Sharpen Your Pencils: Form ADV Updates are Due March 30

Advisers with a December 31 fiscal year end must file the annual amendment to Form ADV by March 30.

FAQ update

The Securities and Exchange Commission's (SEC’s) Division of Investment Management released an Information Update that included many updates to FAQs on Form ADV.

Some important changes include:

• When reporting interests in ETFs on Schedule D, Section 5.K.(1), classify them as “securities issued by registered investment companies or business development companies” rather than “exchange-traded equity securities.”
• Firms “must identify and discuss material changes” instead of simply listing changes in Item 2 on Form ADV Part 2A.
• For question 23(g) of Schedule D, Section 7.B.(1), “if the applicable deadline for the distribution of the private fund’s audited financial statements for the most recently completed fiscal year has not yet passed, an adviser may answer ‘Yes’ if it has engaged an auditor and the audited financial statements will be distributed as required. …An adviser should answer ‘No’ if the applicable deadline has passed and audited financial statements were not delivered to clients for the most recently completed fiscal year.” We expect this will result in many firms no longer needing to check the box “Report Not Yet Received.”

There are many other changes, so review the FAQs carefully. The SEC provided a red-lined document showing the changes made.

Tips when completing your firm’s update

Here are a few things to keep in mind when preparing the update.

• Don’t forget your wallet: Firms must have sufficient funds in their IARD Flex Funding Account, or the IARD system will not accept the filing. Do not wait until the last minute as your payment could take a few days to process.
• Keep your story straight: Form ADV Parts 1A and 2A require the same information about assets under management, compensation, personal trading, custody, affiliates, and referral arrangements. Form CRS also includes information in parts 1A, 2A, and 2B about the firm’s relationships and services, fees and costs, conflicts of interest, and disciplinary history. Ensure the answers in all three parts of the Form ADV are consistent.
• Back it up: Some items in Form ADV require advisers to make their own determinations and calculations, such as classifying clients, calculating RAUM, and custody. Firms should develop a consistent and repeatable process for responding to these questions, supported by data. For example, document the method used to classify clients when answering questions about the number and types of clients. Similarly, when calculating RAUM, identify the source of information, how reports were created, and how the data was scrubbed.
• Update Content: Advisers are reminded to scrub obsolete information when updating Form ADV and to consider what new information should be added. For example:
  • Risks: Are disclosed risks still accurate and material? (For example, does your ADV still include COVID disclosure?) Have new risks emerged? (Consider, for example, whether the firm has made any changes to its universe of investments or investment strategies that create new risks. Has the firm started artificial intelligence?)
  • Soft Dollar Products: Has the firm begun to receive new soft dollar products or services during the past 12 months? Has it dropped products or services previously disclosed?
  • Amendments to Private Fund Documents: Ensure that you make conforming amendments to the ADV.
  • Part 2A: Have potential conflicts of interest cited in previous ADV disclosure with “may” references become actual conflicts that should be affirmatively disclosed?

How we help

Investment advisers must meet various regulatory filings requirements and other obligations, or subject their firm to penalties, sanctions, and hard-to-repair reputational losses. ACA Signature can help.

ACA Signature is a scalable solution curated to suit your firm’s unique compliance needs. We combine compliance advisory, innovative technology, and managed services to effectively address regulatory commitments and day-to-day responsibilities, including assisting with Form ADV.

Reach out to your ACA consultant, or contact us to find out how ACA Signature can help transform your firm’s compliance program.

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