Episode 36: Q1 – Form ADV Amendments and Disclosing Conflicts of Interest

On episode 36 of the CCO Buzz we  cover some frequently asked questions, or FAQs, that the team has seen, and heard, as we are currently assisting clients with their first quarter, (“Q1”) along with their annual updates.



CCO Buzz: Hello and Welcome Back! Believe it or not, Form ADV Season is upon us and deadlines are quickly approaching. But don’t fret because the team at Core Compliance is here to help. Episode 36 of the CCO Buzz will cover some frequently asked questions, or FAQs, that the team has seen, and heard, as we are currently assisting clients with their first quarter, (“Q1”) along with their annual updates. Hopefully this episode can provide you with some essential guidance when navigating your Q1 and Form ADV season.

What are most Investment Advisers and CCOs spending time on this quarter?

Most are involved in drafting their annual Form ADV amendment.  This is the annual update that is due within 90 days of the end of the firm’s fiscal year.  For the majority of firms, the end of the fiscal year is December 31st, meaning they’re currently in the window to file the amendment.

The Form ADV Part 1A changed significantly last year, are there any major changes this year?

No, this year there aren’t any major structural changes to the form or the instructions for filing.  However, we do strongly recommend firms not take that as a signal to “mail the form in” so to speak.  CCOs should always do a thorough review of their Form ADV amendments to ensure accuracy.

In reviewing their annual Form ADV amendment, prior to submission, are there any particular areas of concern CCOs should be paying particular attention to?

Yes, the disclosure of conflicts of interest in Form ADV Part 2A has become a major area of regulatory review.  The expectation is that Firms identify these conflicts and describe how they’ve addressed them, either through policies and procedures that eliminate the conflict, or mitigate the conflict.

Here’s a big one. Do all firms have conflicts of interest?

To put this simply; Yes, All firms DO have conflicts of Interest, whether they believe so or not. Just being in business to earn revenue while being a fiduciary to your clients creates a conflict.  It is not a bad thing to have conflicts, it’s just a bad thing to not disclose and address them.

What are some examples of areas where conflicts of interest can occur?

A few areas could include:

  • Trading through an affiliated Broker-Dealer;
  • Outside business activities pertaining to the firm’s Code of Ethics;
  • Performance fees vs. Asset Based Fees;
  • Debiting fees directly from client accounts, in regards to custody; and
  • Performance advertising, in regards to Marketing.

But this is just a small sampling of the conflicts that can exist.

At Core Compliance, we always believe it’s a great idea to perform an inventory of your conflicts that involves the management team, not just the CCO.  In other words, set aside time to really consider the Firm’s conflicts.  Involving others in management can provide a different perspective and possibly identify conflicts that you are not considering.

Also, as we get deeper into Form ADV Season, don’t forget the Core Compliance is always here to assist. We understand the intricacies of the filing and know how to accurately navigate through all of the approaching deadlines. If you have any questions or need any assistance with your Form ADV or disclosing your conflicts of interest, feel free to contact us at (619) 278-0020 or at info@corecls.com. Thank you!

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 into next week’s episode of the CCO Buzz.


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