• SEC registered advisers must continue to indicate if the firm has custody at Items 9.A.(1) and (b), but may now mark “No” if “a related person maintains client funds or securities as a qualified custodian but [the adviser has] overcome the presumption that [it is] not operationally independent (pursuant to Advisers Act rule 206(4)(2)-(d)(5)) from the related person.”
• Addition of Item 9.A.(2) to report the total dollar amount of client funds and securities as well as the total number of clients for which the adviser has custody.
• Addition of Item 9.B.(2) to report the total dollar amount of client funds and securities as well as the total number of clients for which the adviser’s related persons have custody.
• Addition of Item 9.C. for advisers to indicate whether a qualified custodian sends quarterly account statements and whether an independent public accountant conducts an annual audit, an annual surprise examination, or prepares an internal control report.  If the answer is in the affirmative with respect to any of the independent public accountant questions, the adviser is required to complete Section 9.C of Schedule D for each independent public accountant that fulfills those functions.
• Addition of Item 9.D. to report whether the adviser or related persons of the adviser act as a qualified custodian for adviser’s clients.  If the adviser has a related person that acts as a qualified custodian, the adviser must fill out Section 9.D of Schedule D for each related person that acts as a qualified custodian for the adviser’s clients.
• Addition of Item 9.E. to list the date of any surprise examinations conducted by an independent public accountant during the adviser’s previous fiscal year.

The SEC has modified Item 7.A.(1) so that now all related persons that are investment advisers, broker dealers, municipal securities dealers, or government securities broker or dealers mustbe listed on Section 7.A. of Schedule D.  The SEC commented that these changes will provide investors with additional safeguards and will provide “better information about the custodial practices of investment advisors.” 

Also, the CRD/IARD Software Release 2010.4 included an announcement that the increased disclosure period from two to ten years on FINRA BrokerCheck and on IAPD (Investment Adviser Public Disclosure) became effective November 6.  This means the general public will be able to view information for 10 years following the individual or firm’s departure from the industry.

Finally, accounting firms hired by investment advisers to conduct surprise verification examinations, in accordance with the custody rule, must now submit Form ADV-E and the accompanying accountant’s examination certificate online through IARD.  A Form ADV-E must also be submitted by the accounting firm within four days of its resignation or dismissal from, or other termination of, the engagement with the investment adviser, or removing itself or being removed from consideration from reappointment, Investment adviser firms will receive notification via email when an accountant submits a surprise examination report via Form ADV-E.

The Form U10 is the Uniform Examination Request used for candidates, who are not employed by or associated with a broker-dealer, to open up a window to take a Series 65 examination.  In the past, an individual associated with a broker-dealer could use the Form U10 to open an exam widow without going through his or her broker-dealer’s Web CRD account.  However, now an individual currently associated with a broker-dealer must file the Form U4 through the broker-dealer’s Web CRD to open the Series 65 exam window.

If you have any questions regarding our investment adviser registration services, please click here to schedule an introductory call with Tammy Emsick at RIA Compliance Consultants.

First, the definition of “investment adviser representative” has been slightly changed.  The term is now defined as “an individual employed by or associated with an investment adviser…and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendations or advice regarding securities should be given, provides investment advice or holds himself or herself out as providing advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice or supervises employees who perform any of the foregoing.”

The other major change relates to the registration of investment adviser representatives.  All investment adviser representatives are now required to be registered unless they are exempt from registration under the Kentucky Securities Act.  Prior to the recent changes, an individual who was a partner, officer, or director, (hereinafter “executive”) of a registered investment adviser or a person occupying a similar status or performing similar functions with an investment adviser was not required to register as an investment adviser representative.  However, this exemption for executives of investment advisers is no longer valid.  Therefore, all executives of registered investment advisers who meet the revised definition of investment adviser representative must complete and file a Form U4, the Uniform Application for Securities Industry Registration or Transfer, through the Central Registration Depository (CRD) system in order to remain registered as an investment adviser representative.

The final date to comply with Kentucky’s new investment adviser representative registration requirement is October 15, 2010.  If you need advice or assistance regarding registration as an investment adviser representative in the State of Kentucky, any of our compliance consultants are willing to assist you.

The information published by the IAPD includes qualifications, such as licenses, professional designations, and any exams passed; previous employment, including a list of firms where the investment adviser representative was previously registered, as well as any employment within the last ten years both inside and outside the securities industry; and a disclosure section which details any customer disputes or disciplinary events on the investment adviser representative’s record.  The published information is obtained through Form U4, which is a registration and licensing form used by securities regulators to collect information about investment adviser firms and investment adviser representatives.  Both investment adviser firms and investment adviser representatives are required to ensure this information is accurate and up-to-date.

Under Michigan’s revised definition of “investment adviser representative,” all individuals who make recommendations or give advice, manage accounts, determine recommendations or advice, provide investment advice, solicit for the sale of investment advice or supervise any individual conducting such activities are considered investment adviser representatives and must be licensed. 

To register as an investment adviser representative, an individual must make a Form U4 filing with FINRA’s CRD/IARD System.  As part of this filing, an individual must submit proof that within the previous two years, the individual has passed either the Series 65 or both the Series 7 and the Series 66 examinations.  Individuals may apply for a waiver of the exam requirements, which waiver request must be submitted by August 2, 2010.

The final date to comply with Michigan’s new investment adviser representative registration requirements is November 1, 2010.  However, due to an anticipated high number of filings, the State of Michigan has stated that licensing may take 60 days from the time a filing is submitted.   Therefore, it is recommended that individuals submit their investment adviser representative application prior to September 1, 2010 to prevent any  lapse in registration.  If you need advice or assistance regarding the filing of an investment adviser registration  application, any of our compliance consultants are willing to assist you.

The Series 65 is the Uniform Investment Adviser Law Examination, which is designed to qualify candidates as investment adviser representatives. The Series 65 Examination will continue to be comprised of 130 questions; however, effective January 1, 2010, the number of questions devoted to Legal and Regulatory Issues will decrease from 45 to 40 and the remaining 90 questions will cover Economic Concepts, including investment products, recommendations, and strategies and may include a few questions on Capital Markets Theory and specific types of accounts, such as College Savings Plans. Additionally, the Examination includes 10 questions which are considered pretest questions, which do not count towards the final grade. Effective January 1, 2010, the passing grade for the Series 65 Examination was increased from 68.5% to 72%.

The Series 66 is the Uniform Combined State Law Examination, which is designed to qualify candidates both as securities agents and investment adviser representatives. The Series 7 is considered a corequisite exam to the Series 66 and is required to be successfully completed in addition to the Series 66 before a candidate can register as a securities agent and investment adviser representative. The composition of the Series 66 Examination was significantly changed. The Series 66 Examination remains comprised of 100 questions; however, the number of questions testing knowledge of Legal and Regulatory Issues has decreased from 80 to 50 and the number of questions testing knowledge of Investment Recommendations, Strategies, and Products has increased from 20 to 50. Additionally, the Examination includes 10 questions which are considered pretest questions, which do not count towards the final grade. Effective January 1, 2010, the passing grade for the Series 66 Examination was increased from 71% to 75%.

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

Six regulatory action disclosure questions were added to the Form U4 on May 18, 2009. The new disclosure questions are Questions 14C(6)(7) and (8) and Questions 14E(5)(6) and (7). These questions are recorded with a blank answer on an investment adviser representative’s Form U4 filing, and investment adviser firms must provide answers to these new disclosure questions by not later than November 13, 2009. In order to respond to the new disclosure questions, a firm will need to submit Form U4s with responses to these new questions for all of the firm’s investment adviser representatives. If the firm determines that a “yes” response is required for any of the new disclosure questions, then the U4 filing would need to include a corresponding completed disclosure reporting page regarding the “yes” answer.

For additional details regarding the new Form U4 regulatory action questions, you may review information published on the FINRA website at the Approved Changes to Forms U4 & U5 web page and in the FINRA Regulatory Notice 09-23.

RIA Compliance Consultants, Inc. can help you file updated Form U4s for your investment adviser representatives. If you would like our assistance in updating the Form U4s for your investment adviser representatives, please contact our office at 877-345-4034.

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.

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.