Investment Advisor Services

Proposed SEC changes to Form ADV; Good or Bad?

RIA cover2May 20, 2015 the Securities and Exchange Commission unanimously approved amendments to Form ADV requesting more information about the composition of client portfolios and risk profiles, and advisers use of social media.  The 60-day comment window for Form ADV is now open. Thus far, the comments are mixed reviews.  


Small investment advisory firms appear to have the greatest concern citing that the changes will create more record-keeping, adding a new burden on already stretched to the limit compliance resources. The growing concern is that for smaller firms; every hour spent reviewing and completing compliance initiatives is an hour not spent with clients growing the practice. In addition, some firms state the proposed information is not really all that meaningful, and that Form ADV already contains too much information which prospective clients often don’t read.

SEC Chair, Mary Jo White indicated in her announcement of the proposal that the amendments are part of a series of rule-makings being put forth to enhance monitoring and regulation of the asset management industry. Further, she states the agency plans to use the additional data to improve its ability to conduct “more targeted” exams. And finally, the information will allow the public and the Commission to better understand the risk profile of individual advisers and the industry.

The proposed changes to investment adviser registration and reporting include:

Require aggregate information related to assets held and use of borrowings and derivatives in separately managed accounts. (Approximately 73 percent of SEC registered investment advisers manage a wide variety of client assets in separately managed accounts, which generally provide advisory clients with individualized investment advice and direct ownership of the securities and other assets in the account.)

Permit (by rule) certain “umbrella registration” filing arrangements that are currently outlined in staff guidance.

Provide additional information about an adviser’s advisory business and including branch office operations and the use of social media.

Proposed changes to Investment Advisers Act Rules

Proposed amendments to Investment Advisers Act Rule 2042 would require advisers to maintain records of the calculation of performance information that is distributed to any person. Currently, advisers are required to maintain performance information that is distributed to 10 or more persons.

The proposed amendments also would require advisers to maintain communications related to performance or rate of return of accounts and securities recommendations.

What are your thoughts regarding the proposed changes? Post a comment here or weigh in on


RND Resources Inc.RND Resources, Inc is committed to working with Investment Advisory firms. Our team’s familiarity with SEC and regulatory guidelines allow us to seamlessly guide our Investment Advisor clients through registration, audit, and compliance issues. Clients remark that the value they get from outsourcing compliance and registration tasks to us allows them to focus on running their business without the stress of managing a compliance department or worrying about changing regulatory laws.

Benefit from industry specific knowledge, experienced auditors, and assurance professionals. Call or email us today for a quote (818) 657-0288.

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Join our June 29, 2015 – New York Compliance Roundtable discussion on this topic. See details on our website.

SEC Proposes Broker-Dealers in Off-Exchange Market to Become Members of National Securities Association

Proposed change to rule 15b9-1 requires off-exchange broker-dealers to fall under SEC and FINRA regulations. 

The proposed amendment enhances regulatory oversight of active proprietary trading firms, and more specifically high frequency traders. Targeting to restrict the exemption to broker-dealers with a business focused on an exchange floor.


Proposed New Rule: a broker-dealer would be exempt from having to become a member of a national securities association if it is a member of a national securities exchange, carries no customer accounts, and trades solely on an exchange of which it is a member (subject to the following exceptions). Public comments open through 6/1/2015 –  link below.

Two exceptions are provided for a broker-dealer trading solely on an exchange of which it is a member

  • A dealer that conducts business on the floor of a national securities exchange could effect transactions off the exchange, for the dealer’s own account with or through another registered broker-dealer, that are solely for the purpose of hedging the risks of its floor-based activities.
    • A dealer seeking this exception must establish, maintain and enforce written policies and procedures reasonably designed to ensure and demonstrate that such hedging transactions reduce or otherwise mitigate the risks of the financial exposure the dealer incurs as a result of its floor-based activity.
    • A dealer must preserve a copy of its policies and procedures for three years after the date the policies and procedures are replaced with updated policies and procedures.
  • A broker-dealer could effect transactions off the exchange that result from orders that are routed by the national securities exchange of which it is a member, to prevent trade-throughs on that national securities exchange consistent with the provisions of Rule 611 Regulation NMS.

nasdaq exchangeBackground: Presently rule 15b9-1 exempts broker-dealers from statutory requirements to become a member of a National Securities Association. The rule was originally intended to allow exchange-based specialists and floor members to conduct limited activities off the exchange of which they’re a member without being required to become a member.  With the emergence of cross-market proprietary trading firms engaged in high frequency trading strategies, the SEC sees a greater need to regulate. The SEC states in their Mar 25, 2015 press release, “Although the business of these firms is not focused on an exchange floor, and they are responsible for a substantial percentage of the trading volume in the off- exchange market, many are not members of a national securities association because they have been able to rely on the broad proprietary trading exemption in Rule 15b9-1.”

SEC – Public Comment deadline: The SEC is open for public comment on the proposed rule amendment for 60 days, ending 06/01/2015.  Submit a formal comment on the Federal Register.


Download Federal Register Report Released by SEC regarding the Proposed Action

Federal Register _ Exemption for Certain Exchange Members


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