Form CRS/Form ADV Part 3 Testing for Compliance

June 18, 2020

With the fast approaching deadline to file and deliver the new Form CRS/Form ADV Part 3 relationship summary, investment adviser firms registered with the United States Securities and Exchange Commission (“SEC”) must take steps to test their compliance with this Form CRS/Form ADV Part 3 rule. In its recent Risk Alert, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) discussed what SEC registered investment adviser firms can expect from an examination that focuses on Form CRS/Form ADV Part 3 compliance. Click here to read the SEC’s Risk Alert.

ADV Part 3 Testing for Compliance

Filing and delivering the Form CRS/Form ADV Part 3 relationship summary by the initial deadline is only the beginning of an SEC registered investment adviser firm’s compliance with the new Form CRS/Form ADV Part 3 requirement. In conjunction with the initial delivery and filing, the investment adviser firm must implement a robust compliance program designed to ensure that the Form CRS/Form ADV Part 3 relationship summary is updated, filed, and delivered as required on an ongoing basis. Performing in-house compliance testing is necessary to help the investment adviser firm prepare for an SEC examination and ensure proper compliance with the Form CRS/Form ADV Part 3 requirements.

Areas of SEC Examination

The recent SEC Risk Alert discusses five main areas of review for Form CRS/Form ADV Part 3 examinations. Given the level of detail in the Risk Alert, investment adviser firms under examination should expect a thorough review of their policies and procedures, as well as historical and current practices related to the Form CRS/Form ADV Part 3.

At a minimum, the SEC will be reviewing the following areas:

  • Filing and Delivery.
    • Have filings and delivery of the Form CRS/Form ADV Part 3 relationship summary been timely made? Do the investment adviser’s policies and procedures include specific instructions related to filing and delivery of the Form CRS/Form ADV Part 3 relationship summary?
  • Content.
    • Does the Form CRS/Form ADV Part 3 relationship summary include all required information? Is the content easy to understand, true, accurate, and not misleading?
  • Formatting.
    • Has the investment adviser firm used the required formatting for the Form CRS/Form ADV Part 3 relationship summary?
  • Updates.
    • Were updates to the Form CRS/Form ADV Part 3 relationship summary timely made, filed, and delivered to clients?
    • How does the investment adviser firm highlight changes when delivering updates to retail investors?
  • Recordkeeping.
    • What records can the investment adviser provide to show its filing and deliveries have been timely made? Does the investment adviser firm have adequate policies and procedures relating to Form CRS/Form ADV Part 3 relationship summary?

During an examination, the investment adviser can expect SEC staff to request and review outside documentation, such as the Form ADV Part 2 and advisory contracts for consistency with the Form CRS/Form ADV Part 3 and the investment adviser’s actual practices.

Other Resources

RIA Compliance Consultants will be hosting a webinar on Form ADV Part 3 compliance on Wednesday, June 24. During this webinar, Bryan Hill, President of RIA Compliance Consultants, Inc., will discuss the initial delivery requirements to existing clients, the use of electronic delivery, the requirement to post to the website and hyperlinking to Form ADV Part 2A, the obligations to update, file and deliver after material changes and SEC examination issues. Click here to register for the upcoming webinar.

In addition, RIA Compliance Consultants has developed a new module for Form CRS/Form ADV Part 3 compliance testing in the RIA Express – Compliance Review Tool. This new module takes your investment adviser through a series of questions about its disclosures, policies/procedures and actual practices related to the Form CRS/Form ADV Part 3.  Based upon your investment adviser’s answers and the SEC’s published rules for a federally registered investment adviser, RIA Express – Compliance Review automatically generates a written findings report and allows you to create and track the status of your corrective actions. The RIA Express – Compliance Review Tool is available through one of our Annual Compliance Program Packages.

Contact Us

If your investment adviser firm is an existing client of RIA Compliance Consultants and would like assistance developing customized policies and procedures and/or compliance testing for the Form CRS/Form ADV Part 3, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.

Posted by Grant Parr
Labels: ADV Part 3, SEC