An investment adviser is required to prepare and submit a completed Form ADV as part of the initial registration process. In addition to the review by the U.S. Securities and Exchange Commission (“SEC”) or state securities regulator(s) for purposes of determining whether to approve or deny an application for investment adviser registration, the Form ADV Part 2 is also used as the investment adviser’s disclosure document which is required to be provided to all investment advisory clients. The Form ADV must provide accurate, current, and consistent disclosures. The general instructions for the Form ADV provides the investment adviser with details regarding the frequency at which the investment adviser is required to update certain information in the Form ADV. At a minimum, an SEC registered investment adviser must file a Form ADV annual updating amendment at least annually within 90-days of the investment adviser’s fiscal year end. Most state securities regulators have similar requirements for a state registered investment adviser.
An investment adviser’s written supervisory policies and procedures should address the procedures for properly maintaining the Form ADV and should designate one employee of the investment adviser as the party responsible for ensuring that the Form ADV is properly maintained. The investment adviser’s designated party should be familiar with the requirements for maintaining the Form ADV so that all updates are filed in a timely manner. When an investment adviser is developing its written supervisory procedures, the investment adviser must first identify all areas of risk that exist within the investment adviser. A Risk Inventory Guide available on the SEC’s website specifically lists “Form ADV Disclosures” as a risk that may be present as part of an investment adviser’s everyday operations. Some of the specific risks listed are: “Inaccurate, omitted, or unclear disclosures; Out of date disclosures; Misrepresentation of services offered; or Failure to disclose potential conflicts of interest.” An investment adviser needs to understand that failure to update the Form ADV, as required by the Form ADV General Instructions, is a violation of SEC rules and similar state rules and could lead to an investment adviser’s registration being revoked.
While many investment advisers have written procedures and seem to have a general understanding of the requirements for maintaining the Form ADV, not properly maintaining the Form ADV is an area where deficiencies are commonly found during regulatory exams. This is noted in a report, 2011 Coordinated Investment Adviser Examination Report (“Examination Report”), issued by the North American Securities Administrators Association “NASAA.” According to NASAA’s Examination Report, almost 60% of all state-level investment advisers examined had some type of deficiency related to registration. The top investment adviser registration deficiency specifically related to not properly maintaining the Form ADV and included deficiencies like inconsistencies between the Form ADV Part 1 and Part 2 and Form ADV updates not made in a timely manner. At the end of the Examination Report, NASAA provides a list of “Best Practices for Investment Advisers.” One of the recommended best practices for investment advisers is to “review and revise Form ADV and disclosure brochure annually to reflect current and accurate information.”
Many registered investment advisers have a fiscal year end of December 31 and these investment advisers will need to file the Form ADV annual amendment through the IARD system no later than March 30, 2013, in order to comply with SEC and state securities regulators’ requirements. An investment adviser should take this time to conduct a thorough review of its Form ADV. As the investment adviser is conducting a review, the investment adviser should determine if all material information has been disclosed, if all potential conflicts of interest have been disclosed, if all information provided is current and accurate, and if information is consistent between the Form ADV Part 1, Form ADV Part 2, and all other advisory documents (e.g., client agreements, wrap-fee brochures).
For more information on preparing your investment adviser’s Form ADV Annual Amendment, RIA Compliance Consultants is hosting a webinar, “Preparing Your Form ADV Annual Amendment,” on January 10, 2013, at 12:00 CST. During this webinar one of our senior compliance consultants will discuss the Form ADV items that are required to be updated on an annual basis, some of the common mistakes we see when investment advisers are filing their annual amendment and some of the other amendments and filings that may need to be made with your annual amendment. The cost for this webinar is $69.95. For more information, click here.
RIA Compliance Consultants can assist your registered investment adviser with preparing and filing the Form ADV annual amendment. If you would like to discuss our Form ADV Annual Amendment services further, contact your consultant if you are an existing client or click here to schedule a time to speak to one of our consultants.
Posted by Bryan Hill
Labels: ADV Part 2, Compliance Program, Form ADV, Webinar, Written Policies and Procedures