Dealer group seeks Form ADV revamp

The Bond Dealers of America (BDA) wants a key regulatory filing to play a more effective role as matchmaker between broker-dealers and investment advisers (IAs).

The industry group on December 19 filed a petition urging the SEC to revamp Form ADV to both simplify certain reporting elements and add new information. ‘With over 14,000 registered [IAs], it is a challenge for broker-dealers to successfully identify [IAs] with which the dealer and the adviser could form a mutually beneficial trading relationship,’ Mike Nicholas, the group’s CEO, writes in the petition.

‘BDA believes that by making the recommended…dealers will be able to more efficiently provide liquidity to the fixed income marketplace and advisers will benefit from greater access to investment options and increased price competition, which will improve the ability of the adviser to achieve its investment goals.’

The first Form ADV amendment BDA proposes would harmonize the client and client-related asset under management (AUM) percentages in Item 5 (information about your advisory business), section D2 of the form with the percentage breakdowns in section D1.

At present, Item 5, section D1 has more detailed information on the percentage of who an IA’s clients are in contrast to the percentage of AUM attributable to each client type, Nicholas writes, recommending that the percentages used in section D2 be identical to D1.

‘A more detailed AUM-by-client breakdown would allow dealers and other market participants to have a more detailed understanding of the types of clients and assets the adviser holds,’ he writes. ‘This will allow dealer sales personnel to more efficiently provide investment services to the adviser.’

Also in regards to Section D2, Nicholas writes that IAs often input AUM attributable to credit unions in section (m) for ‘other.’ BDA believes it would be more valuable to report those assets under (c) so that all AUM attributable to financial institutions be reported in a single line item.

In addition, the group recommends adding a new section F3 to Item 5 that would insert a percentage breakdown of adviser AUM by asset type. While it is important to have the total value of AUM reported in section F, BDA believes that adding a section that shows the types of assets held would be valuable, Nicholas writes.  

‘If an asset-specific percentage breakdown is made available, the value of the Form ADV disclosures will increase,’ he says. ‘A dealer would be able to understand the adviser’s clients, the percentage of assets attributable to different client types and the types of holdings the adviser owns. This would allow dealers to provide better client support and provide liquidity for the specific asset types the adviser typically holds.’


RECENT ADV CHANGES
A series of other changes to Form ADV went into effect at the end of October. SEC officials write in the rule filing that the amendments are intended to:

• Give 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
• Make clarifying, technical and other amendments to certain Form ADV items and instructions.