With the recent updates to the requirements for Form ADV, many firms are wrapping up the preparation for their Form ADV Annual Amendment filing.
Most firms should have spent the last few weeks gathering specific data points to address the recent ADV rule changes; addressing new questions about the Form ADV and how it will impact their business model; identifying new data points that weren’t previously required, etc. Once the firm completes their Form ADV Annual Amendment filing and completes the annual delivery of their Form ADV to their clients, some firms believe that’s the end of their requirements when it comes to Form ADV.
While the execution of your Form ADV Annual Amendment filing has likely been complex and time consuming with all the moving parts that must be tracked, and it’s understandably exhausting to have to think about doing another update when one has just been filed.
However, it’s best to remain prepared, and it’s important to ask:
When am I required to file an Other-Than-Annual Form ADV Amendment?
When to File Other-Than-Annual Amendments
The regular annual updating amendment must be filed 90 days after the end of the fiscal year — for most firms, this means 90 days after December 31 (for some it may be a different part of the year). Using the December 31 example, most firms will have filed their Annual Amendment on March 31.
In contrast to the Annual Amendment, Other-than-Annual Form ADV Amendments need to be filed, promptly, when a material change occurs.
Here are some examples of material changes that would trigger the need to file an Other-than-Annual Form ADV Amendment:
- Your firm begins offering a new service
- Your firm changes its fees
- Your firm gains a new affiliate
- Your firm identifies a conflict
- Your firm begins buying new types of investments that have different risks
- Your firm takes on custody that it did not have before
- Your firm has a new relationship with a custodian
- You are adding or removing a relying adviser as part of your umbrella registration
- Your firm changes its fee structure
- Your firm’s employees begin receiving indirect compensation from your firm’s investments
Make sure to check the Form ADV Instructions and the SEC’s list of Form ADV and IARD Frequently Asked Questions for detailed information.
As a rule of thumb, it is best to consider if a change would make a difference in a client’s decision to hire an adviser or materially impacts an adviser’s business, which in turn could impact a client. If the answer is yes (or even maybe), then it’s likely an Other-than-Annual Form ADV Amendment needs to be filed. If you’re ever unsure, we invite you to talk to your compliance consultant to be sure. Other-than-Annual Amendments need to be filed promptly, and if you delay, you could be facing penalties.
An annual review can be a chance to examine your firm for conflicts that may not have been identified before, or to review your existing ADV and compare it to your actual business practices. Annual reviews can be a major benefit in finding risks that need to be addressed, such as events that require an Other-than-Annual Form ADV amendment.
Another point to consider, depending on the type of material change, is that not only will you need to file an Other-than-Annual Form ADV Amendment, but you may also need to deliver your updated Form ADV 2As (and, if required, your 2Bs, and Wrap Fee Brochures) to your clients.
It should be noted that when the rule states that the filing of an Other-than-Annual Form ADV Amendment should be prompt, the deadline is 30 days from the date the material change occurred — although, the earlier you can file, the better.
Better to Be Safe Than Under Enforcement
The bottom line is this — it’s better to be safe and file an Other-than-Annual Form ADV Amendment than be sorry and give the SEC a reason to issue a deficiency or create an enforcement action because of a failure to disclose a material change.
If you are unsure whether a change to your Form ADV is material or not, or you are struggling to prepare your Form ADV Annual Amendment this year, request time to speak with a member of our team!