Episode 68: Practical Tips for Completing and Filing Forms ADV and CRS

On episode 68 of the CCO Buzz, Managing Director, Consultation Services, Tina Mitchell offers her practical tips for completing and filing Forms ADV and CRS. 

CCO Buzz: Hello, and welcome back to the CCO Buzz. As [Form] ADV and the new Form CRS filing deadlines approach, Tina Mitchell is here to offer her expert tips and guidance, just in time!  

Tina Mitchell: For those of you with a December 31st fiscal year end, you are now most likely in the throes of drafting your Form ADV annual amendment and thinking about starting Form CRS.  So, to that end I wanted to give you a few compliance tips based on regulatory deficiencies that we’ve seen, which will hopefully help you through the process.

Form ADV Part 1

For Form ADV Part 1:

  1. Be sure to review the SEC guidance on calculating regulatory assets under management, which is contained in the Form ADV instructions on the SEC’s website. This will help you in determining what assets should and should not be included in the calculation.
  2. The term “separately managed account,” as used in Form ADV Part 1, is actually defined as any account that is not a pooled investment vehicle, and the definition’s different than how the industry usually defines separately managed accounts.
  3. Before filing you want to confirm your answers, especially in Item 8 and 9, match up with your disclosures in Form ADV Part 2A.
  4. Keep in mind that Standing Letters of Authorization that clients put into place with custodians allowing their advisory firm to initiate transfers to third parties on the client’s behalf, are considered custody, and you need to put those assets into Item 9.
  5. If you answer any questions on the form that you feel need clarification, consider adding an explanation using Schedule D Miscellaneous.

Form ADV Part 2A

In regards to disclosures for Form ADV Part 2A, there are a number areas that the regulators continue to remain ultra-focused on:

  1. Conflicts of interest. Not only do you need to describe all applicable conflicts, but you need to add information on how the firm addresses each conflict. We recently posted a Risk Management Update to our website on this topic, which includes a list of the more common types of conflicts that apply to most advisory firms. 
  2. Providing detailed disclosures pertaining to [the] risks associated with the different types of investment products that you recommend or that are invested in for clients, especially when a firm is recommending private funds or other limited offerings to clients.
  3. Using the word “may” when in fact you are [or] are not doing or receiving something.
  4. If you have tiered fees, you need to include disclosures on aggregating the assets of all a client’s accounts for purposes of fee discounts, commonly referred to as “householding.”
  5. Describing the ways the firm has custody of client assets and the basic safeguarding steps to be taken.
  6. You need to include information on whether or not the firm or any of your employees receive compensation from third parties doing business with the firm or from any outside business activities, such as commissions, finder’s fees, selling insurance products, mutual fund 12b-1 fees, and the like.

Form CRS

So, for Form CRS – this must be filed by June 30th by all SEC registered advisers with retail clients, and broker-dealers [and] also dually-registered firms.

  1. You want to make sure that you review [the] Form CRS instructions and the SEC’s FAQs on their website in detail to understand what can and cannot be included, along with the various delivery requirements.
  2. Investment advisers and broker-dealers that are not dually registered are only allowed two pages of real estate for this document.
  3. Currently there’s no additional filing fee for the Form CRS.
  4. And, you should implement training on answers to the “Conversation Starters” in the document so that representatives are prepared.

Form ADV Filing

Last but not least, some administrative tips for Form ADV filings:

  1. Make sure you’ve deposited the appropriate filing fee into your IARD Flex Funding account prior to filing.
  2. Check to see if you have any new state notice filings that need to be made.
  3. Once filed, you want to distribute final versions to all applicable internal and external parties and give instructions to “retire” any prior versions from distribution.
  4. And remember, Form ADV is a living document and should be reviewed any time changes to your business take place.

Core Compliance actually assists our clients with drafting and filing Form ADV and Form CRS, so please contact us at info@corecls.com or at 619-278-0020, if you have any questions or need assistance. 

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.

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