If your investment advisor has filed the new Form ADV Part 2A, you can breathe a brief sigh of relief. However, now it is time to focus on the new delivery requirements. If your investment advisor is registered with the U.S. Securities and Exchange Commission (“SEC”) and filed the new Form ADV Part 2A, your investment adviser must now begin to deliver the new brochure to its investment advisory clients. Under the revised SEC Rule 204-3, an SEC registered investment advisor is generally required to deliver a disclosure brochure and one or more brochure supplements that contain all information required in Form ADV Part 2 to each client and prospective client.
SEC Rule 204-3 requires an investment advisor registered with the SEC to deliver the disclosure brochure and brochure supplement(s) to perspective clients prior to or at the time the investment advisor enters into an advisory contract with the client. Typically this means that the investment advisor will deliver the Form ADV Part 2A and Form ADV Part 2B supplement(s). If your investment advisor sponsors a wrap-fee program, the investment advisor may need to provide the clients with the Form ADV Part 2A-Appendix 1 Wrap-Fee Brochure (formerly known as the Schedule H of the Form ADV) and the required Form ADV Part 2B brochure supplement(s).
As an SEC registered investment advisor transitions to the new Form ADV Part 2, the investment advisor must deliver the new Form ADV Part 2 to existing clients within 60 days of the date that the investment advisor was required to file it. Going forward, SEC Rule 204-3 requires an investment advisor to make an annual delivery to its clients if there are material changes to its brochure since its last annual updating amendment. Within 120-days of an investment advisor’s fiscal year end, the investment advisor must deliver either (1) a current brochure or (2) the summary of material changes to its brochure with an offer to provide a copy of the brochure upon request. This is different than the past requirement that on an annual basis at approximately the same time each year, an investment advisor must simply offer its clients a copy of its brochure. There are additional requirements under this SEC Rule that may necessitate deliveries more frequently than annually.
Although there has been an extension for SEC registered investment advisors for delivering the new Form ADV Part 2B supplement brochure(s), investment advisors are going to need to familiarize themselves with the new Form ADV Part 2B supplement brochure delivery requirements as well. Generally, an investment advisor must deliver to each client a brochure supplement for a supervised person at or before the time that supervised person begins providing advisory services to the client. It is important to note that the extension only applied to the Form ADV Part 2B supplement brochures and not the Form ADV Part 2A or the Form ADV Part 2A Appendix 1 Wrap-Fee Brochure.
An investment advisor registered with one or more state regulators will need to check with the state securities regulator to determine the delivery requirements. Many state securities regulators will have to update their state rules and regulations in order to require a state registered investment advisor to follow new delivery requirements. Some state securities regulators have recommended that a state registered investment advisor comply with the SEC requirements until the state securities regulator’s new rules are released. In contrast, some state securities regulators do not want a state registered investment advisor using or delivering the new Form ADV Part 2 to clients until it has been reviewed by the state securities regulator and the state securities regulator has granted approval for the investment advisor to deliver the new Form ADV Part 2.
Regardless of whether your investment advisor is registered with the SEC or a state securities regulator, the filing of the new Form ADV Part 2 will result in new delivery requirements. It is important you’re your investment advisor understand the new requirements to ensure that it is making proper delivery of the Form ADV Part 2A and Form ADV Part 2B brochure supplement(s). For more information on the new delivery requirements and other guidance on how regulatory changes may affect your investment advisor, please register to attend RIA Compliance Consultants’ webinar, “My ADV Part 2 is Filed – Now What?”, which will be presented on April 19, 2011 at 12:00 pm CDT. A fee of $59.95 will be charged for this webinar. To register (click here).
For more information or to speak with someone regarding the services provided by RIA Compliance Consultants (click here) to access an on-line calendar and schedule a time for a consultant to call you.
Posted by Bryan Hill
Labels: ADV Part 2, Form ADV