we are proposing to include 
in Schedule R should be readily available to private fund advisers 
because it is information that they are already reporting either on 
Form ADV filings for separate advisers or on a single Form ADV filing, 
in reliance on the staff guidance. Accordingly, although these proposed 
requirements would be an increase in the information collected, the 
increased burden should largely be attributable to data entry and not 
data collection. Furthermore, some advisers who currently separately 
file Form ADV for each of their advisers may cumulatively have a 
reduced Form ADV burden by switching to umbrella registration should 
the new process be codified and Schedule R available. We also believe 
that new filing advisers using umbrella registration would readily have 
information available about relying advisers, because they are 
operating as a single advisory business.
    There is no currently approved annual burden estimate of completing 
Schedule R because it is a new Schedule. Taking into account the scope 
of information we propose to request, our understanding that much of 
the information is readily available and currently required on Form 
ADV, and our belief that many private fund advisers that file an 
umbrella registration will have only a small number of relying 
advisers,\121\ we estimate that advisers to private funds that elect to 
rely on umbrella registration will spend on average 1 hour per filing 
adviser completing new Schedule R for the first time.
---------------------------------------------------------------------------

    \121\ Based on IARD data as of April1, 2015, approximately 750 
investment advisers rely on the 2012 ABA Letter to file Form ADV on 
behalf of themselves and 2,500 relying advisers, an average of 
approximately 3 relying advisers per filing adviser.
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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), and are not required to complete 
Part 2 and would not be eligible to file proposed Schedule R. The 
proposed amendments to Part 1A would revise only Items 1 and 7 for 
exempt reporting advisers. We believe the information required by these 
proposed revisions should be readily available to any adviser as part 
of their ongoing operations and management of client assets, and, 
moreover, are unlikely to require additional reporting for most exempt 
reporting advisers. For instance, we estimate that almost all exempt 
reporting advisers currently have five or fewer offices (the number of 
offices currently required by Form ADV) and thus would not have to 
provide information on additional offices.\122\ Accordingly, we do not 
expect that the proposed amendments would increase or decrease the 
currently approved total annual burden estimate per exempt reporting 
adviser initially completing these items in Form ADV, other than Item 
7.B., of 2 hours. We also do not expect that the proposed amendments 
would increase or decrease the currently approved total annual burden 
estimate per exempt reporting adviser initially completing Item 7.B. 
and Section 7.B. of Schedule D of 1 hour per private fund.
---------------------------------------------------------------------------

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

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

[[Page 33738]]

to updating information.\126\ Amortizing the burden imposed by Form ADV 
over a three-year period to reflect the anticipated period of time that 
advisers would use the revised Form would result in an average annual 
burden of an estimated 169,128 hours per year \127\ (11,600 hours per 
year of it attributable to the proposed amendments),\128\ or 14.58 
hours per year for each adviser currently registered with the 
Commission.\129\
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    \123\ Based on IARD data as of April 1, 2015. We include 
currently registered advisers in the estimated initial hour burden 
calculation because, for purposes of estimating burdens under the 
Paperwork Reduction Act, we assume that every new and existing 
registered adviser completes an initial registration in a three year 
period, which is the period after which estimates are required to be 
renewed.
    \124\ 43.74 hour per-adviser burden x 11,600 advisers = 507,384 
hours.
    \125\ 3 hour per-adviser additional burden x 11,600 advisers = 
34,800 hours.
    \126\ We discuss the burden for advisers making annual updating 
amendments to Form ADV in section iii below.
    \127\ 507,384 hours/3 = 169.128 hours.
    \128\ 34,800 hours/3 = 11,600 hours.
    \129\ 169,128 hours/11,600 advisers = 14.58 hours.
---------------------------------------------------------------------------

    Based on IARD system data, we estimate that there will be 
approximately 1,000 new investment advisers filing Form ADV with us 
annually. Therefore, we estimate that the total annual burden 
applicable to these advisers for the first year that they complete Form 
ADV but excluding private fund reporting requirements is 43,740 hours 
(1,000 advisers x 43.74 hours). Amortizing the burden imposed by Form 
ADV for new registrants over a three-year period to reflect the 
anticipated period of time that advisers would use the revised Form 
would result in an average annual burden of an estimated 14,580 hours 
per year \130\ (1,000 of it attributable to the proposed 
amendments).\131\ We therefore estimate the total hour burden to be 
183,708 hours per year.\132\
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    \130\ 43,740 hours/3 = 14,580 hours.
    \131\ 3,000 hours/3 = 1,000 hours.
    \132\ 14,580 hours for new registrants + 169,128 hours for 
existing registrants = 183,708 hours.
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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 
would incur to complete Item 7.B. and Section 7.B. of Schedule D will 
vary depending on the number of private funds the adviser manages. Of 
the advisers currently registered with us, we estimate that 
approximately 4,364 registered advisers advise a total of 28,532 
private funds, and, on average, 300 SEC-registered advisers annually 
would make their initial filing with us reporting approximately 1,100 
private funds.\133\ The currently approved annual burden estimate for 
advisers making their initial filing in completing Item 7.B. and 
Schedule D, Item 7.B. is 1 hour per private fund. As a result, we 
estimate that the private fund reporting requirements that are 
applicable to registered investment advisers would add 29,632 hours to 
the overall annual burden applicable to registered advisers.\134\ As 
noted above, we believe most of the paperwork burden would be incurred 
in connection with advisers' initial submission of Form ADV, and that 
over time the burden would decrease substantially because it would be 
limited to updating (instead of compiling) information. Amortizing this 
burden over three years, as we did above with respect to the initial 
filing of the rest of the form, results in an average estimated burden 
of 9,877 hours per year.\135\
---------------------------------------------------------------------------

    \133\ Based on IARD data as of April 1, 2015. We include 
existing funds of currently registered advisers in the estimated 
initial hour burden calculation because, for purposes of estimating 
burdens under the Paperwork Reduction Act, we assume that every 
existing registered adviser completes an initial filing completing 
Item 7.B and Schedule D, Item 7.B per fund in a three year period, 
which is the period after which estimates are required to be 
renewed.
    \134\ 1 hour x 28,532 private funds = 28,532 hours. 1 hour x 
1,100 private funds = 1,100 hours. 28,532 hours + 1,100 hours = 
29,632 hours.
    \135\ 29,632 hours/3 = 9,877 hours.
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    We also propose a new Schedule R to Form ADV for umbrella filing. 
Of the advisers currently registered with us, we estimate based on 
current Form ADV filings that approximately 750 registered advisers 
currently submit a single Form ADV on behalf of themselves and 
approximately 2,500 relying advisers.\136\ Taking into account the 
scope of information we propose to request and our understanding that 
much of the information is readily available and is already reported by 
advisers, we estimate that advisers to private funds that elect to rely 
on umbrella registration will spend 1 hour per filing adviser 
completing new Schedule R. As a result, we estimate that umbrella 
registration would add 750 \137\ hours to the annual burden applicable 
to registered advisers. We estimate that, on average, 65 SEC registered 
advisers annually would make their initial filing with us as filing 
advisers, increasing the overall annual burden for advisers to private 
funds an additional 65 hours, or 815 hours in total. Amortizing these 
hours for a three year period as with the rest of the burdens 
associated with Form ADV, results in 272 additional hours per 
year.\138\
---------------------------------------------------------------------------

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

iii. Estimated Annual Burden Associated With Amendments, New Brochure 
Supplements, and Delivery Obligations
    The current approved collection of information burden for Form ADV 
has three elements in addition to those discussed above: (1) The annual 
burden associated with annual and other amendments to Form ADV; (2) the 
annual burden associated with creating new Part 2 brochure supplements 
for advisory employees throughout the year; and (3) the annual burden 
associated with delivering codes of ethics to clients as a result of 
the offer of such codes contained in the brochure. We anticipate that 
our proposed amendments to Form ADV would increase the currently 
approved annual burden estimate associated with annual amendments to 
Form ADV from 6 hours to 7 hours per adviser, but would not impact 
interim updating amendments to Form ADV.
    We continue to estimate that, on average, each adviser filing Form 
ADV through the IARD will likely amend its form two times during the 
year. We estimate, based on IARD data, that advisers, on average, make 
one interim updating amendment (at an estimated 0.5 hours per 
amendment) and one annual updating amendment (at an estimated 7 hours 
per amendment) each year.\139\
---------------------------------------------------------------------------

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

    In addition, the currently approved annual burden estimates are 
that each investment adviser registered with us will, on average, spend 
1 hour per year making interim amendments to brochure supplements,\140\ 
and an additional 1 hour per year to prepare new brochure supplements 
as required by Part 2.\141\ The currently approved annual burden 
estimate is that advisers spend an average of 1.3 hours annually to 
meet obligations to deliver codes of ethics to clients.\142\ We are not 
changing these estimates as the proposed amendments do not affect these 
requirements. Therefore we estimate the total annual burden for 
advisers registered with us attributable to amendments, brochure 
supplements and obligations to deliver codes of ethics to be 125,280 
hours.\143\
---------------------------------------------------------------------------

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

[[Page 33739]]

connection with the initial preparation of Part 2 of Form ADV. We do 
not anticipate that the amendments we are proposing to Form ADV will 
affect the per adviser cost burden estimates for outside legal and 
compliance consulting fees. In addition to the estimated legal and 
compliance consulting fees, investment advisers of private funds incur 
costs with respect to the requirement for investment advisers to report 
the fair value of private fund assets.
    We expect that 1,000 new advisers will register annually with the 
Commission. We estimate that the initial cost related to preparation of 
Part 2 of Form ADV would be $4,400 for legal services and $5,000 for 
compliance consulting services, in each case, for those advisers who 
engaged legal counsel or consultants. We anticipate that a quarter of 
these advisers would seek the help of outside legal services and half 
would seek the help of compliance consulting services. Accordingly, we 
estimate that 250 of these advisers would use outside legal services, 
for a total cost burden of $1,100,000,\144\ and 500 advisers would use 
outside compliance consulting services, for a total cost burden of 
$2,500,000,\145\ resulting in a total cost burden among all respondents 
of $3,600,000 for outside legal and compliance consulting fees related 
to drafting narrative brochures.\146\
---------------------------------------------------------------------------

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

    We estimate that 3% of registered advisers have at least one 
private fund client that may not be audited. These advisers therefore 
may incur costs to fair value their private fund assets. Based on 
current IARD data, 4,364 registered advisers currently advise private 
funds. We therefore estimate that approximately 131 registered advisers 
may incur costs of $37,625 each on an annual basis, for an aggregate 
annual total cost of $4,928,875.\147\
---------------------------------------------------------------------------

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

    Together, we estimate that the total cost burden among all 
respondents for outside legal and compliance consulting fees related to 
third party or outside valuation services and for drafting outside 
legal and compliance consulting fees to be $8,528,875.\148\
---------------------------------------------------------------------------

    \148\ $3,600,000 + $4,928,875 = $8,528,875.
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b. Estimated Annual Burden Applicable to Exempt Reporting Advisers
i. Estimated Initial Hour Burden
    Based on IARD system data, there are approximately 2,914 exempt 
reporting advisers currently filing reports with the SEC.\149\ The 
paperwork burden applicable to these exempt reporting advisers consists 
of the burden attributable to completing a limited number of items in 
Form ADV Part 1A as well as the burden attributable to the private fund 
reporting requirements of Item 7.B. and Section 7.B. of Schedule D.
---------------------------------------------------------------------------

    \149\ Based on IARD data as of April 1, 2015. We include 
existing exempt reporting advisers and their private funds in the 
estimated initial hour burden calculation because, for the purpose 
of estimating burdens under the Paperwork Reduction Act, we assume 
that every new and existing exempt reporting adviser completes an 
initial Form ADV in a three year period, which is the period after 
which estimates are required to be renewed.
---------------------------------------------------------------------------

    The currently approved estimate of the average total collection of 
information burden per exempt reporting adviser for the first year that 
an exempt reporting adviser completes a limited subset of Part 1 of 
Form ADV, other than Item 7.B. and Section 7.B. of Schedule D, is 2 
hours. As discussed above, we do not anticipate that our proposed 
amendments to Form ADV would affect the per exempt reporting adviser 
burden estimate. Based on IARD system data, we estimate that there will 
be 500 new exempt reporting advisers filing Form ADV annually. 
Therefore, we estimate that the total annual burden applicable to the 
existing and new exempt reporting advisers for the first year that they 
complete Form ADV but excluding private fund reporting requirements is 
6,828 hours.\150\ Amortizing the burden imposed by Form ADV over a 
three-year period to reflect the anticipated period of time that 
advisers would use the revised Form ADV results in an average annual 
burden of an estimated 2,276 hours per year.\151\
---------------------------------------------------------------------------

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

    As discussed above, we estimate the burden of completing Item 7.B. 
and Section 7.B. of Schedule D to be 1 hour per private fund. We do not 
anticipate that our proposed amendments to Form ADV would affect the 
per exempt reporting adviser burden of completing Item 7.B. and Section 
7.B. of Schedule D. Based on IARD data, we estimate that, on average, 
the 2,914 current exempt reporting advisers will report 9,896 funds and 
the projected 500 new exempt reporting advisers making their initial 
filing will report approximately 1,000 funds, resulting in a total 
annual burden of 10,896 hours.\152\ Amortizing this total burden over 
three years as we did above for registered advisers results in an 
average burden of an estimated 3,632 hours per year,\153\ or 
approximately 1 hour per year, on average, for each exempt reporting 
adviser.\154\
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    \152\ 9,896 funds + 1,000 funds = 10,896 funds. 10,896 x 1 hour 
= 10,896 hours.
    \153\ 10,896 hours/3 years = 3,632 hours per year.
    \154\ 3,632 hours per year/3,414 exempt reporting advisers = 1 
hour per year.
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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 data, each exempt 
reporting adviser would amend its form 2 times per year. On average, 
these consist of one interim updating amendment (at an estimated 0.5 
hours per amendment) \155\ and one annual updating amendment (at an 
estimated 1 hour per amendment) \156\ each year. In addition, we 
anticipate 200 final filings by exempt reporting advisers annually (at 
an estimated 0.1 hours per filing).\157\ We do not anticipate that our 
proposed amendments to Form ADV would affect the per exempt reporting 
adviser burden. The total annual burden associated with exempt 
reporting advisers filing amendments and final filings is 4,391 
hours.\158\
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    \155\ 2,914 x .5 hours = 1,457 hours.
    \156\ 2,914 x 1 hour = 2,914 hours.
    \157\ 200 x 0.1 hours = 20 hours.
    \158\ 1,457 hours + 2,914 hours + 20 hours = 4,391 hours. Exempt 
reporting advisers are not required to complete Part 2 of Form ADV 
and so will not incur an hour burden to prepare new brochure 
supplements or the cost for preparation of the brochure. Exempt 
reporting advisers also do not have an obligation to deliver codes 
of ethics to clients as required by Part 2 of Form ADV.
---------------------------------------------------------------------------

3. Total Revised Burdens
    The revised total annual collection of information burden for SEC 
registered advisers to file and complete the revised Form ADV (Parts 1 
and 2), including the initial burden for both existing and anticipated 
new registrants, private fund reporting, plus the burden associated 
with amendments to the form, preparing brochure supplements and 
delivering codes of ethics to clients, is estimated to be approximately 
319,137 hours per year, for a monetized total of $79,784,000.\159\
---------------------------------------------------------------------------

    \159\ 183,708 hours per year attributable to initial preparation 
of Form ADV + 9,877 hours per year attributable to initial private 
fund reporting requirements + 272 hours per year for initial 
umbrella registration + 125,280 hours per year for attributable to 
amendments, brochure supplements and obligations to deliver codes of 
ethics = 319,137 hours. We expect that the performance of this 
function would most likely be equally allocated between a senior 
compliance examiner and a compliance manager, or persons performing 
similar functions. Data from the SIFMA Management and Professional 
Earnings Report, modified to account for an 1,800-hour work year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead, suggest that costs for these positions are 
$217 and $283 per hour, respectively. (159,568 hours x $217) + 
(159,568 hours x 283) = $79,784,000.

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

[[Page 33740]]

    The revised total annual collection of information burden for 
exempt reporting advisers to file and complete the required Items of 
Part 1A of Form ADV, including the burdens associated with private fund 
reporting, amendments to the form and final filings, would be 
approximately 10,299 hours per year, for a monetized total of 
$2,574,500.\160\
---------------------------------------------------------------------------

    \160\ 2,276 hours per year attributable to initial preparation 
of Form ADV + 3,632 hours per year attributable to initial private 
fund reporting requirements + 4,391 hours per year for amendments 
and final filings = 10,299 hours. We expect that the performance of 
this function would most likely be equally allocated between a 
senior compliance examiner and a compliance manager, or persons 
performing similar functions. Data from the SIFMA Management and 
Professional Earnings Report, modified to account for an 1,800-hour 
work year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead, suggest that costs for these 
positions are $217 and $283 per hour, respectively. (5,149 x $217) + 
(5,149 x $283) = $2,574,500.
---------------------------------------------------------------------------

    We estimate that if the proposed amendments to Form ADV are 
adopted, the total annual hour burden for the form would be 329,436 
hours and a monetized total of $82,358,500.\161\ This is an increase of 
175,034 hours and $45,688,073 from the currently approved burden 
estimates,\162\ which is attributable primarily to the currently 
approved burden estimates not considering the amortized annual burden 
of Form ADV on existing registered advisers and exempt reporting 
advisers. The resulting blended average per adviser burden for Form ADV 
is 22.69 hours (for a monetized total of $5,674.42),\163\ which 
consists of an average annual burden of 27.51 hours \164\ for each of 
the estimated 11,600 SEC registered advisers, and 3.53 hours \165\ for 
each of the estimated 2,914 exempt reporting advisers.
---------------------------------------------------------------------------

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

    Registered investment advisers are also expected to incur an annual 
cost burden of $8,528,875, an increase of $4,928,875 from the current 
approved cost burden estimate of $3,600,000. The increase in annual 
cost burden is attributable to the currently approved burden not 
considering the cost to advisers to fair value private fund assets.

B. Rule 204-2

    Rule 204-2 (OMB Control No. 3235-0278) requires investment advisers 
registered, or required to be registered under section 203 of the Act, 
to keep certain books and records relating to their advisory business. 
The collection of information under rule 204-2 is necessary for the 
Commission staff to use in its examination and oversight program, and 
the information is generally kept confidential.\166\ The collection of 
information is mandatory.
---------------------------------------------------------------------------

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

    The proposed amendments to rule 204-2 would require investment 
advisers to make and keep the following records: (i) Documentation 
necessary to demonstrate the calculation of the performance the adviser 
distributes to any person, and (ii) all written communications received 
or sent relating to the adviser's performance.
    The currently approved total annual burden for rule 204-2 is based 
on an estimate of 10,946 registered advisers subject to rule 204-2 and 
an estimated average burden of 181.45 burden hours each year per 
adviser, for a total of 1,986,152 hours. Based upon updated IARD data, 
the current approximate number of investment advisers is 11,600. As a 
result in the increase in the number of advisers registered with the 
Commission since the current total annual burden estimate was approved, 
the total burden estimate has increased by 118,668 hours.\167\ We 
estimate that most advisers provide, or seek to provide, performance 
information to their clients. Under the proposed amendments, each 
adviser would be required to retain the records in the same manner, and 
for the same period of time, as other books and records under rule. We 
believe that the documentation necessary to support the performance 
calculations is customarily maintained, or required to be maintained by 
advisers already in account statements or portfolio management systems. 
We also believe that most advisers already maintain this information in 
their books and records, in order to show compliance with the Advisers 
Act advertising rule, rule 206(4)-1. Accordingly, the proposed 
amendments to rule 204-2 are estimated to increase the burden by 
approximately 0.5 hours per adviser annually for a total increase of 
5,800 hours.\168\ The revised annual aggregate burden would be 
2,110,620 hours.\169\ The revised average burden per adviser would be 
approximately 182 hours per year.\170\
---------------------------------------------------------------------------

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

    Advisers would likely use a combination of compliance clerks and 
general clerks to make and keep the information and records required 
under the rule. The currently approved total cost burden is 
$108,708,557.10. We estimate the hourly wage for compliance clerks to 
be $64 per hour, including benefits, and the hourly wage for general 
clerks to be $53 per hour, including benefits.\171\ For each adviser, 
182 burden hours would be required to make and keep the information and 
records required under the rule. We anticipate that compliance clerks 
will perform an estimated 32 hours of this work, and clerical staff 
will perform the remaining 150 hours. The total cost per respondent 
therefore will be an estimated $9,998,\172\ for a total burden cost of 
approximately $115,976,800,\173\ an increase of $7,268,243 from the 
currently approved total cost per respondent.\174\ The increase in cost 
is attributable to a larger registered investment adviser population 
since the most recent approval as well as the proposed rule 204-2 
amendments discussed in this release.
---------------------------------------------------------------------------

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

C. Request for Comment

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

[[Page 33741]]

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

V. Initial Regulatory Flexibility Analysis

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

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

A. Reason for the Proposed Action

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

B. Objectives and Legal Basis

    The proposed amendments to Form ADV would address certain data gaps 
and enhance current reporting provided by investment advisers, 
particularly about separately managed accounts, in order to increase 
our ability to effectively oversee and monitor their activities, and to 
incorporate umbrella registration for private fund advisers that 
operate as a single advisory business. The proposed amendments to the 
Advisers Act books and records rule would require advisers to make and 
keep supporting documentation that demonstrates performance 
calculations or rates of return in any written communications that the 
adviser circulates or distributes, directly and indirectly, to any 
persons.
    The Commission is proposing amendments to Form ADV under section 
19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) 
and 28(e)(2) of the Securities Exchange Act of 1934 [15 U.S.C. 78w(a) 
and 78bb(e)(2)], section 319(a) of the Trust Indenture Act of 1939 [15 
U.S.C. 7sss(a)], section 38(a) of the Investment Company Act of 1940 
[15 U.S.C. 80a-37(a)], and sections 203(c)(1), 204, and 211(a) of the 
Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)]. The Commission is proposing to amend rule 204-2 pursuant to the 
authority set forth in sections 204 and 211 of the Advisers Act [15 
U.S.C. 80b-4 and 80b-11]. The Commission is proposing to amend rule 
202(a)(11)(G)-1 pursuant to authority in sections 202(a)(11)(G) and 
206A of the Advisers Act [15 U.S.C. 80b-2(a)(11)(G) and 80b-6A]. The 
Commission is proposing to amend rule 203-1 pursuant to authority in 
section 206A of the Advisers Act [15 U.S.C. 80b-6A]. The Commission is 
proposing to rescind rule 203A-5 and amend rule 204-1 pursuant to 
authority in sections 204 and 211(a) of the Advisers Act [15 U.S.C. 
80b-4 and 80b-11(a)].

C. Small Entities Subject to the Rule and Rule Amendments

    In developing these proposals, we have considered their potential 
impact on small entities that would be subject to the proposed 
amendments. The proposed amendments would affect all advisers 
registered with the Commission and exempt reporting advisers, including 
small entities. Under Commission rules, for the purposes of the 
Advisers Act and the Regulatory Flexibility Act, an investment adviser 
generally is a small entity if it: (1) Has assets under management 
having a total value of less than $25 million; (2) did not have total 
assets of $5 million or more on the last day of the most recent fiscal 
year; and (3) does not control, is not controlled by, and is not under 
common control with another investment adviser that has assets under 
management of $25 million or more, or any person (other than a natural 
person) that had total assets of $5 million or more on the last day of 
its most recent fiscal year.\176\
---------------------------------------------------------------------------

    \176\ Rule 0-7(a) under the Advisers Act.
---------------------------------------------------------------------------

    Our proposed rule and Form ADV amendments would not affect most 
advisers that are small entities (``small advisers'') because they are 
generally registered with one or more state securities authorities and 
not with us. Under section 203A of the Advisers Act, most small 
advisers are prohibited from registering with the Commission and are 
regulated by state regulators. Based on IARD data, we estimate that as 
of April 1, 2015, approximately 489 advisers that are small entities 
are registered with the Commission.\177\ Because these entities are 
registered, they, like all SEC-registered investment advisers, would 
all be subject to the proposed amendments to Form ADV, rule 204-2 and 
other Advisers Act rules.
---------------------------------------------------------------------------

    \177\ Based on SEC-registered investment adviser responses to 
Form ADV, Item 5.F and Item 12.
---------------------------------------------------------------------------

    The only small entity exempt reporting advisers that would be 
subject to the proposed amendments would be exempt reporting advisers 
that maintain their principal office and place of

[[Page 33742]]

business in Wyoming or outside the United States. Advisers with less 
than $25 million in assets under management generally are prohibited 
from registering with us unless they maintain their principal office 
and place of business in Wyoming or outside the United States. Exempt 
reporting advisers are not required to report regulatory assets under 
management on Form ADV and therefore we do not have a precise number of 
exempt reporting advisers that are small entities. Exempt reporting 
advisers are required to report in Part 1A, Schedule D the gross asset 
value of each private fund they manage.\178\ Based on responses to that 
question, we estimate that there is approximately 1 exempt reporting 
adviser with its principal office and place of business in Wyoming that 
meets the definition of small entity. Advisers with their principal 
office and place of business outside the United States may have 
additional assets under management other than what is reported in 
Schedule D. Based on IARD filings, approximately 18% of registered 
investment advisers with their principal office and place of business 
outside the U.S. are small entities. There are approximately 1,148 
exempt reporting advisers with their principal office and place of 
business outside the U.S. We estimate that 18% of those advisers, 
approximately 206, are small entities.
---------------------------------------------------------------------------

    \178\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A, 
Question 11.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to Form ADV and rule 204-2 would impose 
certain reporting, recordkeeping, and compliance requirements on all 
Commission-registered advisers, including small advisers. All 
Commission-registered small advisers would be required to file Form 
ADV, including the proposed amendments, and all Commission-registered 
small advisers would be subject to the proposed amended recordkeeping 
requirements. We do not believe that our proposed technical amendments 
to other Advisers Act rules would impose different reporting, 
recordkeeping, or other compliance requirements on small advisers.
Proposed Form ADV Amendments
    The proposed amendments to Form ADV would require registered 
investment advisers to report different or additional information than 
what is currently required. Approximately 489 small advisers currently 
registered with us would be subject to these requirements. We expect 
these 489 small advisers to spend, on average, 3 hours to respond to 
the proposed new and amended questions, not including items relating to 
private fund reporting.\179\ We expect the aggregate cost to small 
advisers associated with this process would be $366,500.\180\
---------------------------------------------------------------------------

    \179\ See supra section IV. of this release.
    \180\ We expect that performance of this function will most 
likely be equally allocated between a senior compliance examiner and 
a compliance manager. Data from the SIFMA Management and 
Professional Earnings Report, modified to account for an 1,800-hour 
work year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead, suggest that costs for these 
positions are $217 and $283 per hour, respectively. 489 small 
advisers x 3 hours = 1,467 hours. [733 hours x $217 = $159,061] + 
[733 hours x $283 = $207,439] = $366,500.
---------------------------------------------------------------------------

    In addition, of these 489 small advisers, we estimate that 4 small 
advisers currently rely on the 2012 ABA Letter to act as filing 
advisers for their relying advisers.\181\ We expect that our proposed 
changes to codify umbrella registration would take 4 hours \182\ in the 
aggregate, at a cost to small advisers of $1,000.\183\ We do not know 
how many additional small advisers would use umbrella registration if 
it was incorporated into Form ADV. We estimate for purposes of the 
Paperwork Reduction Act that they would also have a burden of 1 hour 
per filing adviser.
---------------------------------------------------------------------------

    \181\ Based on IARD data as of April 1, 2015.
    \182\ For purposes of the Paperwork Reduction Act, we estimated 
in section IV. of this release that amendments to codify umbrella 
registration would take an additional 1 hour per filing adviser.
    \183\ As discussed in connection with the Paperwork Reduction 
Act, we expect that performance of this function will most likely be 
equally allocated between a senior compliance examiner and a 
compliance manager. Data from the SIFMA Management and Professional 
Earnings Report, modified to account for an 1,800-hour work year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that costs for these positions are 
$217 and $283 per hour, respectively. 4 filing advisers x 1 hour = 4 
hours. [2 hours x $217 = $434] + [2 hours x $283 = 566] = $1,000.
---------------------------------------------------------------------------

    We do not estimate any increase or decrease in burden related to 
our proposed amendments for private fund advisers, other than the hours 
related to proposed Schedule R or for exempt reporting advisers. The 
total estimated labor costs associated with our amendments that we 
expect will be borne by small advisers is $367,500.\184\
---------------------------------------------------------------------------

    \184\ $366,500 + $1,000 = $367,500. These costs are discussed in 
Paperwork Reduction Act Analysis in section IV. of the release.
---------------------------------------------------------------------------

Proposed Amendments to Books and Records Rule
    Our proposed amendments to rule 204-2's performance information 
recordkeeping provisions are meant to require investment advisers to 
make and keep the following records: (i) Documentation necessary to 
demonstrate the calculation of the performance the adviser distributes 
to any person, and (ii) all written communications received or sent 
relating to the adviser's performance. These amendments would create 
reporting, recordkeeping, and other compliance requirements for small 
advisers. As discussed in the Paperwork Reduction Act Analysis in 
section IV. above, the proposed amendments to rule 204-2 would increase 
the burden by approximately 0.5 hours per adviser. We expect the 
aggregate cost to small advisers associated with our proposed 
amendments would be $13,415.\185\
---------------------------------------------------------------------------

    \185\ As discussed in connection with the Paperwork Reduction 
Act, we expect that performance of this function will most likely be 
allocated between compliance clerks and general clerks with 
compliance clerks performing 17% of the function and general clerks 
performing 83% of the function. Data from the SIFMA Office Salaries 
in the Securities Industry Report 2013, modified to account for an 
1,800-hour work year and multiplied by 5.35 to account for bonuses, 
firm size, employee benefits, and overhead, suggest that costs for 
these positions are $64 and $53, respectively. 489 small advisers x 
0.5 hours = 244.5 hours. [0.17 x 244.5 hours x $64 = $2,660] + [0.83 
x 244.5 hours x $53 = $10,755] = $13,415.
---------------------------------------------------------------------------

E. Duplicative, Overlapping, or Conflicting Federal Rules

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

F. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small entities. In 
connection with the proposed Form ADV and rule amendments, the 
Commission considered the following alternatives: (i) The establishment 
of differing compliance or reporting requirements that take into 
account the resources available to small entities; (ii) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the proposed Form ADV and rule amendments 
for such small entities; (iii) the use of performance rather than 
design standards; and (iv) an exemption from coverage of the proposed 
Form ADV and rule amendments, or any part thereof, for such small 
entities.
    Regarding the first and second alternatives, for certain proposed 
reporting requirements regarding separately managed accounts on Form 
ADV, we propose to require semi-annual information filed annually for

[[Page 33743]]

advisers with regulatory assets under management attributable to 
separately managed accounts of $10 billion or more and annual 
information for other advisers.\186\ Requiring less detailed reporting 
on these items for advisers with less than $10 billion is designed to 
balance our regulatory needs for this type of information while seeking 
to minimize the reporting burden on advisers that manage a smaller 
amount of separately managed account assets where appropriate.
---------------------------------------------------------------------------

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

    Regarding the first and fourth alternatives for the other proposed 
amendments to Form ADV and Advisers Act rules, we do not believe that 
different compliance or reporting requirements or an exemption from 
coverage of the Form ADV and rule amendments, or any part thereof, for 
small entities, would be appropriate. Because the protections of the 
Advisers Act are intended to apply equally to clients of both large and 
small advisers, it would be inconsistent with the purposes of the Act 
to specify differences for small entities under the proposed 
amendments.
    Regarding the second alternative for the other proposed amendments 
to Form ADV and the Advisers Act rules, we will continue to consider 
whether further clarification, consolidation, or simplification of the 
compliance requirements is feasible or necessary, but we believe that 
the current proposal is clear. The remaining Form ADV amendments do not 
change that all SEC-registered advisers use a single form, Form ADV, 
and an existing filing system, IARD, for reporting and registration 
purposes, and this would not change for small entities. With respect to 
the rule 204-2 amendments, we believe that the same requirements should 
apply to all advisers to permit our staff to more effectively examine 
them.
    Regarding the third alternative, we consider using performance 
rather than design standards with respect to the proposed amendments to 
Form ADV and rule 204-2 to be inconsistent with our statutory mandate 
to protect investors, as advisers must provide certain registration 
information and maintain books and records in a uniform and 
quantifiable manner so that it is useful to our regulatory and 
examination program.

G. Solicitation of Comments

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

VI. Consideration of Impact on the Economy

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

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

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

VII. Statutory Authority

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

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

Text of Rule and Form Amendments

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

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

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

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


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

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


Sec.  275.203-1  Application for investment adviser registration.

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


Sec.  275.203A-5  [Removed and Reserved]

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


Sec.  275.204-1  [Amended]

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


Sec.  275.204-2  Books and records to be maintained by investment 
advisers.

    (a) * * *
    (7) Originals of all written communications received and copies of 
all written communications sent by such investment adviser relating to:

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    (i) Any recommendation made or proposed to be made and any advice 
given or proposed to be given;
    (ii) Any receipt, disbursement or delivery of funds or securities;
    (iii) The placing or execution of any order to purchase or sell any 
security: Provided, however:
    (A) That the investment adviser shall not be required to keep any 
unsolicited market letters and other similar communications of general 
public distribution not prepared by or for the investment adviser; and
    (B) That if the investment adviser sends any notice, circular or 
other advertisement offering any report, analysis, publication or other 
investment advisory service to more than 10 persons, the investment 
adviser shall not be required to keep a record of the names and 
addresses of the persons to whom it was sent; except that if such 
notice, circular or advertisement is distributed to persons named on 
any list, the investment adviser shall retain with the copy of such 
notice, circular or advertisement a memorandum describing the list and 
the source thereof; or
    (iv) The performance or rate of return of any or all managed 
accounts or securities recommendations.
* * * * *

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

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

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

0
a. Form ADV [referenced in Sec.  279.1] is amended by: In the 
instructions to the form, revising the section entitled ``Form ADV: 
General Instructions.'' The revised version of Form ADV: General 
Instructions is attached as Appendix A;
0
b. In the instructions to the form, revising the section entitled 
``Form ADV: Instructions for Part 1A.'' The revised version of Form 
ADV: Instructions for Part 1A is attached as Appendix B;
0
c. In the instructions to the form, revising the section entitled 
``Form ADV: Glossary of Terms.'' The revised version of Form ADV: 
Glossary of Terms is attached as Appendix C;
0
d. In the form, revising Part 1A. The revised version of Form ADV, Part 
1A, is attached as Appendix D.

    Note: The text of Form ADV does not and the amendments will not 
appear in the Code of Federal Regulations.


    By the Commission.

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

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