SEC Updates Form ADV Part 3/CRS FAQs for Investment Advisers

March 22, 2021


Reading time : 6 minutes

On March 5, 2021, the U.S. Securities and Exchange Commission (“SEC”) added three new questions and answers to its website page with Frequently Asked Questions (“FAQs”) on the Form CRS/Form ADV Part 3 for SEC registered investment adviser serving retail investors. The first new Q&A addresses situations in which an investment adviser or broker dealer with a Form CRS/Form ADV Part 3 filing obligation is dually registered or affiliated with a firm that does not have a Form ADV Part 3/Form CRS filing obligation. The second and third Q&A clarify when and how an SEC-registered investment adviser or broker dealer must file and disseminate the Form ADV Part 3/Form CRS (also referred to as a “relationship summary”) if material and/or nonmaterial changes have occurred.

 

Summary of New Q&A

Can an investment adviser firm that is dually registered and/or has an affiliate exceed the 2-page limit for the Form ADV Part 3/Form CRS, e.g., by filing a combined 4-page Form ADV Part 3/Form CRS for both entities?

Yes, but only if the firm meets the definition of “dual registrant” or “affiliate” in the Form CRS Instructions and the dual registrant or affiliate has an SEC obligation to file the Form ADV Part 3/Form CRS.

The SEC gives the example of an SEC-registered broker-dealer that is dually registered as a state-registered investment adviser or an SEC-registered broker-dealer that is not dually registered, but is otherwise affiliated with another firm, such as a state registered investment adviser. In such cases, the firm is not permitted to prepare and file a single relationship summary that covers both the dual registered/affiliated entities (consequently expanding the page limit to four pages). In the first example, the two entities fail to meet the definition of “dual registrant” in the Form CRS Instructions. In the second, the affiliate does not have a separate Form ADV Part 3/Form CRS filing obligation. In both cases, the SEC-registered firm with the filing obligation is only permitted to file a single, 2-page relationship summary.

Affiliates should not file a Form ADV Part 3/Form CRS unless they have an SEC obligation to file. However, the SEC will permit a firm “to acknowledge other financial services that it provides … so long as the presentation of these services does not obscure or impede understanding of the information that must be included in the relationship summary.”

 

In the event an SEC-registered investment adviser must amend and refile the Form ADV Part 3/Form CRS due to material changes, what are the firm’s delivery obligations to its existing clients?

The investment adviser must communicate the material changes to existing clients who are retail investors, as defined by the Form CRS Instructions, within 60 days after the updates are required to be made. The SEC permits this to occur either by delivering the amended relationship summary or by communicating the information through another disclosure that is delivered to the retail investor.

When delivering an amended Form ADV Part 3/Form CRS, the investment adviser must clearly highlight the changes that have occurred by either marking the amendments in a manner that is “readily distinguishable” and/or including a summary of changes along with the unmarked, amended relationship summary. If the firm is dually registered or affiliated with another firm and prepares separate relationship summaries for the dual registrant/affiliate, it does not need to re-deliver the separate Form ADV Part 3/Form CRS of the dual registrant/affiliate, provided that the changes do not affect those separate relationship summaries.

Although an investment adviser can communicate the material changes without delivering the revised Form ADV Part 3/Form CRS itself – for example by delivering an amended Form ADV, Form ADV summary of material changes, and/or a summary of material changes included with an account statement – the communication itself must convey the material changes. “Merely providing notice of or access to another disclosure or the relationship summary would not satisfy [the SEC’s] requirement.”

In all cases, the current version of the relationship summary must be posted on the firm’s website and delivered to retail investors who are prospective, new or existing customers or clients in accordance with the Form CRS Instructions. Investment advisers must also maintain copies of all versions of their relationship summaries in their books and records.

 

What are an investment adviser’s filing and delivery obligations when making non-material changes to the Form ADV Part 3/Form CRS?

An investment adviser that makes non-material changes to its Form ADV Part 3 may, but is not required to, file the amended Form ADV Part 3 via IARD. To the extent that all such changes are not material, the investment adviser does not need to communicate the changes to its clients or attach an exhibit to the Form ADV Part 3 as it would in the case of material changes.

In all cases, the current version of the relationship summary must be posted on the firm’s website and delivered to retail investors who are prospective, new or existing customers or clients in accordance with the Form CRS Instructions. Investment advisers must also maintain copies of all versions of their relationship summaries in their books and records.

To read the SEC’s full FAQs on Form CRS/Form ADV Part 3, click here.

 

Form ADV Part 3/Form CRS Resources

RIA Compliance Consultants has developed a Form ADV Part 3 Comprehensive Compliance Package which includes the drafting and filing of your Form CRS/Form ADV Part 3 by one of our Senior Compliance Consultants, our Form ADV Part 3 Compliance Manual Update Section, our Form ADV Part 3 Compliance Review Tool Module, and Form ADV Part 3 Training materials, available here.  Also available a la carte are several Form ADV Part 3 sample compliance form and training materials, including the Sample WSP/CoE Section: Form ADV Part 3Form ADV Part 3 – Compliance Review ModuleForm ADV – Part 3 – Conversation Starters Script, Form ADV Part 3 – Training Tool,  Form ADV Part 3 – Relationship Summary Delivery Log, Recorded Webinar: Compliance with Form ADV Part 3 Requirements, and Form ADV – Part 3 – Cover Letters for Relationship Summary.

 

Contact Us

If your investment adviser firm is an existing client of RIA Compliance Consultants and would like assistance reviewing its Form CRS/Form ADV Part 3, developing customized policies and procedures, and/or implementing 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.

 

Related Posts

FAQs on Form ADV Part 3 

SEC Issues Joint Statement on New FAQs Focusing on Disciplinary Disclosures for Form CRS/Form ADV Part 3 – November 2, 2020

Investment Advisers Disclosing Disciplinary Events on Form ADV Part 3 – September 22, 2020

Form CRS/Form ADV Part 3 Testing for Compliance – June 18, 2020

Updating Your Investment Adviser’s Compliance Manual for the New Form ADV Part 3 – May 26, 2020

 

Posted by RCC Admin
Labels: ADV Part 3, FAQs, Form CRS
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