Did your Firm Renew for 2010? Don't Forget About Form ADV Annual Amendments
Now that we are into a new year, can you confirm your registered investment advisor and its advisor representatives were properly renewed for 2010? Every year there are always a handful of firms that fail to submit renewal fees through the IARD system in a timely fashion. Therefore, even if you think the renewal payment was sent in time, please make sure your firm retrieves the Final Renewal Statement and confirms it is renewed for calendar year 2010.
The Final Renewal Statement will indicate one of the following.
Paid in Full - If your firm's renewal statement has been paid in full, the renewal process is complete. You should print a copy of the Final Renewal Statement and file it with your firm's books and records.
Outstanding Balance Due or Refund - If your firm paid its Preliminary Renewal Statement in full, but added or removed a state registration or advisor representative during the time period between the posting of Preliminary Renewal Statements and the 2009 shut down period, then your firm will either have additional fees due or receive a credit. If additional fees are due, the fees should be submitted as soon as possible, but must be posted by February 5, 2010. If your firm received a refund, the credit will automatically be transferred to your firm's Daily Account.
Failed to Renew - If a firm's Final Renewal Statement indicates Failed to Renew, FINRA did not receive the total balance due on the Preliminary Renewal Statement prior to the December deadline. In these cases, it is standard operating procedure for FINRA to automatically terminate all advisor representatives of the firm. In addition, over thirty states have given FINRA the authority to automatically terminate a registered investment advisor that does not pay its renewal fees in full. If your firm's statement indicates Failed to Renew, you will need to contact each state jurisdiction immediately to determine an appropriate course of action.
It is important to make sure your registered investment advisor submits all required documentation directly to the states where the firm is registered. If your firm failed to renew through IARD, it is important to take immediate action to rectify the situation. Give us a call to find out more about our re- registration services and pricing.
In addition to confirming your firm's registration renewal for 2010, we would like to remind registered investment advisors of their responsibility to prepare and file their Form ADV Part 1 Annual Amendment. The Annual Amendment must be filed no later than 90 days after a registered investment advisor firm's fiscal year ends. Many registered investment advisors use December 31 as their fiscal year end which results in a March 30, 2010 deadline to submit the Annual Amendment through the IARD system. The Annual Amendment is used to update information such as number of clients, number of accounts, and assets under management. We recommend registered investment advisors closely review the entire Form ADV to confirm all information is correct.
SEC registered firms should be aware that the SEC and FINRA have reinstated the annual IARD Firm System Processing Fee. The fee is assessed for the electronic filing of forms on the IARD system. The IARD Firm System Processing Fee is separate from applicable state Notice Filing fees. It must be paid by SEC registered firm when filing the Annual Amendment. Firms can begin working on the Annual Amendment, but will need to fund their IARD Daily Account before they can submit the Annual Amendment.
Please refer to the following schedule to determine your firm's annual fee and submit payment to your firm's IARD Daily Account. Be sure to fund the Daily Account; do not fund the Renewal Account: (a) for assets under management of less than $25 million, there's a fee of $40; (b) for assets under management between $25 million and $100 million, there's a fee of $150; and (c) for assets under management over $100 million, there's a fee of $200.
Please contact RIA Compliance Consultants, Inc. if you are interested in our Form ADV Annual Amendment services. We would also like to invite you to attend our upcoming webinar on January 14, "Preparing the Form ADV Part 1 Annual Amendment". The registration fee for our webinar is $59.95. During this webinar, RIA Compliance Consultants will discuss the items that must be updated as part of the Form ADV Part 1 Annual Amendment including how securities regulators expect a registered investment advisor to calculate assets under management. In addition, we will review common mistakes when preparing the Form ADV Part 1 Annual Amendment. Finally, we will cover some common examples of material changes that should have been updated to your Form ADV during the past year.
The Final Renewal Statement will indicate one of the following.
Paid in Full - If your firm's renewal statement has been paid in full, the renewal process is complete. You should print a copy of the Final Renewal Statement and file it with your firm's books and records.
Outstanding Balance Due or Refund - If your firm paid its Preliminary Renewal Statement in full, but added or removed a state registration or advisor representative during the time period between the posting of Preliminary Renewal Statements and the 2009 shut down period, then your firm will either have additional fees due or receive a credit. If additional fees are due, the fees should be submitted as soon as possible, but must be posted by February 5, 2010. If your firm received a refund, the credit will automatically be transferred to your firm's Daily Account.
Failed to Renew - If a firm's Final Renewal Statement indicates Failed to Renew, FINRA did not receive the total balance due on the Preliminary Renewal Statement prior to the December deadline. In these cases, it is standard operating procedure for FINRA to automatically terminate all advisor representatives of the firm. In addition, over thirty states have given FINRA the authority to automatically terminate a registered investment advisor that does not pay its renewal fees in full. If your firm's statement indicates Failed to Renew, you will need to contact each state jurisdiction immediately to determine an appropriate course of action.
It is important to make sure your registered investment advisor submits all required documentation directly to the states where the firm is registered. If your firm failed to renew through IARD, it is important to take immediate action to rectify the situation. Give us a call to find out more about our re- registration services and pricing.
In addition to confirming your firm's registration renewal for 2010, we would like to remind registered investment advisors of their responsibility to prepare and file their Form ADV Part 1 Annual Amendment. The Annual Amendment must be filed no later than 90 days after a registered investment advisor firm's fiscal year ends. Many registered investment advisors use December 31 as their fiscal year end which results in a March 30, 2010 deadline to submit the Annual Amendment through the IARD system. The Annual Amendment is used to update information such as number of clients, number of accounts, and assets under management. We recommend registered investment advisors closely review the entire Form ADV to confirm all information is correct.
SEC registered firms should be aware that the SEC and FINRA have reinstated the annual IARD Firm System Processing Fee. The fee is assessed for the electronic filing of forms on the IARD system. The IARD Firm System Processing Fee is separate from applicable state Notice Filing fees. It must be paid by SEC registered firm when filing the Annual Amendment. Firms can begin working on the Annual Amendment, but will need to fund their IARD Daily Account before they can submit the Annual Amendment.
Please refer to the following schedule to determine your firm's annual fee and submit payment to your firm's IARD Daily Account. Be sure to fund the Daily Account; do not fund the Renewal Account: (a) for assets under management of less than $25 million, there's a fee of $40; (b) for assets under management between $25 million and $100 million, there's a fee of $150; and (c) for assets under management over $100 million, there's a fee of $200.
Please contact RIA Compliance Consultants, Inc. if you are interested in our Form ADV Annual Amendment services. We would also like to invite you to attend our upcoming webinar on January 14, "Preparing the Form ADV Part 1 Annual Amendment". The registration fee for our webinar is $59.95. During this webinar, RIA Compliance Consultants will discuss the items that must be updated as part of the Form ADV Part 1 Annual Amendment including how securities regulators expect a registered investment advisor to calculate assets under management. In addition, we will review common mistakes when preparing the Form ADV Part 1 Annual Amendment. Finally, we will cover some common examples of material changes that should have been updated to your Form ADV during the past year.
Labels: Annual Amendment, Form ADV, IARD
posted by bhill at 9:35 AM
2010 IARD Renewal & Form ADV Annual Amendment Requirements
Beginning Monday, November 16, 2009, registered investment advisor firms can access their 2010 Preliminary Renewal Statements via their IARD account. The Preliminary Renewal Statement must be paid, in full, by Friday, December 11, 2009. Because it takes approximately two days for payment to post to the IARD account, the funds should arrive no later than Wednesday, December 09, 2009, to ensure the money is posted to your IARD account by December 11.
RIA Compliance Consultants also wants to remind registered investment advisor firms of their obligation to update Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under U.S. Securities and Exchange Commission ("SEC") Rule 204-1 of the Investment Advisers Act of 1940 and similar rules of state securities regulators. The Form ADV Annual Amendment must be completed within 90 days after a registered investment advisor firm's fiscal year end. Since the majority of investment advisor firms coordinate their fiscal year end with the end of the calendar year, the Form ADV Annual Amendment has become a requirement that must be completed at the beginning of each year for most advisor firms. The main item that must be updated on the Form ADV Annual Amendment is the investment advisor firm's assets under management. Other items such as, but not limited to, the number of accounts, clients, employees, and investment advisor representatives ("IARs") should also be updated. The Form ADV 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 contact information, changes to custody disclosures and changes due to successions and ownership arrangements.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $450, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2010. You will also receive an Annual Amendment Questionnaire for you to complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary time frame.
Engagements received by RIA Compliance Consultants after November 16 are subject to availability so complete and return the Agreement for Services today! Click below to view the Consulting Agreement for IARD Renewal and Annual Amendment Services.
*If you are an existing hourly retainer client of RIA Compliance Consultants, you do not need to complete the Agreement for Services. Simply contact your lead consultant to sign-up for this service.
**If you are an annual retainer client of RIA Compliance Consultants, this service is included in your retainer agreement. To learn more about our retainer services and fees, please contact us at 877-345-4034.
IARD%20Renewal.Annual%20Amendment.2010.pdf
RIA Compliance Consultants also wants to remind registered investment advisor firms of their obligation to update Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under U.S. Securities and Exchange Commission ("SEC") Rule 204-1 of the Investment Advisers Act of 1940 and similar rules of state securities regulators. The Form ADV Annual Amendment must be completed within 90 days after a registered investment advisor firm's fiscal year end. Since the majority of investment advisor firms coordinate their fiscal year end with the end of the calendar year, the Form ADV Annual Amendment has become a requirement that must be completed at the beginning of each year for most advisor firms. The main item that must be updated on the Form ADV Annual Amendment is the investment advisor firm's assets under management. Other items such as, but not limited to, the number of accounts, clients, employees, and investment advisor representatives ("IARs") should also be updated. The Form ADV 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 contact information, changes to custody disclosures and changes due to successions and ownership arrangements.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $450, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2010. You will also receive an Annual Amendment Questionnaire for you to complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary time frame.
Engagements received by RIA Compliance Consultants after November 16 are subject to availability so complete and return the Agreement for Services today! Click below to view the Consulting Agreement for IARD Renewal and Annual Amendment Services.
*If you are an existing hourly retainer client of RIA Compliance Consultants, you do not need to complete the Agreement for Services. Simply contact your lead consultant to sign-up for this service.
**If you are an annual retainer client of RIA Compliance Consultants, this service is included in your retainer agreement. To learn more about our retainer services and fees, please contact us at 877-345-4034.
IARD%20Renewal.Annual%20Amendment.2010.pdf
Labels: Annual Amendment, Form ADV, IAR Licensing, IARD, Renewals
posted by bhill at 8:24 PM
Registered Investment Advisors Need to Monitor Outside Business Activities of Investment Advisor Representatives
The establishment of policies and procedures designed to monitor the outside business activities ("OBAs") of supervised persons (i.e. officers, directors, partners, investment advisor representatives, and employees) should be part of every registered investment advisor firm's written compliance programs. RIA Compliance Consultants, Inc. suggests that some type of "outside business activities form" be created and all supervised persons be required to complete the form on an annual basis and whenever changes are needed. A supervised person should disclose and seek approval of an outside business activity prior to engaging in the activity.
There are two important regulatory reasons for monitoring outside business activities: (a) Form ADV disclosure purposes, and (b) Form U4 disclosure purposes. A registered investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of Form ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of Form ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7.C. of the Form ADV Part II may require the registered investment advisor firm to provide a description of the supervised person's outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, investment advisor representatives ("IARs") must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is the investment advisor representative's ultimate responsibility to keep the Form U4 current and complete, particularly his/her employment and other business background.
Registered investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change.
Jarrod James, Vice President of RIA Compliance Consultants, will be the featured speaker during our webinar, "Addressing Outside Business Activities and Conflicts of Interest," on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95:
www.RIA-Compliance-Consultants.com/webinars.
There are two important regulatory reasons for monitoring outside business activities: (a) Form ADV disclosure purposes, and (b) Form U4 disclosure purposes. A registered investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of Form ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of Form ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7.C. of the Form ADV Part II may require the registered investment advisor firm to provide a description of the supervised person's outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, investment advisor representatives ("IARs") must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is the investment advisor representative's ultimate responsibility to keep the Form U4 current and complete, particularly his/her employment and other business background.
Registered investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change.
Jarrod James, Vice President of RIA Compliance Consultants, will be the featured speaker during our webinar, "Addressing Outside Business Activities and Conflicts of Interest," on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95:
www.RIA-Compliance-Consultants.com/webinars.
Labels: Form ADV, IAR Licensing, Outside Business Activities, Webinar
posted by bhill at 6:17 PM
Did your Firm Renew for 2009? Don’t Forget About Form ADV Annual Amendments
Now that we are into a new year, can you confirm your registered investment advisor and its advisor representatives were properly renewed for 2009? Every year there are always a handful of firms that fail to submit renewal fees through the IARD system in a timely fashion. Therefore, even if you think the renewal payment was sent in time, please make sure your firm retrieves the Final Renewal Statement and confirms it is renewed for calendar year 2009.
The Final Renewal Statement will indicate one of the following.
1. Paid in Full - If your firm's renewal statement has been paid in full, the renewal process is complete. You should print a copy of the Final Renewal Statement and file it with your firm's books and records.
2. Outstanding Balance Due or Refund - If your firm paid its Preliminary Renewal Statement in full, but added or removed a state registration or advisor representative during the time period between the posting of Preliminary Renewal Statements and the 2008 shut down period, then your firm will either have additional fees due or receive a credit. If additional fees are due, the fees should be submitted as soon as possible, but must be posted by February 4, 2009. If your firm received a refund, the credit will automatically be transferred to your firm's Daily Account.
3. Failed to Renew - If a firm's Final Renewal Statement indicates Failed to Renew, FINRA did not receive the total balance due on the Preliminary Renewal Statement prior to the December deadline. In these cases, it is standard operating procedure for FINRA to automatically terminate all advisor representatives of the firm. In addition, over thirty states have given FINRA the authority to automatically terminate a registered investment advisor that does not pay its renewal fees in full. If your firm's statement indicates Failed to Renew, you will need to contact each state jurisdiction immediately to determine an appropriate course of action.
Finally, it is important to make sure your registered investment advisor submits all required documentation directly to the states where the firm is registered.
If your firm failed to renew through IARD, it is important to take immediate action to rectify the situation. Give us a call to find out more about our re-registration services and pricing.
In addition to confirming your firm’s registration renewal for 2009, we would like to remind registered investment advisors of their responsibility to prepare and file their Form ADV Part 1 Annual Amendment. The Annual Amendment must be filed no later than 90 days after a registered investment advisor firm’s fiscal year ends. Many registered investment advisors use December 31 as their fiscal year end which results in a March 31, 2009 deadline to submit the Annual Amendment through the IARD system. The Annual Amendment is used to update information such as number of clients, number of accounts, and assets under management. We recommend registered investment advisors closely review the entire Form ADV to confirm all information is correct.
Please contact RIA Compliance Consultants, Inc. if you are interested in our Form ADV Annual Amendment services. We would also like to invite you to attend our upcoming webinar on January 15, “Preparing the Form ADV Part 1 Annual Amendment”. The registration fee for our webinar is $59.95. During this webinar, RIA Compliance Consultants will discuss the items that must be updated as part of the Form ADV Part 1 Annual Amendment including how securities regulators expect a registered investment advisor to calculate assets under management. In addition, we will review common mistakes when preparing the Form ADV Part 1 Annual Amendment. Finally, we will cover some common examples of material changes that should have been updated to your Form ADV during the past year.
The Final Renewal Statement will indicate one of the following.
1. Paid in Full - If your firm's renewal statement has been paid in full, the renewal process is complete. You should print a copy of the Final Renewal Statement and file it with your firm's books and records.
2. Outstanding Balance Due or Refund - If your firm paid its Preliminary Renewal Statement in full, but added or removed a state registration or advisor representative during the time period between the posting of Preliminary Renewal Statements and the 2008 shut down period, then your firm will either have additional fees due or receive a credit. If additional fees are due, the fees should be submitted as soon as possible, but must be posted by February 4, 2009. If your firm received a refund, the credit will automatically be transferred to your firm's Daily Account.
3. Failed to Renew - If a firm's Final Renewal Statement indicates Failed to Renew, FINRA did not receive the total balance due on the Preliminary Renewal Statement prior to the December deadline. In these cases, it is standard operating procedure for FINRA to automatically terminate all advisor representatives of the firm. In addition, over thirty states have given FINRA the authority to automatically terminate a registered investment advisor that does not pay its renewal fees in full. If your firm's statement indicates Failed to Renew, you will need to contact each state jurisdiction immediately to determine an appropriate course of action.
Finally, it is important to make sure your registered investment advisor submits all required documentation directly to the states where the firm is registered.
If your firm failed to renew through IARD, it is important to take immediate action to rectify the situation. Give us a call to find out more about our re-registration services and pricing.
In addition to confirming your firm’s registration renewal for 2009, we would like to remind registered investment advisors of their responsibility to prepare and file their Form ADV Part 1 Annual Amendment. The Annual Amendment must be filed no later than 90 days after a registered investment advisor firm’s fiscal year ends. Many registered investment advisors use December 31 as their fiscal year end which results in a March 31, 2009 deadline to submit the Annual Amendment through the IARD system. The Annual Amendment is used to update information such as number of clients, number of accounts, and assets under management. We recommend registered investment advisors closely review the entire Form ADV to confirm all information is correct.
Please contact RIA Compliance Consultants, Inc. if you are interested in our Form ADV Annual Amendment services. We would also like to invite you to attend our upcoming webinar on January 15, “Preparing the Form ADV Part 1 Annual Amendment”. The registration fee for our webinar is $59.95. During this webinar, RIA Compliance Consultants will discuss the items that must be updated as part of the Form ADV Part 1 Annual Amendment including how securities regulators expect a registered investment advisor to calculate assets under management. In addition, we will review common mistakes when preparing the Form ADV Part 1 Annual Amendment. Finally, we will cover some common examples of material changes that should have been updated to your Form ADV during the past year.
Labels: Annual Amendment, Form ADV
posted by bhill at 10:16 AM
2009 IARD Annual Renewal and Form ADV Annual Amendment Requirements
Beginning Monday, November 10, 2008, investment advisor firms can access their 2009 Preliminary Renewal Statements via their IARD account. The Preliminary Renewal Statement must be paid, in full, by Friday, December 12, 2008. Because it takes approximately two days for payment to post to the IARD account, the funds should arrive no later than Wednesday, December 10, 2008, to ensure the money is posted to your IARD account by the 12th.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $450, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2009. You will also receive an Annual Amendment Questionnaire for you to complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Engagements received after November 15 are subject to availability so complete and return the Agreement for Services today! Click here to view the Agreement for Services.
*If you are an existing RIA Compliance Consultants hourly retainer client, you do not need to complete the Agreement for Services. Simply contact your lead consultant to sign-up for this service.
**If you are an RIA Compliance Consultants annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees, please contact us at 877-345-4034.
Labels: Annual Amendment, Form ADV, IAR Licensing, IARD, Renewals
posted by bhill at 10:54 AM
Proposed New Form ADV Part 2 – Table of Contents and Index Required
According to the proposed new Form ADV Part 2 rule, registered investment advisors will be required to insert a table of contents at the beginning of their brochures and an index at the end of their brochures.
In the proposing rule releaseoffered earlier this year for consideration by the U.S. Securities and Exchange Commission ("SEC"), the SEC stated that registered investment advisors need to provide a table of contents detailed enough to provide clients and prospective clients the ability to locate topics easily. However, the SEC has not settled on whether or not it will require a specific format for the table of contents. In the proposed rule, the SEC appears to be leaning towards allowing investment advisors the ability to develop their own format and method for the table of contents. The reason to allow registered investment advisors the ability to adopt their own table of contents format is that there is a wide variety of registered investment advisors and it may be impractical to develop a uniform method. On the other hand, there are those within the industry that believe a uniform method would allow clients and potential clients to more easily compare multiple investment advisors. A uniform method is used for the current Form ADV Part II and Schedule F.
In addition to a table of contents, brochures filed with regulators through the Investment Adviser Registration Depository (IARD) will be required to include an index of the items required by the new Form ADV Part 2 instructions. The index must indicate where in the brochure the registered investment advisor addresses each item. The index is intended to help facilitate reviews by regulators to ensure requirements of the new Part 2A are met. Registered investment advisors will not be required to insert the index into brochures that are provided to clients and prospective clients.
As with every other item in the proposing rule release, the requirement to include a table of contents and index is open to further discussion. Therefore, registered investment advisors will not know for sure if they must include a table of contents and/or index until the final rule is released. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2.
If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Labels: ADV Part 2, Form ADV
posted by bhill at 4:25 PM
Proposed New Form ADV Part 2A Will Require a “Material Changes” Page
According to the proposed new Form ADV Part 2 rule offered earlier this year for consideration by the U.S. Securities and Exchange Commission ("SEC"), registered investment advisors will be required to insert a Material Changes page at the beginning of their brochures. Material changes could be summarized on the Cover Page of the brochure or could be included on a separate Material Changes page which would appear immediately after the Cover Page and before the Table of Contents. A third alternative will be to include a separate communication that would accompany the brochure.
Because the purpose of this requirement is to highlight changes made to prior brochures, registered investment advisors will not need to include a summary of material changes in the first versions of their brochures.
The SEC’s intention with a Material Changes page is for registered investment advisors to provide clients and prospective clients with a summary of any and all material changes to the registered investment advisor’s brochure since the last annual update. The SEC believes that this requirement will help clients identify information that has changed since the prior year’s brochure, especially changes that may be important to clients.
As with all items in the proposing rule release, the requirement to include a summary of material changes has not been finalized and is still under consideration. Therefore, registered investment advisors will not know for sure if they must include a summary of material changes until the final rule is released. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Because the purpose of this requirement is to highlight changes made to prior brochures, registered investment advisors will not need to include a summary of material changes in the first versions of their brochures.
The SEC’s intention with a Material Changes page is for registered investment advisors to provide clients and prospective clients with a summary of any and all material changes to the registered investment advisor’s brochure since the last annual update. The SEC believes that this requirement will help clients identify information that has changed since the prior year’s brochure, especially changes that may be important to clients.
As with all items in the proposing rule release, the requirement to include a summary of material changes has not been finalized and is still under consideration. Therefore, registered investment advisors will not know for sure if they must include a summary of material changes until the final rule is released. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Labels: ADV Part 2, Form ADV
posted by bhill at 4:23 PM
Proposed New Form ADV Part 2 Must Be Delivered to All Clients on Annual Basis
The new Form ADV Part 2 proposal outlines numerous changes regarding additional and more detailed disclosures of a registered investment advisor’s services, conflicts of interests and material arrangements. However, the most significant new requirement under the proposed rule may be an administrative one.
Currently, the U.S. Securities and Exchange Commission ("SEC ") and state registered investment advisors must offer their disclosure brochures to all clients at least annually. This annual offer requirement is typically provided along with other annual disclosures made by a registered investment advisor or is made by delivering an annual offer letter. Registered investment advisors are not required currently to provide a complete copy of the disclosure brochure as long as they inform all clients that the current disclosure brochure is available upon request. If a client requests a copy of the current disclosure brochure, the registered investment advisor must ensure the client receives a copy not later than seven days after the request is made.
Assuming the new Form ADV Part 2 rule is approved by the SEC as proposed, simply offering the disclosure brochure will not be sufficient. According to the proposed amendments, registered investment advisors will be required to deliver their current disclosure brochure to all existing clients at least once each year no later than 120 days after the end of the registered investment advisor’s fiscal year. Thus, clients would receive an updated disclosure brochure about the same time each year (identifying changes from the previous year’s disclosure brochure) shortly after the date by which registered investment advisors are already required to file their Form ADV Part 1 Annual Amendments.
The SEC is also proposing to require registered investment advisors to deliver an interim update to clients when the registered investment advisor amends its brochure to add a disciplinary event required to be disclosed under the Form ADV Part 2 instructions or to materially change information already disclosed for a disciplinary event. The SEC has stated that such circumstances warrant a formal delivery requirement because of the importance of disciplinary information to clients. According to the SEC, disciplinary information is more likely to reflect directly upon a registered investment advisor’s integrity and may affect a client’s trust and confidence in the registered investment advisor.
As with some of the other items in the proposing rule release, the requirement to annually deliver a complete copy of the brochure has generated some negative reaction and become fairly controversial. However, after reading many of the industry comment letters regarding the new Part 2 written to the SEC, RIA Compliance Consultants believes the annual delivery requirement will be included in the final rule. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Currently, the U.S. Securities and Exchange Commission ("SEC ") and state registered investment advisors must offer their disclosure brochures to all clients at least annually. This annual offer requirement is typically provided along with other annual disclosures made by a registered investment advisor or is made by delivering an annual offer letter. Registered investment advisors are not required currently to provide a complete copy of the disclosure brochure as long as they inform all clients that the current disclosure brochure is available upon request. If a client requests a copy of the current disclosure brochure, the registered investment advisor must ensure the client receives a copy not later than seven days after the request is made.
Assuming the new Form ADV Part 2 rule is approved by the SEC as proposed, simply offering the disclosure brochure will not be sufficient. According to the proposed amendments, registered investment advisors will be required to deliver their current disclosure brochure to all existing clients at least once each year no later than 120 days after the end of the registered investment advisor’s fiscal year. Thus, clients would receive an updated disclosure brochure about the same time each year (identifying changes from the previous year’s disclosure brochure) shortly after the date by which registered investment advisors are already required to file their Form ADV Part 1 Annual Amendments.
The SEC is also proposing to require registered investment advisors to deliver an interim update to clients when the registered investment advisor amends its brochure to add a disciplinary event required to be disclosed under the Form ADV Part 2 instructions or to materially change information already disclosed for a disciplinary event. The SEC has stated that such circumstances warrant a formal delivery requirement because of the importance of disciplinary information to clients. According to the SEC, disciplinary information is more likely to reflect directly upon a registered investment advisor’s integrity and may affect a client’s trust and confidence in the registered investment advisor.
As with some of the other items in the proposing rule release, the requirement to annually deliver a complete copy of the brochure has generated some negative reaction and become fairly controversial. However, after reading many of the industry comment letters regarding the new Part 2 written to the SEC, RIA Compliance Consultants believes the annual delivery requirement will be included in the final rule. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Labels: ADV Part 2, Form ADV
posted by bhill at 4:15 PM
Understanding the SEC's Proposed New Form ADV Part 2 - Complimentary Webinar
Join us for a webinar, Understanding the SEC's Proposed New Form ADV Part 2, on Thursday, September 25. Reserve your complimentary webinar seat now by clicking here.
Take the opportunity to better understand the details of the SEC's proposed new Form ADV Part 2 by attending a complimentary webinar, Understanding the SEC's Proposed New Form ADV Part 2, hosted by RIA Compliance Consultants on Thursday, September 25, 2008 from 12:00 p.m. to 1:00 p.m. CST.
As you may know, in March 2008 the U.S. Securities and Exchange Commission ("SEC") proposed material changes to the disclosure and format requirements of the Form ADV Part 2 for a registered investment adviser. The SEC received numerous comments regarding its proposal this spring and could take action in the near future. If the SEC adopts the proposed new Form ADV Part 2 in whole or part, it undoubtedly will take a significant amount of effort by a registered investment adviser over relatively short amount time to meet the proposed requirements. However, an investment adviser can start to prepare for this possible regulatory change by taking the time now to more fully understand the likely changes and impact of the proposed new Form ADV Part 2.
During this complimentary webinar, RIA Compliance Consultants will review in detail the new Form ADV Part 2 disclosure requirements proposed by the SEC as compared to the current requirements. Additionally, RIA Compliance Consultants will discuss the controversial aspects and potentially unintended consequences of the proposed new Form ADV.
Please here if would you like to attend this complimentary webinar, Understanding the SEC's Proposed New Form ADV Part 2, hosted by RIA Compliance Consultants. For more information about this webinar, you may also call Annie Dilocker at 877-345-4034.
Take the opportunity to better understand the details of the SEC's proposed new Form ADV Part 2 by attending a complimentary webinar, Understanding the SEC's Proposed New Form ADV Part 2, hosted by RIA Compliance Consultants on Thursday, September 25, 2008 from 12:00 p.m. to 1:00 p.m. CST.
As you may know, in March 2008 the U.S. Securities and Exchange Commission ("SEC") proposed material changes to the disclosure and format requirements of the Form ADV Part 2 for a registered investment adviser. The SEC received numerous comments regarding its proposal this spring and could take action in the near future. If the SEC adopts the proposed new Form ADV Part 2 in whole or part, it undoubtedly will take a significant amount of effort by a registered investment adviser over relatively short amount time to meet the proposed requirements. However, an investment adviser can start to prepare for this possible regulatory change by taking the time now to more fully understand the likely changes and impact of the proposed new Form ADV Part 2.
During this complimentary webinar, RIA Compliance Consultants will review in detail the new Form ADV Part 2 disclosure requirements proposed by the SEC as compared to the current requirements. Additionally, RIA Compliance Consultants will discuss the controversial aspects and potentially unintended consequences of the proposed new Form ADV.
Please here if would you like to attend this complimentary webinar, Understanding the SEC's Proposed New Form ADV Part 2, hosted by RIA Compliance Consultants. For more information about this webinar, you may also call Annie Dilocker at 877-345-4034.
- Title: Understanding the SEC's Proposed New Form
- Date: Thursday, September 25, 2008
- PC-Based Attendees Require Windows® 2000, XP Home, XP Pro, 2003 Server, or Vista
- Macintosh®-Based Attendees Require Mac OS®
Labels: Form ADV
posted by bhill at 12:18 PM
Are You Ready for the Proposed New Form ADV Part 2?
As required under SEC Rule 204-3 under the Investment Advisers Act of 1940 and similar state securities rules, a registered investment advisor is required to provide all clients with a disclosure brochure. In order to comply with this rule, registered investment advisors may provide a copy of their Form ADV Part II or may provide a separate disclosure brochure that contains the same information required in the Form ADV Part II. The current Form ADV Part II is constructed in a check-the-box format that requires registered investment advisors to answer all questions and provide additional information on the Schedule F.
In March of this year, the SEC released proposed changes to the so-called new Form ADV Part 2 that, when passed, will dramatically change how registered investment advisors prepare and complete their client disclosure brochures. According to the proposal, the new Part 2 will not be prepared in a check-the-box format. The new Form ADV Part 2 instructions will consist of a series of items that contain disclosure requirements for preparing the disclosure brochure. The items will require narrative responses. Registered investment advisors may omit responses to the items that do not apply to their business. Investment advisor firms do not need to provide responses in the same order as the items appear and disclosures should not be repeated in the brochure. In other words, a disclosure brochure will not need to repeat information simply because the information is responsive to more than one item. The new Form ADV Part 2 general instructions will require registered investment advisors to write their brochures in plain English.
One of the main purposes of an investment advisor’s disclosure brochure is to provide detailed descriptions of real conflicts of interest, potential conflicts of interest and material arrangements a registered investment advisor has with affiliated and unaffiliated companies. However, many registered investment advisors fail to adequately provide all necessary information and sufficiently describe all conflicts of interests. One reason for this is that many registered investment advisors simply answer the questions listed on the current Part II instructions. Those current instructions do not explicitly require the disclosure of all conflicts of interest and all material arrangements. Upon passage of the new Form ADV Part 2 rule, there will be no excuses for not disclosing all conflicts of interest.
According, to the SEC’s proposed General Instructions for Part 2 of Form ADV, Item 3 states the following:
The new Form ADV Part 2 will require registered investment advisors to go above and beyond simply disclosing conflicts of interest. Disclosures must state why a certain arrangement is a real or potential conflict of interest and what the registered investment advisor does to control for the real or potential conflict of interest.
Further, Item 4 of the General Instructions state “all information in your brochure and brochure supplements must be true and may not omit any material facts.”
RIA Compliance Consultants strongly encourages all registered investment advisors to read the entire Form ADV Part 2 proposal which can be viewed by clicking here.
It is important to note that the new Form ADV Part 2 and the issues discussed in this article have only been proposed. Therefore, the registered investment advisor industry will not know for sure what will be required in order to comply with the new Form ADV Part 2 until the final rule is released. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
In March of this year, the SEC released proposed changes to the so-called new Form ADV Part 2 that, when passed, will dramatically change how registered investment advisors prepare and complete their client disclosure brochures. According to the proposal, the new Part 2 will not be prepared in a check-the-box format. The new Form ADV Part 2 instructions will consist of a series of items that contain disclosure requirements for preparing the disclosure brochure. The items will require narrative responses. Registered investment advisors may omit responses to the items that do not apply to their business. Investment advisor firms do not need to provide responses in the same order as the items appear and disclosures should not be repeated in the brochure. In other words, a disclosure brochure will not need to repeat information simply because the information is responsive to more than one item. The new Form ADV Part 2 general instructions will require registered investment advisors to write their brochures in plain English.
One of the main purposes of an investment advisor’s disclosure brochure is to provide detailed descriptions of real conflicts of interest, potential conflicts of interest and material arrangements a registered investment advisor has with affiliated and unaffiliated companies. However, many registered investment advisors fail to adequately provide all necessary information and sufficiently describe all conflicts of interests. One reason for this is that many registered investment advisors simply answer the questions listed on the current Part II instructions. Those current instructions do not explicitly require the disclosure of all conflicts of interest and all material arrangements. Upon passage of the new Form ADV Part 2 rule, there will be no excuses for not disclosing all conflicts of interest.
According, to the SEC’s proposed General Instructions for Part 2 of Form ADV, Item 3 states the following:
Under federal and state law, you [a registered investment advisor] are a fiduciary required to make full disclosure to your clients of all material facts, including conflicts of interest between you and your client and any other material information that could affect the advisory relationship. You therefore may have to disclose to clients information not specifically required by Part 2 of Form ADV. You may disclose this additional information to clients in your brochure or by some other means.
The new Form ADV Part 2 will require registered investment advisors to go above and beyond simply disclosing conflicts of interest. Disclosures must state why a certain arrangement is a real or potential conflict of interest and what the registered investment advisor does to control for the real or potential conflict of interest.
Further, Item 4 of the General Instructions state “all information in your brochure and brochure supplements must be true and may not omit any material facts.”
RIA Compliance Consultants strongly encourages all registered investment advisors to read the entire Form ADV Part 2 proposal which can be viewed by clicking here.
It is important to note that the new Form ADV Part 2 and the issues discussed in this article have only been proposed. Therefore, the registered investment advisor industry will not know for sure what will be required in order to comply with the new Form ADV Part 2 until the final rule is released. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Labels: Form ADV
posted by bhill at 11:30 AM
Summary of SEC's Newly Proposed Form ADV Part 2
RIA Compliance Consultants, Inc. intends to submit formal comments to the U.S. Securities and Exchange Commission ("SEC") regarding proposed changes to Part 2 of Form ADV. The “re-proposed” changes were announced earlier this month after an initial attempt to change Part 2 of Form ADV was made in 2000. RIA Compliance Consultants is encouraging registered investment advisers to read the proposed rule release and provide their own comments. Comments must be received by the SEC on or before May 16, 2008. The proposed rule release can be viewed on the SEC’s website at http://www.sec.gov/rules/proposed.shtml. Clients of RIA Compliance Consultants can also forward their comments to us for inclusion into our comment letter. Comments should be sent to RIA Compliance Consultants by April 30, 2008.
A. Form ADV – Registration and Disclosure Document. The Form ADV is the registration document for investment adviser firms registered with the SEC and state securities authorities. The new Part 1 of Form ADV has been in effect since 2001 and is filed electronically through the Investment Adviser Registration Depository (IARD). Part 1 is a “check-the-box” form and while made publicly available through the IARD system, investment advisers are typically not required to provide the Part 1 to clients. The current Part 2 is provided to clients and is considered an investment adviser’s disclosure brochure. The SEC’s amendments to the Part 2 are intended to require investment advisers to provide regulators and clients with a brochure written in plain English. The brochure must describe the investment adviser’s services, fees, business practices, and conflicts of interest.
The new Part 2 brochures will need to be filed through the IARD system in PDF format. Investment advisers will prepare and make changes to their brochures using their own computers and then simply submit versions of the brochure through IARD. Currently, the SEC provides a standard form that must be used when preparing the Part 2. Under the proposed rules, the SEC will just provide instructions to complete the brochure, but will not provide a standard form that must be used. According to the proposed rule release, the SEC will implement a transition schedule requiring investment advisers to comply with the new Part 2 requirements by the date they must make their next annual updating amendment to Form ADV following the date the revised form becomes effective. Under SEC rules, investment advisers must submit an annual updating amendment within ninety (90) days after their fiscal year ends. However, investment advisers would not be required to comply with the new requirements no earlier than six (6) months after the rules become effective. State registered investment advisers will need to comply with the applicable state authority transition schedules.
B. Form ADV – Brochure Delivery Requirements. Proposed changes would also require investment advisers deliver a copy of the brochure within 120 days after the firm’s fiscal-year end. Currently, investment advisers are required to “offer” the brochure and the timing can be decided by the investment adviser as long as it is consistent from year to year.
According to Jarrod James, Senior Compliance Consultant of RIA Compliance Consultants, “the annual delivery requirements will be an additional burden for investment advisers that do not currently have similar procedures. However, the SEC originally proposed delivery requirements any time a material change is made. The SEC is seeking a middle ground on this issue by only requiring an annual delivery. It should be noted however, that an investment adviser’s fiduciary duty may require it to deliver updated brochures if there are material changes throughout the year.”
The SEC is also proposing changes to the timing of the initial delivery requirements to clients. Currently, investment advisers need to provide the brochure to clients at least 48 hours prior to entering into a contract with a client or at the time the contact is entered into. If the brochure is provided at the time the contract is signed, investment adviser’s must provide clients a five (5) day “free look” period whereby the client can cancel the contract without penalty. Under the proposed rules, the investment adviser would provide the brochure at or before the contract is signed and does not need to provide a “free look” period.
C. Form ADV – New Part 2. “The SEC should be commended for proposing updates to the new Part 2,” according to Tammy Emsick, Senior Compliance Consultant of RIA Compliance Consultants. “Changes are needed and long overdue. However, complying with the new rules will not be easy. Investment advisers are going to need to take time to fully understand new questions required which will also mean correctly interpreting the SEC’s intent for changing existing Part 2.”
The SEC has essentially overhauled the existing Part 2. No longer will the Part 2 contain questions in a check-the-box format. The new brochure will now entirely be a true brochure written in plain English. An outline of the proposed structure to the new Part 2 is provided below.
Item 1 – Cover Page. The brochure would have a cover page which must include a contact person and the firm’s website, if one has been created for public consumption.
Item 2 – Material Changes. The brochure would need to provide a summary of any material changes since the last update of the brochure. This is a significant change and may be viewed by investment advisers as burdensome.
Item 3 – Table of Contents. The brochure must have a table of contents. The SEC is not providing a standard table of contents and is leaving the construction of the table of contents to the discretion of the investment adviser.
Item 4 – Advisory Business. Among other things, an investment adviser must provide a description of its advisory business and describe if it specializes in any type of service. The SEC would allow instruct investment advisers to disclose the amount client assets it manages. Investment advisers would not be required to use the asset under management methodology on Part 1, but instead could include assets not counted on Part 1.
Item 5 – Fees and Compensation. Similar to the existing Part 2, this item would require an investment adviser to describe how it is compensated for services and the types of other costs a client can expect to incur in connection with the investment adviser’s services (e.g. brokerage, custody fees, and fund expenses).
Item 6 – Performance Fees and Side-by-Side Management. This “new” item specifically requires firms to describe performance fees charged and conflicts of interest relating to such charges.
Item 7 – Types of Clients. Similar to the current Part 2, a description of the firm’s types of clients would be required.
Item 8 – Methods of Analysis, Investment Strategies and Risk of Loss. Similar to the existing Part 2, this section would require the investment adviser to describe its investment process and methodology. It would also require the firm to disclose to clients to potential risks associated with the investment adviser’s services.
Item 9 – Disciplinary Information. This section will require an investment adviser to disclose any legal or disciplinary event that is material to a client’s evaluation of the integrity of the investment adviser. Currently, investment advisers are required to provide written or oral disclosure to clients regarding these types of events under Rule 206(4)-4. According to the proposed changes, Rule 206(4)-4 will be rescinded and disclosure must be provided in the brochure. “The exact types of disciplinary events are still open for comment and consideration” according to Mr. James. “This proposal was controversial in 2000 and will likely prove to be controversial in 2008. I would think investment advisers with a reportable event on the Part 1 will have a special interest in this new requirement.”
Item 10 – Other Financial Industry Activities and Affiliations. Similar to the existing Part 2, material relationships or arrangements with related financial industry participants will need to be disclosed along with conflicts of interest regarding those relationships and how the adviser addresses the conflicts of interest.
Item 11 – Codes of Ethics, Participation or Interest in Client Transactions and Personal Trading. Similar to the existing Part 2, the new rule will require disclosure regarding the firm’s code of ethics, personal trading procedures, and conflicts regarding those procedures.
Item 12 – Brokerage Practices. Similar to the existing Part 2, this section will require the investment adviser to describe its brokerage arrangements. Specifically, soft dollar arrangements, client referrals from brokerage firms, trade aggregation, and client directed brokerage arrangements must be described.
Item 13 – Review of Accounts. Similar to the existing Part 2, this section would require an investment advice to disclose whether, and how often, it reviews clients’ accounts or financial plan, and identify who reviews the accounts.
Item 14 – Payment for Client Referrals. Similar to the existing Part 2, this section would require the investment adviser to describe arrangements it has for paying cash or other payment for client referrals.
Item 15 – Custody. This new section would require investment advisers to disclose if the client’s qualified custodian sends account statements or if the investment adviser generates and delivers account statements.
Item 16 – Discretion. Similar to the current Part 2, the investment advice would be required to describe its discretionary authority and arrangements.
Item 17 – Voting Client Securities. This new section would provide instructions on how to describe and disclose the firm’s proxy voting procedures.
Item 18 – Financial Information. Similar to Item 10 above, this section would require the investment adviser to disclose certain financial information about the adviser when material to clients. Adviser’s that require prepayment of more than $1,200 and six (6) or more months in advance, will still be required to provide a balance sheet to clients. Additional, the proposal would require disclosures of financial conditions reasonable likely to impair the investment adviser’s ability to meet contractual commitments to clients if the firm has discretion, custody or requires prepayment of more than $1,200 in fees per client and six months or more in advance. The proposal also seeks comments on requiring the disclosure of investment advisers subject to a bankruptcy petition during the past ten years.
Item 19 – Index. The SEC is proposing an index that must be submitted to the SEC, but does not need to be given to clients.
D. Form ADV – Supplements for Supervised Persons providing Investment Advice. Investment advisers will also be required to provide supplemental brochures for each supervised person that provides advice to clients. This is similar to the old Part I, Schedule D requirement. These supplements would not need to be submitted through IARD, but would need to be given to clients for which the supervised person provides advice. There are exceptions to when the supplement needs to be given and would not be included in the annual delivery of the firm brochure requirement. The content of the supplements would include business background, education background and disciplinary information.
E. Conclusion. RIA Compliance Consultants has attached a preliminary summary of the proposed new Form ADV Part 2 (Press%20Release.NewPart2.03.09.08.pdf), and we intend to post a more comprehensive summary and our comments by the end of the month.
A. Form ADV – Registration and Disclosure Document. The Form ADV is the registration document for investment adviser firms registered with the SEC and state securities authorities. The new Part 1 of Form ADV has been in effect since 2001 and is filed electronically through the Investment Adviser Registration Depository (IARD). Part 1 is a “check-the-box” form and while made publicly available through the IARD system, investment advisers are typically not required to provide the Part 1 to clients. The current Part 2 is provided to clients and is considered an investment adviser’s disclosure brochure. The SEC’s amendments to the Part 2 are intended to require investment advisers to provide regulators and clients with a brochure written in plain English. The brochure must describe the investment adviser’s services, fees, business practices, and conflicts of interest.
The new Part 2 brochures will need to be filed through the IARD system in PDF format. Investment advisers will prepare and make changes to their brochures using their own computers and then simply submit versions of the brochure through IARD. Currently, the SEC provides a standard form that must be used when preparing the Part 2. Under the proposed rules, the SEC will just provide instructions to complete the brochure, but will not provide a standard form that must be used. According to the proposed rule release, the SEC will implement a transition schedule requiring investment advisers to comply with the new Part 2 requirements by the date they must make their next annual updating amendment to Form ADV following the date the revised form becomes effective. Under SEC rules, investment advisers must submit an annual updating amendment within ninety (90) days after their fiscal year ends. However, investment advisers would not be required to comply with the new requirements no earlier than six (6) months after the rules become effective. State registered investment advisers will need to comply with the applicable state authority transition schedules.
B. Form ADV – Brochure Delivery Requirements. Proposed changes would also require investment advisers deliver a copy of the brochure within 120 days after the firm’s fiscal-year end. Currently, investment advisers are required to “offer” the brochure and the timing can be decided by the investment adviser as long as it is consistent from year to year.
According to Jarrod James, Senior Compliance Consultant of RIA Compliance Consultants, “the annual delivery requirements will be an additional burden for investment advisers that do not currently have similar procedures. However, the SEC originally proposed delivery requirements any time a material change is made. The SEC is seeking a middle ground on this issue by only requiring an annual delivery. It should be noted however, that an investment adviser’s fiduciary duty may require it to deliver updated brochures if there are material changes throughout the year.”
The SEC is also proposing changes to the timing of the initial delivery requirements to clients. Currently, investment advisers need to provide the brochure to clients at least 48 hours prior to entering into a contract with a client or at the time the contact is entered into. If the brochure is provided at the time the contract is signed, investment adviser’s must provide clients a five (5) day “free look” period whereby the client can cancel the contract without penalty. Under the proposed rules, the investment adviser would provide the brochure at or before the contract is signed and does not need to provide a “free look” period.
C. Form ADV – New Part 2. “The SEC should be commended for proposing updates to the new Part 2,” according to Tammy Emsick, Senior Compliance Consultant of RIA Compliance Consultants. “Changes are needed and long overdue. However, complying with the new rules will not be easy. Investment advisers are going to need to take time to fully understand new questions required which will also mean correctly interpreting the SEC’s intent for changing existing Part 2.”
The SEC has essentially overhauled the existing Part 2. No longer will the Part 2 contain questions in a check-the-box format. The new brochure will now entirely be a true brochure written in plain English. An outline of the proposed structure to the new Part 2 is provided below.
Item 1 – Cover Page. The brochure would have a cover page which must include a contact person and the firm’s website, if one has been created for public consumption.
Item 2 – Material Changes. The brochure would need to provide a summary of any material changes since the last update of the brochure. This is a significant change and may be viewed by investment advisers as burdensome.
Item 3 – Table of Contents. The brochure must have a table of contents. The SEC is not providing a standard table of contents and is leaving the construction of the table of contents to the discretion of the investment adviser.
Item 4 – Advisory Business. Among other things, an investment adviser must provide a description of its advisory business and describe if it specializes in any type of service. The SEC would allow instruct investment advisers to disclose the amount client assets it manages. Investment advisers would not be required to use the asset under management methodology on Part 1, but instead could include assets not counted on Part 1.
Item 5 – Fees and Compensation. Similar to the existing Part 2, this item would require an investment adviser to describe how it is compensated for services and the types of other costs a client can expect to incur in connection with the investment adviser’s services (e.g. brokerage, custody fees, and fund expenses).
Item 6 – Performance Fees and Side-by-Side Management. This “new” item specifically requires firms to describe performance fees charged and conflicts of interest relating to such charges.
Item 7 – Types of Clients. Similar to the current Part 2, a description of the firm’s types of clients would be required.
Item 8 – Methods of Analysis, Investment Strategies and Risk of Loss. Similar to the existing Part 2, this section would require the investment adviser to describe its investment process and methodology. It would also require the firm to disclose to clients to potential risks associated with the investment adviser’s services.
Item 9 – Disciplinary Information. This section will require an investment adviser to disclose any legal or disciplinary event that is material to a client’s evaluation of the integrity of the investment adviser. Currently, investment advisers are required to provide written or oral disclosure to clients regarding these types of events under Rule 206(4)-4. According to the proposed changes, Rule 206(4)-4 will be rescinded and disclosure must be provided in the brochure. “The exact types of disciplinary events are still open for comment and consideration” according to Mr. James. “This proposal was controversial in 2000 and will likely prove to be controversial in 2008. I would think investment advisers with a reportable event on the Part 1 will have a special interest in this new requirement.”
Item 10 – Other Financial Industry Activities and Affiliations. Similar to the existing Part 2, material relationships or arrangements with related financial industry participants will need to be disclosed along with conflicts of interest regarding those relationships and how the adviser addresses the conflicts of interest.
Item 11 – Codes of Ethics, Participation or Interest in Client Transactions and Personal Trading. Similar to the existing Part 2, the new rule will require disclosure regarding the firm’s code of ethics, personal trading procedures, and conflicts regarding those procedures.
Item 12 – Brokerage Practices. Similar to the existing Part 2, this section will require the investment adviser to describe its brokerage arrangements. Specifically, soft dollar arrangements, client referrals from brokerage firms, trade aggregation, and client directed brokerage arrangements must be described.
Item 13 – Review of Accounts. Similar to the existing Part 2, this section would require an investment advice to disclose whether, and how often, it reviews clients’ accounts or financial plan, and identify who reviews the accounts.
Item 14 – Payment for Client Referrals. Similar to the existing Part 2, this section would require the investment adviser to describe arrangements it has for paying cash or other payment for client referrals.
Item 15 – Custody. This new section would require investment advisers to disclose if the client’s qualified custodian sends account statements or if the investment adviser generates and delivers account statements.
Item 16 – Discretion. Similar to the current Part 2, the investment advice would be required to describe its discretionary authority and arrangements.
Item 17 – Voting Client Securities. This new section would provide instructions on how to describe and disclose the firm’s proxy voting procedures.
Item 18 – Financial Information. Similar to Item 10 above, this section would require the investment adviser to disclose certain financial information about the adviser when material to clients. Adviser’s that require prepayment of more than $1,200 and six (6) or more months in advance, will still be required to provide a balance sheet to clients. Additional, the proposal would require disclosures of financial conditions reasonable likely to impair the investment adviser’s ability to meet contractual commitments to clients if the firm has discretion, custody or requires prepayment of more than $1,200 in fees per client and six months or more in advance. The proposal also seeks comments on requiring the disclosure of investment advisers subject to a bankruptcy petition during the past ten years.
Item 19 – Index. The SEC is proposing an index that must be submitted to the SEC, but does not need to be given to clients.
D. Form ADV – Supplements for Supervised Persons providing Investment Advice. Investment advisers will also be required to provide supplemental brochures for each supervised person that provides advice to clients. This is similar to the old Part I, Schedule D requirement. These supplements would not need to be submitted through IARD, but would need to be given to clients for which the supervised person provides advice. There are exceptions to when the supplement needs to be given and would not be included in the annual delivery of the firm brochure requirement. The content of the supplements would include business background, education background and disciplinary information.
E. Conclusion. RIA Compliance Consultants has attached a preliminary summary of the proposed new Form ADV Part 2 (Press%20Release.NewPart2.03.09.08.pdf), and we intend to post a more comprehensive summary and our comments by the end of the month.
posted by bhill at 2:49 PM
SEC Releases Actual Text of Proposed Amendments to Form ADV Part 2
The U.S. Securities and Exchange Commission ("SEC") published on its website today the actual text of the proposed amendments to the Form ADV Part 2 in SEC Release No. IA-2711. The proposed amendments to the Form ADV Part 2 and related SEC rules will be open for comment until May 16, 2008. Upon completing its analysis of this 169 page release, RIA Compliance Consultants will share its commentary with our readers of this blog.
Labels: Form ADV
posted by bhill at 8:40 PM
Form ADV Part 1 Annual Amendments for Fiscal Year Ended December 2007
This is a reminder to all registered investment advisors with a fiscal year end of December 2007. Your Form ADV Part 1 Annual Amendment must be submitted through Web CRD/IARD system no later than ninety (90) days after your registered investment advisor firm’s fiscal year end. Because March 30th falls on a Sunday this year, in order to avoid any potential late filings, the Annual Amendment should be submitted on Friday, March 28.
An Annual Amendment to Part 1 of Form ADV is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. The main item that must be updated on the Annual Amendment is the firm's assets under management (Form ADV Part 1A, Item 5.F.). 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 promptly, 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.
RIA Compliance Consultants, Inc. (RCC) provides various levels of Form ADV drafting and review services including assistance with the preparation and submission of the Form ADV Part 1 Annual Amendment. RCC can help you understand the information required on the Form ADV and provide an analysis of the adequacy of your registered investment advisor’s Form ADV disclosures. To read our free Form ADV drafting tips, please visit our website. If you are interested in retaining RCC for a Form ADV review, please give us a call.
An Annual Amendment to Part 1 of Form ADV is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. The main item that must be updated on the Annual Amendment is the firm's assets under management (Form ADV Part 1A, Item 5.F.). 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 promptly, 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.
RIA Compliance Consultants, Inc. (RCC) provides various levels of Form ADV drafting and review services including assistance with the preparation and submission of the Form ADV Part 1 Annual Amendment. RCC can help you understand the information required on the Form ADV and provide an analysis of the adequacy of your registered investment advisor’s Form ADV disclosures. To read our free Form ADV drafting tips, please visit our website. If you are interested in retaining RCC for a Form ADV review, please give us a call.
Labels: Annual Amendment, Form ADV, IARD
posted by bhill at 12:51 PM
SEC Bars Investment Advisor for Inflating AUM and Performance Advertising
In January of this year, the SEC entered bar and cease and desist orders against a two member registered investment advisor firm. The firm was owned by a husband and wife with the wife serving strictly in an administrative capacity. The law judge in the case found that the registered investment advisor had willfully violated the Investment Advisers Act of 1940 because it falsely represented to the SEC that it had assets under management (AUM) exceeding $25 million in order to remain eligible for SEC registration. The inflated AUM numbers were reported on several Form ADV Part 1 amendments from 1996 through 2000. The SEC terminated the firm’s registration in 2002. However, the firm continued to hold itself out to the public as an investment advisor and reported its AUM numbers through several database services. The reporting of those numbers were also found to be intentionally inflated and therefore misleading. Further, the firm was not able to provide documentation substantiating its AUM and performance numbers. The firm claimed all paperwork and client files were lost in a fire and then claimed the paperwork was lost in flood. To read the entire order click here.
While this firm’s actions were found to be willful and were intentionally done to mislead potential clients and the public in general, the lessons learned can be applied to every registered investment advisor. This case illustrates the importance of disclosing accurate AUM on the Form ADV Part 1. If your firm does not meet an eligibility requirement for SEC registration, it must deregister with the SEC and register with the state regulators. Do not take the risk of over reporting or misreporting AUM simply to maintain SEC registration. This case also illustrates action the SEC is willing to take when a registered investment advisor presents misleading AUM and performance information to the public through advertising and other marketing channels. All performance numbers need to be substantiated, documented and maintained with the firm’s books and records. Finally, a registered investment advisor is required to maintain books and records under Rule 204-2 and other applicable regulations, even after the firm terminates its registration. Once termination is effective, a registered investment advisor must maintain all books and records for the time period required under Rule 204-2, typically not less than five years from the end of the fiscal year during which the last entry was made on such record.
While this firm’s actions were found to be willful and were intentionally done to mislead potential clients and the public in general, the lessons learned can be applied to every registered investment advisor. This case illustrates the importance of disclosing accurate AUM on the Form ADV Part 1. If your firm does not meet an eligibility requirement for SEC registration, it must deregister with the SEC and register with the state regulators. Do not take the risk of over reporting or misreporting AUM simply to maintain SEC registration. This case also illustrates action the SEC is willing to take when a registered investment advisor presents misleading AUM and performance information to the public through advertising and other marketing channels. All performance numbers need to be substantiated, documented and maintained with the firm’s books and records. Finally, a registered investment advisor is required to maintain books and records under Rule 204-2 and other applicable regulations, even after the firm terminates its registration. Once termination is effective, a registered investment advisor must maintain all books and records for the time period required under Rule 204-2, typically not less than five years from the end of the fiscal year during which the last entry was made on such record.
Labels: Advertising, Enforcement, Form ADV, SEC
posted by bhill at 12:27 PM
SEC Considering a New Form ADV Part 2 at Its February 13th Meeting
The U.S. Securities and Exchange Commission ("SEC") announced today that the SEC Commissioners will consider at the SEC's open meeting on February 13, 2008 whether to propose amendments to the Part 2 of the Form ADV under the Investment Advisers Act of 1940.
According to the SEC's announcement, "[t]he proposed amendments, if adopted, would require investment advisers to provide clients with narrative brochures containing plain English descriptions of the advisers' businesses, services, and conflicts of interest. The proposal also would require advisers to electronically file their brochures with the Commission, and the brochures would be available to the public through the Commission's Web site."
Upon the SEC's public release of this proposal, RIA Compliance Consultants will post a summary and analysis of the proposed amendments. Stay tuned.
According to the SEC's announcement, "[t]he proposed amendments, if adopted, would require investment advisers to provide clients with narrative brochures containing plain English descriptions of the advisers' businesses, services, and conflicts of interest. The proposal also would require advisers to electronically file their brochures with the Commission, and the brochures would be available to the public through the Commission's Web site."
Upon the SEC's public release of this proposal, RIA Compliance Consultants will post a summary and analysis of the proposed amendments. Stay tuned.
posted by bhill at 8:08 PM
2008 IARD Annual Renewal and Form ADV Annual Amendment Requirements
Beginning Monday, November 5, 2007, investment advisor firms can access their 2008 Preliminary Renewal Statements via their IARD account. The Preliminary Renewal Statement must be paid, in full, by Monday, December 10, 2007. Because it takes approximately two days for payment to post to the IARD account, the funds should arrive no later than Thursday, December 6, 2007, to ensure the money is posted to your IARD account by the 10th.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $455, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2008. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Please contact us today to receive an agreement for our services. Note: Engagements received after November 15 are subject to availability.
*If you are an RIA Compliance Consultants’ annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees, please contact us at 877-345-4034.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $455, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2008. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Please contact us today to receive an agreement for our services. Note: Engagements received after November 15 are subject to availability.
*If you are an RIA Compliance Consultants’ annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees, please contact us at 877-345-4034.
Labels: Form ADV, Registration, Renewals
posted by bhill at 5:20 PM
SEC Files Cease-and-Desist Order Against an Investment Adviser for Failure to Disclose Referral Fees
On September 25, 2007, the U.S. Securities and Exchange Commission (“SEC”) filed a cease-and-desist order against an investment adviser for its failure to disclose that the investment adviser’s president received payments from a security issuer that the investment adviser recommended to its clients.
According to the SEC, the investment adviser described itself as a “fee-only” investment adviser that is “…only compensated by clients and receive nothing for the investments we recommend….” Additionally, the SEC asserted that the investment adviser filed annually the Form ADV Part I with the Commission for over six years that falsely stated that the investment adviser and its related persons were not paid commissions and didn’t recommend securities in which it had a sales interest. However, the president of the investment adviser allegedly entered into an agreement with a security issuer whereby the issuer would pay a referral fee for each client investing in issuer’s security based upon size of the investment. The SEC found that this arrangement resulted in the investment adviser receiving $361,307 in undisclosed referral fees from the security issuer.
Based on the receipt of the referral fees by the investment adviser’s president and the investment adviser’s failure to disclose such referral fees and misstatement that no such referral agreement existed, the SEC found that the investment adviser violated Section 206(1), Section 206(2) and Section 207 of the Investment Advisers Act of 1940. Accordingly, the SEC ordered a civil penalty of $40,000 and disgorgement of $361,307 for undisclosed referral fees from the investment adviser’s president.
This enforcement action clearly demonstrates the importance of accurately disclosing all forms of direct and indirect compensation received by an investment adviser and its related persons. If your registered investment adviser needs to update the compensation disclosures on its Form ADV, RIA Compliance Consultants offers Form ADV Review and Drafting services for existing investment advisers. For more information about our investment adviser compliance services, please call us at 877-345-4034.
According to the SEC, the investment adviser described itself as a “fee-only” investment adviser that is “…only compensated by clients and receive nothing for the investments we recommend….” Additionally, the SEC asserted that the investment adviser filed annually the Form ADV Part I with the Commission for over six years that falsely stated that the investment adviser and its related persons were not paid commissions and didn’t recommend securities in which it had a sales interest. However, the president of the investment adviser allegedly entered into an agreement with a security issuer whereby the issuer would pay a referral fee for each client investing in issuer’s security based upon size of the investment. The SEC found that this arrangement resulted in the investment adviser receiving $361,307 in undisclosed referral fees from the security issuer.
Based on the receipt of the referral fees by the investment adviser’s president and the investment adviser’s failure to disclose such referral fees and misstatement that no such referral agreement existed, the SEC found that the investment adviser violated Section 206(1), Section 206(2) and Section 207 of the Investment Advisers Act of 1940. Accordingly, the SEC ordered a civil penalty of $40,000 and disgorgement of $361,307 for undisclosed referral fees from the investment adviser’s president.
This enforcement action clearly demonstrates the importance of accurately disclosing all forms of direct and indirect compensation received by an investment adviser and its related persons. If your registered investment adviser needs to update the compensation disclosures on its Form ADV, RIA Compliance Consultants offers Form ADV Review and Drafting services for existing investment advisers. For more information about our investment adviser compliance services, please call us at 877-345-4034.
Labels: Enforcement, Form ADV
posted by bhill at 11:01 PM
SEC Issues Cease and Desist Proceedings for Failing to Allow SEC Staff to Examine Business Records
On September 24, the U.S. Securities & Exchange Commission (SEC) issued an order instituting administrative and cease-and-desist proceedings against a registered investment adviser for refusing to produce or allow for the inspection of the firm's advisory business.
In the Matter of Amaroq Asset Management, LLC and Dwight Andree Sean Oneal Jones (Investment Advisers Act of 1940 Release No. 2651 / September 24, 2007; Administrative Proceeding File No. 3-12822), the SEC alleges Amaroq Asset Management (Amaroq) repeatedly failed to cooperate with the SEC during the SEC's attempt to conduct routine registered investment adviser examinations. Initially, Amaroq's owner, Dwight "Sean" Jones, initially failed to even respond to the SEC and then later claimed his books and records were, first, destroyed in a fire, and then second, inadvertently sold by a storage company. Mr. Jones then claimed the firm ceased conducting business operations in 2004.
However, the SEC order claims that Amaroq continued to hold itself out to the public, through its website, as an investment adviser subject to SEC examinations. The order states Amaroq failed to file a Form ADV - W and that as of the date of the order, the firm was still registered with the SEC. The SEC further alleges Amaroq failed to update its Form ADV Part 1A through the Investment Advisor Registration Depository. Amaroq did not file an annual amendment to Form ADV Part 1A for fiscal years 2004, 2005, and 2006, nor did it file amendments to notify the SEC of changes in address and contact information.
This SEC order is another example of the importance of filing timely Form ADV amendments and cooperating with the SEC during routine examinations. More importantly, it is a reminder that a registered investment adviser must file a Form ADV-W in order to officially notify regulators of the firm's intent to cease offering investment advisory services and to terminate its investment adviser registration. If your registered investment adviser needs help filing its Form ADV amendments or help preparing for an SEC examination, please contact RIA Compliance Consultants, Inc., for more information about our services.
In the Matter of Amaroq Asset Management, LLC and Dwight Andree Sean Oneal Jones (Investment Advisers Act of 1940 Release No. 2651 / September 24, 2007; Administrative Proceeding File No. 3-12822), the SEC alleges Amaroq Asset Management (Amaroq) repeatedly failed to cooperate with the SEC during the SEC's attempt to conduct routine registered investment adviser examinations. Initially, Amaroq's owner, Dwight "Sean" Jones, initially failed to even respond to the SEC and then later claimed his books and records were, first, destroyed in a fire, and then second, inadvertently sold by a storage company. Mr. Jones then claimed the firm ceased conducting business operations in 2004.
However, the SEC order claims that Amaroq continued to hold itself out to the public, through its website, as an investment adviser subject to SEC examinations. The order states Amaroq failed to file a Form ADV - W and that as of the date of the order, the firm was still registered with the SEC. The SEC further alleges Amaroq failed to update its Form ADV Part 1A through the Investment Advisor Registration Depository. Amaroq did not file an annual amendment to Form ADV Part 1A for fiscal years 2004, 2005, and 2006, nor did it file amendments to notify the SEC of changes in address and contact information.
This SEC order is another example of the importance of filing timely Form ADV amendments and cooperating with the SEC during routine examinations. More importantly, it is a reminder that a registered investment adviser must file a Form ADV-W in order to officially notify regulators of the firm's intent to cease offering investment advisory services and to terminate its investment adviser registration. If your registered investment adviser needs help filing its Form ADV amendments or help preparing for an SEC examination, please contact RIA Compliance Consultants, Inc., for more information about our services.
Labels: Enforcement, Form ADV
posted by bhill at 2:44 PM
SEC Issues Cease-and-Desist Order for Incomplete Disclosure of a Conflict of Interest
Once again the U.S. Securities and Exchange Commission (“SEC”) issued a cease-and-desist order against a registered investment adviser for incomplete disclosure of a conflict of interest in violation of Section 207 of the Investment Advisers Act of 1940.
In the Matter of Callen Associates (Rel. IA-2650/Sept. 19, 2007; File No. 3-12808), the SEC alleges that a pension consultant registered as an investment adviser sold its affiliated a broker-dealer, and as part of this sale, the purchaser agreed to pay an annual fee for eight years to the investment adviser for sale of the affiliated broker-dealer contingent upon the investment adviser’s clients continuing to generate a minimum amount of commissions each year with the purchaser’s broker-dealer. The SEC asserts that although the investment adviser disclosed through its Form ADV Part II that the purchaser’s broker-dealer was its preferred/exclusive broker for plan sponsor/investment manager clients, the investment adviser described the ongoing compensation from the sold broker-dealer to the investment adviser as a periodic fixed fee. The SEC found that the characterization of these payments to the investment adviser “… as ‘fixed’ was misleading in that a material portion of each annual payment was contingent upon the [purchased broker-dealer’s] receipt of a minimum threshold of [the investment adviser’s] client brokerage business.”
This enforcement action by the SEC is an excellent example of the need for an investment adviser to describe accurately and thoroughly any potential conflicts of interest to its clients and the SEC. If your investment adviser needs assistance in preparing such disclosures, please contact RIA Compliance Consultants, Inc. for more information about our services.
In the Matter of Callen Associates (Rel. IA-2650/Sept. 19, 2007; File No. 3-12808), the SEC alleges that a pension consultant registered as an investment adviser sold its affiliated a broker-dealer, and as part of this sale, the purchaser agreed to pay an annual fee for eight years to the investment adviser for sale of the affiliated broker-dealer contingent upon the investment adviser’s clients continuing to generate a minimum amount of commissions each year with the purchaser’s broker-dealer. The SEC asserts that although the investment adviser disclosed through its Form ADV Part II that the purchaser’s broker-dealer was its preferred/exclusive broker for plan sponsor/investment manager clients, the investment adviser described the ongoing compensation from the sold broker-dealer to the investment adviser as a periodic fixed fee. The SEC found that the characterization of these payments to the investment adviser “… as ‘fixed’ was misleading in that a material portion of each annual payment was contingent upon the [purchased broker-dealer’s] receipt of a minimum threshold of [the investment adviser’s] client brokerage business.”
This enforcement action by the SEC is an excellent example of the need for an investment adviser to describe accurately and thoroughly any potential conflicts of interest to its clients and the SEC. If your investment adviser needs assistance in preparing such disclosures, please contact RIA Compliance Consultants, Inc. for more information about our services.
Labels: Conflict of Interest, Enforcement, Form ADV
posted by bhill at 4:52 PM
California Proposes Amendments to Rules under the Corporate Securities Law of 1968
Earlier this month, the California Department of Corporations announced proposed changes to rules regulating investment advisers registered in California. According to the release, the objective in proposing the amendments is to increase uniformity with the model rules suggested by the North American Securities Administrators Association (NASAA), rules already in effect in other states, and rules established by the Securities and Exchange Commission (SEC). California is giving the public an opportunity to comment on the proposed changes. The time period for comment ends on October 30, 2007.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
- Requirement to establish and maintain written procedures designed to supervise employees and ensure their compliance with securities laws.
- Incorporation of the principles governing performance-based advertising set forth in the 1996 SEC No-Action letter involving Clover Capital Management.
- Requirement to provide all clients a written disclosure document containing the same information in Form ADV Part II. While we suggest all registered investment advisors provide a disclosure document to clients, apparently this has not been a requirement in California.
- Amendment to the definition of custody and the procedures regarding custody. This rule will mirror the NASAA Model Rule for custody.
- Rule requiring the implementation of codes of ethics. The rule will copy the same requirements set forth under the SEC’s codes of ethics rule (Rule 204A-1 under the Advisers Act).
- Changes to “largely mirror” Rule 206(4)-3 of the Advisers Act which sets forth requirements that must be followed when fees are paid to solicitors.
- The adoption and implementation of a business continuity plan.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
Labels: Advertising, Code of Ethics, Custody, Form ADV, Solicitors
posted by bhill at 3:00 PM
Attention Investment Advisers Registered in Illinois
Recently the Illinois Securities Department has been requesting investment advisors registered with their office provide additional information regarding disclosures made in the firm’s Form ADV. Requests for additional information have been made not only during the initial registration process but also in response to updates submitted by registered investment advisors with active registration. Additional information required has included more thorough descriptions of the services and fee arrangements offered by firms, copies of agreements entered into with third-party investment advisors, copies of privacy policy notices, and copies of Schedule H brochures used by the firm even when the wrap-fee program is sponsored by another firm. Firms registered in Illinois should be prepared to provide the additional information and documentation promptly to the Department when requested. We support the Department’s decision to ensure firms are fully disclosing all pertinent information and can substantiate compliance with investment advisory rules and regulations.
Illinois is also providing guidance regarding its interpretation and rules concerning custody. The Department interrupts an investment adviser to have custody of client accounts when question 2.I.(1) of Form ADV Part 1B (deduction of fees directly from client accounts) is checked 'yes' even if it is indirect custody, meaning the client has given permission for a third-party investment advisor to deduct fees from the client’s account. When fees are deducted from client accounts, the registered investment advisor will need to also mark Item 9.A and B of Form ADV Part 1A. As long as the firm is marking and complying with Form ADV Part 1B, Items 2.I(1) a, b, and c, the firm does not need to comply with the additional financial requirements, i.e. audited balance sheet and additional net worth and/or bonding. However, firms that deduct advisory fees but do not comply with Items 2.I.(1) a, b, and c (i.e. send invoices to clients, receive client authorization, and ensure the fee deduction is listed on the client’s account statements) will need to comply with the additional financial requirements.
If your firm is registered with the state of Illinois and has questions concerning these requirements, please give us a call.
Illinois is also providing guidance regarding its interpretation and rules concerning custody. The Department interrupts an investment adviser to have custody of client accounts when question 2.I.(1) of Form ADV Part 1B (deduction of fees directly from client accounts) is checked 'yes' even if it is indirect custody, meaning the client has given permission for a third-party investment advisor to deduct fees from the client’s account. When fees are deducted from client accounts, the registered investment advisor will need to also mark Item 9.A and B of Form ADV Part 1A. As long as the firm is marking and complying with Form ADV Part 1B, Items 2.I(1) a, b, and c, the firm does not need to comply with the additional financial requirements, i.e. audited balance sheet and additional net worth and/or bonding. However, firms that deduct advisory fees but do not comply with Items 2.I.(1) a, b, and c (i.e. send invoices to clients, receive client authorization, and ensure the fee deduction is listed on the client’s account statements) will need to comply with the additional financial requirements.
If your firm is registered with the state of Illinois and has questions concerning these requirements, please give us a call.
posted by bhill at 1:13 PM
Minnesota, North Dakota, and South Dakota Require Use of IARD to Post Form ADV Part II
RIA Compliance Consultants, Inc. continues to follow the implementation of Form ADV Part II functionality on IARD, and we have learned that three more states require state registered investment advisors to post the Form ADV Part II on IARD.
While no deadline has been to set to post an investment advisor's existing Form ADV Part II online, South Dakota is now requiring all updates to Part II be filed through IARD. State registered investment advisor firms in South Dakota should no longer deliver copies by mail as all amendments must be posted through IARD.
North Dakota delivered an e-mail last quarter informing its registered investment advisor firms of the new IARD functionality. Similar to South Dakota, North Dakota did not set a required deadline but is encouraging registered investment advisors to post their Part II at the firm’s earliest convenience. A deadline is expected later this year.
Minnesota registered investment advisor firms are also required to now post Form ADV Part II online. Minnesota is not expected to issue its own notice to firms but is relying on the NASAA press release which was issued in April. Minnesota firms should post their Part IIs as their earliest convenience.
For a low fixed fee of $97.50, RIA Compliance Consultants, Inc. will ensure your Form ADV Part II is posted online by the appropriate deadline in a format that meets all required standards. In addition to ensuring your Part II is posted in the proper manner, your registered investment advisor firm can also retain us under a separate engagement to conduct a thorough review of your entire Form ADV and provide your firm with an objective review of the document.
While no deadline has been to set to post an investment advisor's existing Form ADV Part II online, South Dakota is now requiring all updates to Part II be filed through IARD. State registered investment advisor firms in South Dakota should no longer deliver copies by mail as all amendments must be posted through IARD.
North Dakota delivered an e-mail last quarter informing its registered investment advisor firms of the new IARD functionality. Similar to South Dakota, North Dakota did not set a required deadline but is encouraging registered investment advisors to post their Part II at the firm’s earliest convenience. A deadline is expected later this year.
Minnesota registered investment advisor firms are also required to now post Form ADV Part II online. Minnesota is not expected to issue its own notice to firms but is relying on the NASAA press release which was issued in April. Minnesota firms should post their Part IIs as their earliest convenience.
For a low fixed fee of $97.50, RIA Compliance Consultants, Inc. will ensure your Form ADV Part II is posted online by the appropriate deadline in a format that meets all required standards. In addition to ensuring your Part II is posted in the proper manner, your registered investment advisor firm can also retain us under a separate engagement to conduct a thorough review of your entire Form ADV and provide your firm with an objective review of the document.
posted by bhill at 11:27 AM
Proper Fee Disclosures in Form ADV
According to a recent survey by State Street Corp.’s investment management arm and Knowledge@Wharton, only 43% of investors said they understood their registered investment adviser’s fee structure “completely” or “fairly well” (retrieved online from InvestmentNews). The results from this study reminded us of a September 13, 2005 NASAA news release. According to the news release, one of the most common deficiencies found during examinations of state-registered investment advisors was inaccurate disclosures in the Form ADV. Our own experience supports the results of both of these studies, and we are not surprised that many investors don’t understand how fees are earned by registered investment advisors.
While the Form ADV is a registration document filed with securities regulators, it is first and foremost a disclosure document that must be provided to all investment advisory clients. Registered investment advisors need to take the Form ADV seriously and ensure that it accurately discloses all services, fee arrangements, conflicts of interests, outside activities, and material arrangements. The goal of the Form ADV is to provide fair and full disclosure.
The Form ADV should be used to meet what we consider one of the most important goals when communicating with investment advisory clients, which is to make sure all clients understand the investment advisory fees being charged by the registered investment advisor firm. Clients must also understand the other fees charged in connection to the management of their account but not necessarily retained by the investment advisor firm.
A registered investment advisor should verbally explain all fees being charged to the investment advisory client to buttress the information provided in the Form ADV. Appropriate disclosures (both written and verbal) will include an accurate description of the firm’s investment advisory fee schedules, arrangements, and billing cycles.
Does your Form ADV accurately explain the firm’s investment advisory fee arrangements? Do all of your investment advisory clients understand how you are compensated? Do all of your investment advisory clients understand the other fees they are charged as a result of your investment recommendations and/or brokerage arrangements? If you would like RIA Compliance Consultants to provide an objective review and consultation of your Form ADV and fee arrangements, please give us a call today.
While the Form ADV is a registration document filed with securities regulators, it is first and foremost a disclosure document that must be provided to all investment advisory clients. Registered investment advisors need to take the Form ADV seriously and ensure that it accurately discloses all services, fee arrangements, conflicts of interests, outside activities, and material arrangements. The goal of the Form ADV is to provide fair and full disclosure.
The Form ADV should be used to meet what we consider one of the most important goals when communicating with investment advisory clients, which is to make sure all clients understand the investment advisory fees being charged by the registered investment advisor firm. Clients must also understand the other fees charged in connection to the management of their account but not necessarily retained by the investment advisor firm.
A registered investment advisor should verbally explain all fees being charged to the investment advisory client to buttress the information provided in the Form ADV. Appropriate disclosures (both written and verbal) will include an accurate description of the firm’s investment advisory fee schedules, arrangements, and billing cycles.
Does your Form ADV accurately explain the firm’s investment advisory fee arrangements? Do all of your investment advisory clients understand how you are compensated? Do all of your investment advisory clients understand the other fees they are charged as a result of your investment recommendations and/or brokerage arrangements? If you would like RIA Compliance Consultants to provide an objective review and consultation of your Form ADV and fee arrangements, please give us a call today.
Labels: Form ADV
posted by bhill at 9:25 AM
Form ADV Released in Interactive PDF Format
The North American Securities Administrators Association ("NASAA") recently released an interative PDF version of the Form ADV including the Part II and Schedule F for use by registered investment advisors. If you'd like to download this new interactive PDF version of the Form ADV, click here to link to the applicable NASAA's webpage. In light of this new offering and the recent development allowing investment advisor applicants to submit the Form ADV Part II and Schedule F online via the IARD system, a completely paperless registration of state investment advisors doesn't seem too far off in the future.
Labels: Form ADV
posted by bhill at 10:06 PM
Attention State Registered Investment Advisors - Deadline to Post Form ADV Part II on IARD
In a previous blog this month, RIA Compliance Consultants, Inc., told you about the IARD/Web CRD’s new functionality allowing registered investment advisors to post their Form ADV Part II online. According to an e-mail sent from the California Securities Regulation Division, any amendments to Form ADV Part II after April 24 should now be posted directly on the IARD system. All California registered investment advisors must post their current Form ADV Part II directly with IARD within 60 days after April 24. The Virginia Division of Securities and Retail Franchising also issued an e-mail, dated April 26, 2007, requiring state registered firms to post their Form ADV Part II online as well.
In the time since our original blog on this topic, the Florida Office of Financial Regulation issued a letter dated May 23, 2007. According to the letter, all registered investment advisors in Florida must eventually submit the Form ADV Part II online and are strongly encouraged to transition their existing Form ADV part II onto the IARD system within sixty days of May 23.
The Massachusetts Securities Division has also issued a deadline for state registered investment advisors to submit Part II online. According to a May 21, 2007 press release, state registered investment advisors have until September 1 to submit their Part II on IARD. However, all amendments to Part II made before September 1 must be filed through IARD.
Also, the Texas State Securities Board and the Office of the Kansas Securities Commissioner are now requiring all new registered investment advisor applicants to submit Form ADV Part II through IARD, and current registered firms may submit Part II at their convenience.
If your investment advisor firm is registered at the state level, you should be on the lookout for notices or e-mails requiring you to submit the Form ADV Part II through IARD. If your registered investment advisor firm is located in California, Florida, Massachusetts, Virginia, Texas, Kansas or another state that already requires the posting of Part II on IARD, give us a call. For a low fixed fee of $97.50, RIA Compliance Consultants, Inc., will ensure your Part II is posted online by the appropriate deadline in a format that meets all required standards. In addition to ensuring your Form ADV Part II is posted in the proper manner, your investment advisor firm can also retain us under a separate engagement to conduct a thorough review of your entire Form ADV and provide your firm with an objective review of the document. Not only is the Form ADV an application document, it also serves as the disclosure document that must be provided to all clients. A well-written Form ADV should not only provide clients with a description of all advisory services and fees, but it should also be used to protect registered investment advisors. The Form ADV is the primary document to disclose conflicts of interest, material considerations, business arrangements, and all background information regarding the investment advisor firm and its associates.
In the time since our original blog on this topic, the Florida Office of Financial Regulation issued a letter dated May 23, 2007. According to the letter, all registered investment advisors in Florida must eventually submit the Form ADV Part II online and are strongly encouraged to transition their existing Form ADV part II onto the IARD system within sixty days of May 23.
The Massachusetts Securities Division has also issued a deadline for state registered investment advisors to submit Part II online. According to a May 21, 2007 press release, state registered investment advisors have until September 1 to submit their Part II on IARD. However, all amendments to Part II made before September 1 must be filed through IARD.
Also, the Texas State Securities Board and the Office of the Kansas Securities Commissioner are now requiring all new registered investment advisor applicants to submit Form ADV Part II through IARD, and current registered firms may submit Part II at their convenience.
If your investment advisor firm is registered at the state level, you should be on the lookout for notices or e-mails requiring you to submit the Form ADV Part II through IARD. If your registered investment advisor firm is located in California, Florida, Massachusetts, Virginia, Texas, Kansas or another state that already requires the posting of Part II on IARD, give us a call. For a low fixed fee of $97.50, RIA Compliance Consultants, Inc., will ensure your Part II is posted online by the appropriate deadline in a format that meets all required standards. In addition to ensuring your Form ADV Part II is posted in the proper manner, your investment advisor firm can also retain us under a separate engagement to conduct a thorough review of your entire Form ADV and provide your firm with an objective review of the document. Not only is the Form ADV an application document, it also serves as the disclosure document that must be provided to all clients. A well-written Form ADV should not only provide clients with a description of all advisory services and fees, but it should also be used to protect registered investment advisors. The Form ADV is the primary document to disclose conflicts of interest, material considerations, business arrangements, and all background information regarding the investment advisor firm and its associates.
posted by bhill at 11:34 AM
IARD Form ADV Part II Functionality Goes Live for Registered Investment Advisors
With IARD/Web CRD Release 9.0, the NASD implemented several changes that went into effect on April 23, 2007. The most significant of these changes is the ability for registered investment advisor firms to post their Form ADV Part II online. This new update has not received the widespread media coverage that the release of the new Form ADV Part II will certainly see, but its implementation is significant. With the new functionality, the general public is now able to view registered investment advisor firm disclosure brochures through the Investment Adviser Public Disclosure site (www.adviserinfo.sec.gov).
In response to the NASD's release, the U.S. Securities & Exchange Commission's official position is that posting the Form ADV Part II is neither encouraged nor discouraged. In other words, at this time SEC registered investment advisor firms can certainly post their Form ADV Part II online, but a mandatory deadline has not been set. On the other hand, at least two states have mandated the use of this functionality. According to an e-mail sent from the California Securities Regulation Division, any amendments to Form ADV Part II after April 24 should now be posted directly on the IARD system. All California registered investment advisor firms must post their current Form ADV Part II directly with IARD within 60 days after April 24. The Virginia Division of Securities and Retail Franchising also issued an e-mail, dated April 26, 2007, requiring state registered firms to post their Form ADV Part II online as well.
If your investment advisor firm is registered at the state level, be on the lookout for notices or e-mails requiring you to submit the Form ADV Part II through IARD. Also, stay tuned to our website as we will continue to post updates to this new requirement when they become available. If you are registered with a state that requires the posting of Part II on IARD, give us a call to find out how we can assist your investment advisor firm in complying with the new rule. In addition to ensuring your Form ADV Part II is posted in the proper manner, we also can conduct a thorough review of your entire Form ADV and provide your investment advisor firm with an objective review of the document.
In response to the NASD's release, the U.S. Securities & Exchange Commission's official position is that posting the Form ADV Part II is neither encouraged nor discouraged. In other words, at this time SEC registered investment advisor firms can certainly post their Form ADV Part II online, but a mandatory deadline has not been set. On the other hand, at least two states have mandated the use of this functionality. According to an e-mail sent from the California Securities Regulation Division, any amendments to Form ADV Part II after April 24 should now be posted directly on the IARD system. All California registered investment advisor firms must post their current Form ADV Part II directly with IARD within 60 days after April 24. The Virginia Division of Securities and Retail Franchising also issued an e-mail, dated April 26, 2007, requiring state registered firms to post their Form ADV Part II online as well.
If your investment advisor firm is registered at the state level, be on the lookout for notices or e-mails requiring you to submit the Form ADV Part II through IARD. Also, stay tuned to our website as we will continue to post updates to this new requirement when they become available. If you are registered with a state that requires the posting of Part II on IARD, give us a call to find out how we can assist your investment advisor firm in complying with the new rule. In addition to ensuring your Form ADV Part II is posted in the proper manner, we also can conduct a thorough review of your entire Form ADV and provide your investment advisor firm with an objective review of the document.
posted by bhill at 2:20 PM
Annual Amendment Filings
Did your firm file its Form ADV Part 1 Annual Amendment by March 30? If your registered investment advisor firm's fiscal year end was December 31, the answer to this question should be a definite yes. If your investment advisor firm has not yet completed the Annual Amendment, give us a call today so we can help you complete this important requirement. It is important to note some investment advisor firms make the mistake of filing an "other than Annual Amendment filing" when attempting to fulfill this duty. In order to meet the SEC's requirement, an "Annual Amendment" must be filed within 90 days after a firm's fiscal year end. If your investment advisor firm missed the 90 day deadline, the filing should be made as soon as possible.
The requirement to file an Annual Amendment is not limited solely to SEC registered firms. The far majority of state regulatory agencies require state registered investment advisors to also file an Annual Amendment. In addition, most states require a Form ADV Part II and Schedule amendment and, when required, updated financial statements showing proof of compliance with the state's minimum net worth/net capital requirements.
Again, hopefully everyone reading this notice has completed these important requirements, but if your investment advisor firm has not, please give us a call so we make sure your firm is in full compliance in order to avoid possible disciplinary action.
The requirement to file an Annual Amendment is not limited solely to SEC registered firms. The far majority of state regulatory agencies require state registered investment advisors to also file an Annual Amendment. In addition, most states require a Form ADV Part II and Schedule amendment and, when required, updated financial statements showing proof of compliance with the state's minimum net worth/net capital requirements.
Again, hopefully everyone reading this notice has completed these important requirements, but if your investment advisor firm has not, please give us a call so we make sure your firm is in full compliance in order to avoid possible disciplinary action.
Labels: Form ADV
posted by bhill at 2:29 PM
Is It Time to Register with the SEC?
Because many firms have a December 31 fiscal year-end, it is likely that your investment advisor firm is currently working on its Form ADV Part 1 Annual Amendment. The Annual Amendment must be submitted through the IARD within ninety (90) days after an advisor's fiscal year-end. While there are other criteria for registering with the SEC, by far the most common test for SEC registration is a firm's assets under management. Therefore, for a large majority of firms, when completing the Annual Amendment, an advisor firm must pay close attention to updating the firm's assets under management. Regulators, both at the federal and state levels, have stated an advisor's assets under management must be current as on the firm's most recently completed fiscal year.
Once you've calculated your investment advisor's assets under management, you must determine whether your firm will need to change from a state to SEC registration or conversely from an SEC to state registration. When a firm's assets exceed $30 million, the firm must be registered directly with the SEC. A firm with assets under $25 million must register with the applicable individual state. If a firm's assets under management are between $25 million and $30 million, the firm can choose between SEC or state registration. (Check out our FAQ's page here to learn more about some of the more common factors when determining SEC v. state registration.)
Be careful to not simply lump all accounts and assets together when calculating assets under management. The Form ADV Part 1 provides detailed instructions for counting assets under management and regulators will scrutinize how assets under management tally and the basis for including discretionary accounts versus non-discretionary accounts.
If your firm's assets under management now exceed $30 million (or are significantly above $25 million) for the first time, do you know the steps that must be taken to register with the SEC? Has your firm developed a code of ethics and set of written supervisory policies and procedures? Are you ready for an SEC examination? Will your firm's Form ADV pass federal scrutiny?
If you need help calculating assets under management, completing the Form ADV Annual Amendment or filing your registration with the SEC, please give us a call.
Once you've calculated your investment advisor's assets under management, you must determine whether your firm will need to change from a state to SEC registration or conversely from an SEC to state registration. When a firm's assets exceed $30 million, the firm must be registered directly with the SEC. A firm with assets under $25 million must register with the applicable individual state. If a firm's assets under management are between $25 million and $30 million, the firm can choose between SEC or state registration. (Check out our FAQ's page here to learn more about some of the more common factors when determining SEC v. state registration.)
Be careful to not simply lump all accounts and assets together when calculating assets under management. The Form ADV Part 1 provides detailed instructions for counting assets under management and regulators will scrutinize how assets under management tally and the basis for including discretionary accounts versus non-discretionary accounts.
If your firm's assets under management now exceed $30 million (or are significantly above $25 million) for the first time, do you know the steps that must be taken to register with the SEC? Has your firm developed a code of ethics and set of written supervisory policies and procedures? Are you ready for an SEC examination? Will your firm's Form ADV pass federal scrutiny?
If you need help calculating assets under management, completing the Form ADV Annual Amendment or filing your registration with the SEC, please give us a call.
Labels: Form ADV, Registration
posted by bhill at 9:57 AM
2007 IARD Annual Renewal and Form ADV Annual Amendment Requirements
Beginning today, Monday November 6, 2006, investment advisor firms can access their 2007 Preliminary Renewal Statements via their IARD account. The Preliminary Renewal Statement must be paid, in full, by Friday, December 8, 2006. Because it takes approximately two days for payment to post to the IARD account, the funds should arrive no later than Wednesday, December 6, 2006, to ensure the money is posted to your IARD account by the 8th. Click here for detailed instructions, prepared by RIA Compliance Consultants, to fund your IARD account.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $445, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2007. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Engagements received after November 15 are subject to availability so complete and return the Agreement for Services today! Click here to view our engagement letter.
*If you are an RIA Compliance Consultants’ annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees please contact us at bhill@ria-compliance-consultants.com.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $445, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2007. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Engagements received after November 15 are subject to availability so complete and return the Agreement for Services today! Click here to view our engagement letter.
*If you are an RIA Compliance Consultants’ annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees please contact us at bhill@ria-compliance-consultants.com.
posted by bhill at 5:00 PM
Future SEC Initiatives: IA/BD Study, Books and Records, New Part II, Soft-Dollar and Hedge Funds
In a recent speech, Andrew J. Donohue, Director of the SEC's Division of Investment Management, outlined several future initiatives for the Division of Investment Management. These initiatives include the SEC's Investment Adviser/Broker-Dealer study which aims to analyze current industry and regulatory practices and also examine the levels of protection afforded to investors under both the Securities Exchange Act and the Investment Advisers Act. The next initiative Mr. Donohue discussed is a potential reformulation of the SEC's books and records requirements for investment advisors. This should be welcome news as hopefully the SEC will factor the many technological changes that have occurred over the last 40 years and establish practical books and records requirements.
Mr. Donohue also mentioned the new Form ADV Part II. A new Part II is something advisors have been hearing about for over six years now. In fact, the SEC must repropose the changes to the current Part II which is currently being worked upon by the Division of Investment Management.
In regard to soft dollars, portfolio trading practices, and best execution, Mr. Donohue stated the Division has set a goal "to provide guidance that would enable fund boards and others to have meaningful dialogue with fund managers on soft dollar practices, as well as the adviser's philosophy with respect to brokerage and soft dollar practices."
Finally, according to the Mr. Donohue, the SEC's attempt to regulate advisors to hedge funds is not going away any time soon. Mr. Donohue reiterated Chairman Cox's intention "to recommend that the SEC promulgate a new anti-fraud rule under the Investment Advisers Act that would have the effect of "looking through" a hedge fund to its investors." The SEC has essentially gone back to the drawing board and is trying to find methods that will enable a new rule to withstand judicial scrutiny.
To read the text of Mr. Donohue's entire speech, click here.
Mr. Donohue also mentioned the new Form ADV Part II. A new Part II is something advisors have been hearing about for over six years now. In fact, the SEC must repropose the changes to the current Part II which is currently being worked upon by the Division of Investment Management.
In regard to soft dollars, portfolio trading practices, and best execution, Mr. Donohue stated the Division has set a goal "to provide guidance that would enable fund boards and others to have meaningful dialogue with fund managers on soft dollar practices, as well as the adviser's philosophy with respect to brokerage and soft dollar practices."
Finally, according to the Mr. Donohue, the SEC's attempt to regulate advisors to hedge funds is not going away any time soon. Mr. Donohue reiterated Chairman Cox's intention "to recommend that the SEC promulgate a new anti-fraud rule under the Investment Advisers Act that would have the effect of "looking through" a hedge fund to its investors." The SEC has essentially gone back to the drawing board and is trying to find methods that will enable a new rule to withstand judicial scrutiny.
To read the text of Mr. Donohue's entire speech, click here.
Labels: Form ADV, Record Keeping
posted by bhill at 3:54 PM
Outside Business Activities - Responsibility to Update Form ADV and Form U4
The establishment of sound policies and procedures aimed at monitoring the outside activities of its supervised persons (i.e. the advisor's officers, directors, partners, investment advisor representatives, and employees) should be part of any firm's written compliance programs. It is suggested that some type of "outside business activities form" be created and all supervised persons be required to complete the form on an annual basis and whenever changes are needed. Besides the human resources reasons for monitoring outside business activities, there are two important regulatory reasons: (a) Form ADV disclosure purposes, and (b) Form U4 disclosure purposes.
An investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7 of the Part II requires the firm to provide a description of the outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, advisor representatives must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is an advisor representative's ultimate responsibility to keep the Form U4 current and complete; particularly his/her employment and other business background.
Investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change. Moreover, as a best practice, investment advisors should consider requiring its officers, directors, investment advisor representatives and employees to complete an outside business disclosure form on an annual basis. If you have questions regarding these requirements or want to discuss practical applications for the monitoring of outside business activities, please give us a call today.
An investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7 of the Part II requires the firm to provide a description of the outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, advisor representatives must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is an advisor representative's ultimate responsibility to keep the Form U4 current and complete; particularly his/her employment and other business background.
Investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change. Moreover, as a best practice, investment advisors should consider requiring its officers, directors, investment advisor representatives and employees to complete an outside business disclosure form on an annual basis. If you have questions regarding these requirements or want to discuss practical applications for the monitoring of outside business activities, please give us a call today.
Labels: Form ADV, Form U4, Outside Business Activities
posted by bhill at 1:42 PM
2007 IARD Annual Renewal and Form ADV Annual Amendment Requirements
Beginning Monday, November 6, 2006, investment advisor firms can access their 2007 Preliminary Renewal Statements via their IARD account. The Preliminary Renewal Statement must be paid, in full, by Friday, December 8, 2006. Because it takes approximately two days for payment to post to the IARD account, the funds should arrive no later than Wednesday, December 6, 2006, to ensure the money is posted to your IARD account by the 8th.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $445, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2007. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Please contact us today to receive an agreement for our services. Note: Engagements received after November 15 are subject to availability.
*If you are an RIA Compliance Consultants annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees please contact us at bhill@ria-compliance-consultants.com.
We also want to remind firms of their obligation to amend the Form ADV on at least an annual basis in the form of an Annual Amendment. This is required under Rule 204-1 of the Investment Advisers Act of 1940 and similar state rules. 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.
RIA Compliance Consultants is offering a special package that includes assistance with completing both the annual renewal requirement and filing the Annual Amendment to Form ADV Part 1. For the low price of $445, RIA Compliance Consultants will help your firm confirm its registration status in all necessary jurisdictions and confirm the registration status of all investment advisor representatives for 2007. You will also receive an Annual Amendment Questionnaire which we will help you complete so that we may prepare and file your Form ADV Part 1 Annual Amendment within the necessary timeframe.
Please contact us today to receive an agreement for our services. Note: Engagements received after November 15 are subject to availability.
*If you are an RIA Compliance Consultants annual retainer client, this service is included in your retainer agreement. To learn more about our retainer services and fees please contact us at bhill@ria-compliance-consultants.com.
posted by bhill at 2:14 PM
End of Year Compliance Items - Part 2
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.
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.
Labels: Compliance Program, Financial Statements, Form ADV, Outside Business Activities
posted by bhill at 2:08 PM
END OF YEAR COMPLIANCE - Part 1
Recently, we have posted several blogs about the IARD renewal season. In addition to paying renewal fees each year, there are a number of other annual requirements that must be completed by investment advisor firms. The end of the calendar year is a good time to discuss some of those different compliance requirements. This entry is the first in a series of blogs that we will post discussing some of the annual requirements.
It's critical that the completion of these annual requirements for investment advisors is well documented. It is very hard to prove to a regulator that an advisor firm has completed a requirement when there is no documentation. For example, any time you submit a form to a regulator be sure to keep a copy of the form and the documentation used to prepare the form. Likewise, it is important to document anything that is delivered to clients.
Form ADV Offer - All advisor firms are required to offer a copy of their Form ADV or disclosure brochure to all clients on an annual basis. The annual offer does not need to be at the end of year; however, it should be made at approximately the same time each year for consistency. Again, documentation of this requirement is essential. Some advisor firms elect to keep a copy of each client's annual offer in the client's file. Other advisor firms elect to keep a sample, dated copy of the annual offer letter along with a list of all clients the offer was sent to and a list of all clients that requested a copy of Form ADV or disclosure brochure. Keep in mind if a client requests a copy of the Form ADV or disclosure brochure, the SEC requires that delivery be made within seven days. Most states also require delivery to be made within a certain time frame.
Customer Privacy Policy Statement - A similar, albeit newer, requirement is the annual delivery of the firm's customer privacy policy statement. In addition to providing a copy of the firm's privacy statement to all clients upon entering into a contract, regulators also require advisor firms to provide a complete copy of the privacy statement to clients on an annual basis. Many firms have begun to incorporate the customer privacy policy statement with the annual Form ADV offer. Again, the key here is to document the delivery by keeping a log of each client that receives the statement, when the statement was sent, and a copy of the statement.
IARD Administrative Functions - The end of the year is a great time to make sure your advisor firm's IARD administrator and user accounts are up-to-date. Maybe an account administrator left your firm this year or maybe someone listed as an IARD user no longer needs to have access to the account. This is a good time to make sure only those within the firm that need access to the IARD system, have access. If a former employee still has an account, make sure the account has been disabled and terminated. Likewise, make sure that all current administrators and users know their user names and have functioning passwords.
The items listed here are definitely not all inclusive of the requirements your firm may need to complete. Each advisor firm should be aware of its regulatory requirements based on the firm's general business procedures and regulatory authority. This entry is the first in a series of annual requirement blogs that we will post so stay tuned to the RIA Compliance Consultants website. If your firm has questions or concerns about one of the items listed in this entry, please give us a call.
It's critical that the completion of these annual requirements for investment advisors is well documented. It is very hard to prove to a regulator that an advisor firm has completed a requirement when there is no documentation. For example, any time you submit a form to a regulator be sure to keep a copy of the form and the documentation used to prepare the form. Likewise, it is important to document anything that is delivered to clients.
Form ADV Offer - All advisor firms are required to offer a copy of their Form ADV or disclosure brochure to all clients on an annual basis. The annual offer does not need to be at the end of year; however, it should be made at approximately the same time each year for consistency. Again, documentation of this requirement is essential. Some advisor firms elect to keep a copy of each client's annual offer in the client's file. Other advisor firms elect to keep a sample, dated copy of the annual offer letter along with a list of all clients the offer was sent to and a list of all clients that requested a copy of Form ADV or disclosure brochure. Keep in mind if a client requests a copy of the Form ADV or disclosure brochure, the SEC requires that delivery be made within seven days. Most states also require delivery to be made within a certain time frame.
Customer Privacy Policy Statement - A similar, albeit newer, requirement is the annual delivery of the firm's customer privacy policy statement. In addition to providing a copy of the firm's privacy statement to all clients upon entering into a contract, regulators also require advisor firms to provide a complete copy of the privacy statement to clients on an annual basis. Many firms have begun to incorporate the customer privacy policy statement with the annual Form ADV offer. Again, the key here is to document the delivery by keeping a log of each client that receives the statement, when the statement was sent, and a copy of the statement.
IARD Administrative Functions - The end of the year is a great time to make sure your advisor firm's IARD administrator and user accounts are up-to-date. Maybe an account administrator left your firm this year or maybe someone listed as an IARD user no longer needs to have access to the account. This is a good time to make sure only those within the firm that need access to the IARD system, have access. If a former employee still has an account, make sure the account has been disabled and terminated. Likewise, make sure that all current administrators and users know their user names and have functioning passwords.
The items listed here are definitely not all inclusive of the requirements your firm may need to complete. Each advisor firm should be aware of its regulatory requirements based on the firm's general business procedures and regulatory authority. This entry is the first in a series of annual requirement blogs that we will post so stay tuned to the RIA Compliance Consultants website. If your firm has questions or concerns about one of the items listed in this entry, please give us a call.
posted by bhill at 9:16 PM
Disciplinary History Disclosures
The SEC and state regulators require registered investment advisor firms to disclose disciplinary history on the Form ADV. Specifically Item 11 on the Form ADV Part I requires certain criminal, regulatory, and civil proceedings to be disclosed. SEC advisor firms may limit their disclosure of any event to ten years following the date of the event's resolution. Depending on the question, state registered firms must disclose events that took place longer than ten years ago. Item 11 not only requires the disclosure of settled events, but it also requires events that are currently on-going to be disclosed. State registered firms are held to an even higher standard of disclosure as they are required to disclose certain financial (such as judgments and liens), arbitration and additional civil proceedings.
In some cases, disclosure of certain financial and disciplinary history may also need to be provided directly to advisory clients. The parameters of these disclosures are set out under Rule 206(4)-4 of the Investment Advisers Act of 1940. Basically, the intent of the SEC is to require advisors to disclose financial and disciplinary history that may materially affect a client's decision to contract with the advisor. In lieu of providing a stand alone disclosure document, most advisor firms choose to disclose these events in the firm's Disclosure Brochure or Form ADV Part II.
Many registered investment advisor firms overlook the fact that not only does the firm's financial and disciplinary history need to be disclosed, but so does the disciplinary history of all advisory affiliates. According to the SEC advisory affiliates include officers, partners, directors, and employees (not including clerical, administrative or support employees). The definition also includes other persons/firms that control or are controlled by the advisor firm.
Disclosure events are considered material updates and therefore the Form ADV must be updated promptly (usually within 30 days of the event). Does your registered investment advisor firm's ADV accurately report all disclosure events? Do you have proper procedures in place to ensure the ADV is updated promptly? If you have any questions on what events should be reported on the ADV, please give us a call.
In some cases, disclosure of certain financial and disciplinary history may also need to be provided directly to advisory clients. The parameters of these disclosures are set out under Rule 206(4)-4 of the Investment Advisers Act of 1940. Basically, the intent of the SEC is to require advisors to disclose financial and disciplinary history that may materially affect a client's decision to contract with the advisor. In lieu of providing a stand alone disclosure document, most advisor firms choose to disclose these events in the firm's Disclosure Brochure or Form ADV Part II.
Many registered investment advisor firms overlook the fact that not only does the firm's financial and disciplinary history need to be disclosed, but so does the disciplinary history of all advisory affiliates. According to the SEC advisory affiliates include officers, partners, directors, and employees (not including clerical, administrative or support employees). The definition also includes other persons/firms that control or are controlled by the advisor firm.
Disclosure events are considered material updates and therefore the Form ADV must be updated promptly (usually within 30 days of the event). Does your registered investment advisor firm's ADV accurately report all disclosure events? Do you have proper procedures in place to ensure the ADV is updated promptly? If you have any questions on what events should be reported on the ADV, please give us a call.
Labels: Form ADV
posted by bhill at 9:03 AM
When Should My Firm Update Its Form ADV?
Regardless of a firm's registration (SEC or state), the Form ADV needs to be updated, at a minimum, on an annual basis and whenever a material change to the document occurs. The annual amendment to the Form ADV Part I must be filed within 90 days of the firm's fiscal year end through the IARD system. The annual amendment is used to update items such as assets under management, number of clients, number of accounts, and number of employees. These items must be updated with information current as of a firm's fiscal year end. At this time, the ADV Part II is not filed through the IARD system, but advisors need to review and update it as part of the annual amendment as well.
While the annual amendment is pretty straight forward, many advisor firms seem to forget about the "material change" requirement and fail to amend their documents in a timely fashion. Material events must be filed promptly with regulators, which, for the SEC and most states, means within 30 days. The following are some of the items on the ADV Part I that, when change, are considered material events: the firm's name; firm's legal organization; and disclosure events. Changes to the ADV Part II that are considered material include revisions to advisory programs, fees and structure. The addition or removal of a director, officer, or investment advisor representative and any changes to the firm's or its affiliates' outside business activities would also be considered a material change.
Under SEC Rule 206(4)-4, an investment advisor must make prompt disclosure to clients when an advisor's financial condition is likely to impair its ability to meet contractual commitments to clients or when there's a legal or disciplinary event material to the evaluation of an advisor's integrity or ability to meet contractual commitments to clients. This disclosure is in addition to amending ADV Part I and usually is in the form of an updated ADV Part II delivered promptly to new and existing clients.
Does your firm have good internal procedures in place to ensure material changes are made within 30 days? Due to the complexity of these questions and the need to fully consider your firm's specific circumstances, we highly recommend that you consult with an expert when confronted with a question about whether and how to update the Form ADV.
While the annual amendment is pretty straight forward, many advisor firms seem to forget about the "material change" requirement and fail to amend their documents in a timely fashion. Material events must be filed promptly with regulators, which, for the SEC and most states, means within 30 days. The following are some of the items on the ADV Part I that, when change, are considered material events: the firm's name; firm's legal organization; and disclosure events. Changes to the ADV Part II that are considered material include revisions to advisory programs, fees and structure. The addition or removal of a director, officer, or investment advisor representative and any changes to the firm's or its affiliates' outside business activities would also be considered a material change.
Under SEC Rule 206(4)-4, an investment advisor must make prompt disclosure to clients when an advisor's financial condition is likely to impair its ability to meet contractual commitments to clients or when there's a legal or disciplinary event material to the evaluation of an advisor's integrity or ability to meet contractual commitments to clients. This disclosure is in addition to amending ADV Part I and usually is in the form of an updated ADV Part II delivered promptly to new and existing clients.
Does your firm have good internal procedures in place to ensure material changes are made within 30 days? Due to the complexity of these questions and the need to fully consider your firm's specific circumstances, we highly recommend that you consult with an expert when confronted with a question about whether and how to update the Form ADV.
Labels: Form ADV
posted by bhill at 10:23 PM
