Form ADV Tips: What You Should Think About Before Filing

Registered investment advisers (“RIAs”) that have a fiscal year end of December 31st are currently faced with the impending deadline of March 31st for filing their annual amendment to Form ADV. While in the past RIAs may have begun reviewing their Form ADV for updates in March, this year needs to be different.

With the compliance date for the new revisions to Form ADV[1] having passed[2] , RIAs are now being required to provide additional information regarding, among other things, their regulatory assets under management (“RAUM”) pertaining to their separately managed accounts[3]. While the new data required may seem daunting, Core Compliance believes that robust planning and organization can help RIAs ensure success in gathering the new data and provide a plan for future amendments.

In this month’s Risk Management Update, we provide tips on how to prepare for your Form ADV annual amendment, including steps for gathering your data and suggestions on how to document your process to use going forward.

form ADV tips

Summary of New Information Required

The SEC expanded Form ADV Part 1, which now requires advisers to include, as applicable, the following additional data:

  • Identifying Information – CIK numbers; CRD numbers; total number of offices and information on the firm’s twenty-five largest offices; firm social media sites; the name and tax ID for any individual or company that compensates the RIA’s CCO for providing CCO services to the RIA; and range of balance sheet assets for firms with $1 billion or more.
  • Information about the Advisory Business – the number and types of clients; the RAUM for each client type; the number of clients not counted in the firm’s RAUM amount; the RAUM attributable to non-US clients; information on parallel managed accounts; the amount of RAUM attributed to a wrap programs where firm is sponsor, portfolio manager or both; identification of custodians that maintain custody of more than 10% of the RIA’s RAUM; the percentages of RAUM in separately managed accounts[4]  by asset class types; and, the gross notional exposures for derivatives and borrowings in separately managed accounts.
  • Umbrella Registration[5] – the identification and organizational information for each relying adviser of the RIA.

The sections of Form ADV Part 1 that now require new or additional data include:

  • Item 1 – Identifying Information
  • Item 2 – SEC Registration (for Umbrella Registrations)
  • Item 5 – Information about Your Advisory Business
  • Item 7 – Financial Industry Affiliations and Private Fund Reporting
  • Item 8 – Participation or Interest in Client Transactions

Also, new Schedule Ds are required depending on responses to questions in the above listed items, and a new Schedule R that requires details regarding relying advisers.

Gathering and Preparation Steps

Step 1: - Review and Inventory Form ADV Changes

 The SEC released a redlined version of the Form ADV Part 1 as part of the adoptive rule release IA-4509[6], which outlines all the newly required information.

Reviewing this document will allow you to identify the new information applicable to your firm and create an inventory. The inventory can be a spreadsheet or other document that provides the ability to catalog the data (e.g. asset types, derivatives, borrowings, gross notional exposures, etc.) and assign the different departments or individuals at your firm that will be responsible for gathering.

Additionally, the inventory can be saved to use as a base for future Form ADV filings.

Step 2:  Inform Senior Management

The Chief Compliance Officer should communicate with senior managers, so they are aware of the time commitment allotted for the project, understand the extent of the information that needs to be obtained and the individuals that have been tasked with gathering the data. 

Step 3: Create a Working Group

Determine the personnel that will need to be involved in the data gathering process and create a working group or team.  Inform members of the filing deadline and the data needed to be collected. The more resources available, the faster, and more efficient your data gathering will be. Core Compliance has created a timeline for the ADV that you can use as a template, which can be found here.

Step 4: Work With Custodians and Utilize Outside Resources

Working with your custodians to leverage their reporting tools can be key. Custodians such as Charles Schwab, TD Ameritrade, and Fidelity have automated reports that you can run, which contain needed data.

Don’t forget to leverage your outside resources, such as your consultant relationships at Core Compliance, to provide support and guidance on pressing questions about the Form ADV updates.

Step 5: Maintain Documentation 

As you go through this process, be sure to maintain the gathered data that substantiates the information included in your Form ADV filing. You’ll also want to create desktop procedures to outline the steps taken and the sources that provided the data.  This will not only make the next filing easier, it will show regulators that you are applying a consistent methodology to your classification of clients, assets, and for some, derivatives and borrowing.

Conclusion

Don’t wait, begin taking steps now. Through organization, utilization, and documentation, your firm will be able to complete your ADV amendment in a timely fashion and most likely ahead of the deadline.

For more information or assistance with completing and filing your firm’s Form ADV annual amendment, please contact us at info@corecls.com, at (619) 278- 0020 and visit us at www.corecls.com for additional information.

Author: Adam Stutz, Compliance Consultant; Editor: Tina Mitchell, Lead Sr. Compliance Consultant Core Compliance & Legal Services (“CCLS”).  CCLS works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity firms and banks on regulatory compliance issues.

This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional.

 

[1]  See “Form ADV and Other Investment Adviser Rules” (Release No. IA-4509 October 31, 2016) at https://www.sec.gov/rules/final/2016/ia-4509.pdf

[2] October 1, 2017

[3] Defined as any accounts other than registered investment companies, business development companies, and other pooled investment vehicles (e.g., private funds).

[4] Defined as any accounts other than registered investment companies, business development companies, and other pooled investment vehicles (e.g., private funds).

[5] Defined as registration on one Form ADV of multiple private fund adviser entities operating a single advisory business

[6] https://www.sec.gov/rules/final/2016/ia-4509-form-adv-summary-of-changes.pdf