Compliance August 19, 2022

SEC, CFTC Propose New Private Fund Industry Reporting Changes

Regulators cite the increased complexity of the private fund industry and rapid growth for need to amend confidential filing rules.

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The Securities and Exchange Commission and the Commodity Futures Trading Commission have jointly voted to propose amendments to Form PF, a confidential reporting form for certain investment advisers to private funds.

Press releases from the SEC and the CFTC say the amendments to Form PF are intended to improve the Financial Stability Oversight Council’s ability to assess systemic risk, and enhance the oversight of private fund advisers.

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The move is in response to the rapid growth of the private fund industry since Form PF was adopted in 2011, as well as the increasing complexity of the industry’s investing practices, according to the releases. They also note that certain investment strategies, including credit, digital asset, litigation finance and real estate strategies, have become more common.

“In the decade since the SEC and CFTC jointly adopted Form PF, regulators have gained vital insight with respect to private funds,” SEC Chair Gary Gensler said in a statement. “Since then, though, the private fund industry has grown in gross asset value by nearly 150% and evolved in terms of its business practices, complexity, and investment strategies.”

Gensler said that if adopted, the proposed changes would improve the quality of the information the SEC and CFTC receive from Form PF filers, with a particular focus on large hedge fund advisers. “That will help protect investors and maintain fair, orderly, and efficient markets,” he added.

The proposed amendments include:

  • Enhancing how large hedge fund advisers report investment exposures, borrowing and counterparty exposure, market factor effects, currency exposure reporting, turnover, country and industry exposure, central clearing counterparty reporting, risk metrics, investment performance by strategy, portfolio correlation, portfolio liquidity and financing liquidity;
  • Requiring additional basic information about advisers and the private funds they advise, including identifying information, assets under management, withdrawal and redemption rights, gross asset value and net asset value, inflows and outflows, base currency, borrowings and types of creditors, fair value hierarchy, beneficial ownership and fund performance;
  • Requiring more detailed information about the investment strategies, counterparty exposures and trading and clearing mechanisms employed by hedge funds, while also removing duplicative questions; and
  • Removing the aggregate reporting requirement for large hedge fund advisers, as according to the SEC this information can obscure the data about hedge funds, including by masking the directional exposures of individual funds.  

While the proposal is supported by Gensler, along with Commissioners Caroline Crenshaw and Jaime Lizárraga, Commissioners Hester Pierce and Mark Uyeda both issued statements expressing concerns with the proposed amendments and said they would not vote in favor of the changes.

Pierce said that while she believes Form PF needs to be updated, the proposal “stretches a very limited data collection tool beyond its intended purpose.” She said the FSOC “does not need to have this kind of detailed knowledge of individual private funds’ activities to fulfill its mandate to identify risks to financial stability, promote market discipline, and respond to emerging financial stability threats.”

Uyeda took issue with the intent of the proposed changes to address the assessment of systemic risk, saying that the draft release  mentions “systemic risk” 118 times without describing or defining the term.

“Merely stating over and over that the proposed amendments will help to monitor and assess systemic risk and provide additional information does not make it so,” Uyeda said. “This shortcoming makes it difficult to evaluate the appropriateness of the proposed disclosures.”

Products August 19, 2022

In Evolving Industry, 3Nickels Embraces App-Based Planning Approach

The scalable advisory solution from GuidedChoice has two tiers—one free and the other paid—through which a client’s financial picture can be examined.

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The digital retirement advisory firm GuidedChoice bills itself as being among the very first to use the internet to bring “new freedom and access” to retirement planning, and boasts a 20-year history in the industry.

In 2020, GuidedChoice CEO Sherrie Grabot expanded the firm and founded 3Nickels, building on the firm’s stated goal of bringing financial freedom to everyone. In 2021, the firm launched the 3Nickels app, a solution designed to offer responsive financial advisory tools and help individuals and families work toward financial independence across a broad range of personal finance goals.

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The app comes in two tiers, one paid and the other unpaid. The free tier provides tools that support personal finance needs across budgeting, car buying, paying off credit card debt and establishing college savings. The paid advice tier provides a detailed and customized plan for paying off debt, buying a home and saving for retirement.

“GuidedChoice has a history of focusing primarily on the retirement space and on retirement wellness advice and managed account solutions,” Grabot tells PLANADVISER. “What we have done now, with 3Nickels, is move towards an overall democratization of wealth management, so that we can serve even those with a lower net worth.”

The 3Nickels app’s scalable and tech-based approach enables this democratization, Grabot says. Depending on the complexity of a person’s financial situation, they may not need as much face-to-face contact. This is often the case for new or young savers and investors, for example.

“If you can give them help at the young ages, when they don’t necessarily have a lot of assets and even have a lot of debt, you can get them going much farther, much faster,” Grabot says. “That is a big objective in what we are doing.”

Both versions of the app use the same back-end technology. The main difference between the two tiers is the degree of personalization when it comes to getting answers to financial questions.

“In the retirement plan space, we frequently don’t have automatic access to an individual’s whole picture,” Grabot says. “Perhaps we just have your current retirement plan information and some information about your other retirement plans. In that situation, we won’t be able to know whether, for example, you could afford to increase your savings, or if another approach is better.”

The paid advice version of the platform takes a deeper look at the person’s financial picture, Grabot says. If that user can’t afford an additional 5% in savings necessary to reach their goal, the app won’t make that recommendation. Instead, she says, it will offer trade-offs, perhaps recommending a more affordable 2% increase and a delay in the retirement age from 65 to 66.

To Grabot, “wealth management” means considering a user’s full financial picture and providing them with advice on how to manage their money. She notes that 3Nickels uses simulation technology—and a lot of math—to analyze the optimal path forward for users.

“We understand personal values are a huge component of the equation, and we are not trying to eliminate your values. What we are trying to do is give you a direction, and then you can modify the results based on your values,” Grabot says.

She says clients using the app have experienced greater levels of confidence in their personal financial lives. After using the app, many users start to realize that their financial situation isn’t as bleak as they might have thought, she notes. For example, many people have put off the task of budgeting because they mistakenly believe they can’t control their spending or that they don’t earn enough to feel more financially stable.

“One thing we are trying to accomplish is to show people that they have a lot more control than they might realize on their own,” Grabot says. “There are a lot of things you can do, in little micro steps, that will get you to where you want to go over the long term. With the advice side of the app, we are tracking it all and making sure that you are on track. If a person slips off track, that’s okay—we can re-track.”

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