When Should My Firm Update Its Form ADV?

July 12, 2005

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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.

Posted by Bryan Hill
Labels: Form ADV