It is always helpful to see what the SEC is asking for when they start off their examination of an investment adviser:
Background Regarding the Information Requested
Each investment adviser that is registered with the Commission is required to adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws, and toreview those policies and procedures annually for their continued adequacy and the effectiveness of their implementation. In addition, registered advisers and funds are required to designate a chief compliance officer responsible for administering the policies and procedures. Each adviser should adopt policies and procedures that take into consideration the nature of that firm’s operations. The policies and procedures should be designed to prevent violations from occurring, detect violations that have occurred, and correct promptly any violations that have occurred.
Defined Terms
For the purpose of this request, an “employee” of the Adviser includes not only employees on the Adviser’s payroll, but also, as defined in Form ADV instructions, independent contractors who perform advisory functions on the Adviser’s behalf. A “supervised person” is any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser (defined in Section 202(a)(25) of the Advisers Act). An “SMA”, or separately managed account, includes all client accounts other than privately offered pooled investment vehicles that may be managed by the Adviser.
Information to be Provided
Organization Chart. The Adviser’s organization chart and/or schedule showing the Adviser and all affiliated entities, including all entities controlling, controlled by, or under common control with the Adviser, and each entities owners and ownership percentages;
Employee List. A list of the Adviser’s employees, partners, officers and/or directors employed or active during the Examination Period, including the following information for each:
- Title/Position with the Adviser;
- Areas of responsibility;
- Position held with affiliated entities (if applicable);
- Office location (if there are multiple locations);
- Hire date (if date is prior to the Examination Period, it is acceptable to provide only the year);
If applicable, date of resignation/termination and reason for resignation/termination.
Other Business Arrangements. A description of any joint ventures in which the Adviser or its supervisedpersons participate, and any outside businesses that employ or are owned more than 5%, directly or indirectly, by the Adviser’s supervised In addition, please indicate whether any client has invested, and/or has been solicited to invest, in any of these joint ventures or outside businesses.
SMA Client List. An Excel spreadsheet of all current and former SMAs or pension consulting clientaccounts during the Examination Period that contains the information listed If the response to anyinformation requested below is the same for all accounts, you may provide the information once in a narrative response rather than repeat it in a column of the spreadsheet.
- Account number;
- Account name;
- Account balance;
- Account custodian;
- A list of broker-dealers used to execute trades;
- Account inception date;
- Investment strategy or investment objective for the account;
- Type of account (e.g., individual, institution, pension plan, private or registered fund, another adviser);
- Whether the client is a related person, affiliated person, or a proprietary account;
- Whether the client is a government entity;
- Whether the Adviser has discretionary authority over the account;
- Whether the account is a wrap account;
- Whether or not advisory fees are paid directly from the client’s custodial account;
- Whether or not a performance fee is charged;
- Date of last performance fee charged;
- Whether the Adviser has custody over the client account (other than through direct billing), and abrief indication of the cause of custody (e.g., trustee relationship, full power of attorney, bill payservices, check writing authority, transfer authority through SLOAs, full custodial account username and password control/access);
- Whether the account holds any funds managed by, or affiliated with, the Adviser;
- Any other services provided to the client by the Adviser or any of its affiliates outside of theadvisory agreement;
- For clients obtained during the Examination Period, if applicable, name(s) of consultant(s) orsolicitors related to obtaining the client;
- For accounts terminated during the Examination Period:
- account termination date;
- account value at termination; and
- reason for
Brochure Supplement. A copy of the most recent Form ADV, Part 2B (Brochure Supplement) for each supervised person who provided investment advice to clients during the Examination
Compliance Policies and All written compliance and operational policies and procedures,and the code of ethics in effect during the Examination Period. If any material amendment was made to thesepolicies and procedures during the Examination Period, please describe the amendment and when it became effective.
Annual Any reports and documentation generated to evidence the Adviser’s most recentannual compliance review performed pursuant to Rule 206(4)-7 of the Advisers Act.
Any client complaints against the Adviser or its supervised persons, and information about the process used for monitoring client correspondence and/or complaints.
Litigation, Arbitration, and Administrative Any threatened, pending or settled litigation or arbitration involving the Adviser or any of its supervised persons (if it relates to the individual’sassociation with the Adviser or a securities-related matter,) including a description of the allegations, the status, and a brief description of any “out of court” or informal settlement. If none, please provide a writtenstatement to that effect.
Investment Provide lists of investments (long and short) held by the following: 1) the Adviser’s SMAs (aggregate positions) 2) the Adviser; and 3) each of the Adviser’s owners,senior officers,2 and portfolio managers, directly or indirectly through a spouse or immediate family member sharing the same household. Each investment list should include the following information in Excel format:
Account name (except for SMAs, in which case, indicate “Aggregate SMAs”)
Investment name;
CUSIP (or other identifier);
Type of investment (e.g. stock, bond, put/call option, mutual fund, private fund, private equity, privatedebt, real estate);
Number of shares or principal and/ or notional amount held;
Whether the position is fair valued;
Total market value of the position;
Whether the Adviser or an affiliated entity has a material financial interest in the investment, and if yes, a description of the financial interest; and
If the Adviser holds short positions, whether the investment is held long or short.
Financial The Adviser’s balance sheet, income statement, trial balance, as of the end of its mostrecent fiscal year and the most current year-to-date.
A trade blotter (e., purchases and sales journal), for the Examination Period, that lists transactions (including all trade errors, cancellations, re-bills, and reallocations) in securities and other financialinstruments (including privately offered funds) for: current and former clients; proprietary and/or trading accounts and access persons. The preferred format for this information is to provide it in Excel asindicated in Exhibit 1.