End of Year Compliance Items – Part 2

January 02, 2006

This is the second entry in a series of blogs RIA Compliance Consultants is posting concerning annual compliance requirements and end of year filings. While we are trying to touch upon the items that all advisor firms are required to complete, it is important that you refer to your regulatory authority to ensure you have an all inclusive list of the requirements your firm must meet. If your firm has questions or concerns about one of the items listed in this entry, please give us a call to discuss how we can help your firm meet its regulatory obligations.

Financial Statements – If your advisor firm is registered with one or more states, you may be required to submit certain financial statements to the state regulators on an annual basis. Many states have certain net worth or net capital requirements. Some states also have surety bond requirements. Most states that have these provisions require advisor firms to substantiate they are in compliance with the rules by submitting financial statements. In some cases the financial statements must be submitted at the end of the firm’s fiscal year and in some states the financial records must be submitted at the end of the calendar year. In addition to any forms the firm may have to submit directly to regulators, it is essential the firm has updated all of its financial records under the regulatory books and records requirements. This is true for state and SEC registered advisor firms.

Form ADV Annual Amendment – The SEC and almost all states require advisor firms to amend their Form ADV on at least an annual basis in the form of an Annual Amendment. The Annual Amendment must be completed within 90 days after an advisor firm’s fiscal year end. Since the majority of advisor firms coordinate their fiscal year end with the end of the calendar year, the Annual Amendment has become a requirement that must be completed at the beginning of each year for most firms. The main item that must be updated on the Annual Amendment is the firm’s assets under management. Other items such as, but not limited to, the number of accounts, clients, employees, and advisor representatives should also be updated. The Annual Amendment can also be used to disclose any material changes. Keep in mind, however, that material changes need to be disclosed within 30 days no matter when they take place. Material changes include items such as, but are not limited to, reportable disciplinary and financial disclosures, changes in advisory programs, changes in fee arrangements and changes in billing practices.

Outside Business Activities and other Form U4 Amendments – The end of the year is a great time to remind all employees and advisor representatives to officially disclose their outside business activities to the firm. The disclosure of outside business activities must be done for three important reasons. Those reasons are to ensure the individual’s Form U4 is current and up to date, ensure the firm’s Form ADV does not need to be amended due to an individual’s business activities, and finally, so the firm can determine if an individual’s outside activities are in conflict with the firm’s policies and in conflict with a client’s best interests. In addition to disclosing outside business activities, updating other items on the Form U4 must also be completed when those items are materially inaccurate.

Posted by Bryan Hill
Labels: Compliance Program, Financial Statements, Form ADV, Outside Business Activities