Tips for Preparing Your Form ADV 2025 Update

We are in the midst of Form ADV season and for advisers with a December 31st fiscal year end, you are in the thick of preparations to update your Form ADV by March 31, 2025. These tips are intended to help you ensure a smooth process.

1. Fund your IARD account at least one week before the deadline: The IARD system will not accept an ADV filing for an account that is not funded, and unfortunately, high traffic toward the filing deadline may result in snafus that can delay your filing. Get ahead of it by making sure your account has the appropriate funds well in advance. The SEC has a helpful page with filing FAQs, if you need more information.
   
   Fees are based on the adviser’s regulatory assets under management (RAUM):

   RAUM	Initial Registration	Annual Update Fee
   > $100 M	$225	$225
   ≤ $100 M but ≥ $25 M	$150	$150
   > $25 M	$40	$40
   Exempt reporting advisers	$150	$150

   State notice filings: The Form ADV annual updating amendment offers an opportunity to check whether new clients have triggered any state filing requirements. Make sure you have funded your IARD account to pay the associated state filing fees and check the box next to each appropriate state under Item 2C of Part 1A of Form ADV. Do not wait until the next annual state filing renewal to make these changes, and continue to monitor client onboarding throughout the year to determine whether additional filings are required. A list of state filing fees can be found on the IARD website, or you can call the appropriate state securities authority for this information.

2. Check for consistency: Read Parts 1A, 2A, and 2B and 3 (Form CRS), as applicable to ensure consistency throughout these sections. Pay particular attention to information about the firm’s relationships and services, fees and costs, conflicts of interest, and disciplinary history to be sure you have accounted for any changes since the last annual filing. To the extent certain risks disclosed in the past are no longer applicable, remove them (e.g., COVID 19).
3. Document, document, document: During examinations and investigations, the SEC often requests documentation confirming the firm’s information reported in Form ADV. In the month before you file your annual update, run reports to confirm your firm’s number of clients, types of investments, assets under management, RAUM, and custody. Where the ADV asks you to classify clients, document the criteria and reports used to arrive at your answer. When calculating RAUM, identify and document information you consulted, your calculation method, and your data sources and describe any methodology used to filter or interpret that data. (Monitor RAUM throughout the year to ensure requirements that depend on RAUM are met, e.g., exempt reporting adviser status).
4. Report material changes: Even if you made an other-than-annual Form ADV amendment, in Item 2 of Form ADV Part 2A, you must include all material changes since the last annual update.

Risks and conflicts to consider adding or amplifying in your Form ADV disclosure

Below, we highlight current SEC focus areas signaled via SEC releases, recent enforcement cases, the Division of Examinations’ 2025 Examination Priorities and its 2024 Risk Alert on compliance with the Advisers Act Marketing Rule. As you prepare your Form ADV update, consider how these risks and conflicts may relate to your firm’s business or investing style and disclose them, as appropriate.

1. Marketing: The Division of Examinations published a Risk Alert in 2024 reporting frequent deficiencies in Form ADV relating to the Marketing Rule, including:
   • Advisers’ Part 1A inaccurately stating adviser’s advertisements did not include:
     • Third-party ratings (found on website or social media posts)
     • Performance results (found in marketing materials)
     • Hypothetical performance (found in advertisements)
   • Outdated references to the prior Cash Solicitation Rule (Advisers Act Rule 206(4)-3)
   • ADVs indicating no referral arrangements exist (if they did)
   • ADV, Part 2A, Item 14 omitting material terms and compensation of referral arrangements
   • Use of social media without corresponding ADV disclosure
   Be sure to check for these potential errors.
2. Artificial intelligence (AI): In preparing your Form ADV disclosure, consider the materiality of AI risks to advisers identified by the SEC, including risks that AI technologies may:
   • Prompt investors to enroll in products or services that financially benefit the firm but may not be consistent with clients’ investment goals or risk tolerance
   • Encourage clients to enter into more frequent trades or employ riskier trading strategies (e.g., margin trading) that will increase the firm's profit at the client's expense
   • Inappropriately steer clients toward complex and risky securities products inconsistent with clients' investment objectives or risk profiles that result in harm to clients but that financially benefit the firm
   • Be compromised by poor data quality
   • Expose client information or the adviser’s intellectual property

   The SEC Examinations Division has indicated that in 2025 it will be examining these risks, focusing on AI policies, procedures and disclosure at firms that use AI in any aspect of their advisory operations, including portfolio management, trading, marketing, or compliance. The 2025 Examination Priorities indicate that you should consider, in particular, risks to your firm and clients relating to monitoring and/or supervision of AI, including tasks related to fraud prevention and detection, back-office operations, anti-money laundering (AML), and trading functions, as well as the risk to client records from the use of third-party AI models and tools.

   In light of the 2024 “AI washing” cases, we also suggest that you confirm and document any claims your firm makes about its use of AI. See for example 33-11316, IA-6573 and IA-6574.

3. Digital engagement practices: The 2025 Examination Priorities report a focus on advisers’ representations regarding digital engagement practices, such as digital investment advisory services, recommendations, and related tools and methods, whether these practices and tools are controlled consistently with disclosures to clients, and in particular, whether algorithms are performing as promised. This is another example where it would be a good idea to review the accuracy of any disclosure regarding these practices.
4. Outsourcing: The SEC has identified risks with respect to the outsourcing of advisers’ critical functions to third-party vendors that can compromise an adviser’s compliance with its fiduciary duty and other regulatory obligations. The SEC has also noted that outsourcing creates a conflict for advisers because adequate investigation and controls over third-party vendors can be expensive, creating an incentive for advisers to underinvest in these measures. The SEC’s 2025 Examination Priorities indicate that the Division of Examinations will focus on these risks, particularly with respect to sub-advisory relationships.
   
   In preparing Form ADV, consider the materiality of outsourcing risks at your firm, including these specific risks noted by the SEC:
   • A vendor lacks adequate competence, capacity, or resources to provide contracted services, including cybersecurity and business continuity
   • A vendor lacks controls necessary to comply with applicable laws, including securities laws and privacy laws
   • A vendor lacks necessary controls over its subcontractors, particularly if they are “geographically dispersed”
   • The adviser lacks controls necessary to confirm that the vendor complies with federal securities laws, where they apply
   • The adviser lacks the ability to terminate the vendor in an orderly manner (and conversely, controls to ensure the vendor terminates in an orderly manner)
   The 2025 Priorities also emphasize service provider oversight for advisers to registered investment companies, both affiliated and third party. To support disclosure of the associated conflicts, advisers to investment companies should consider:
   • Taking inventory of service providers that support critical fund operations, including direct contractual relationships, as well as critical sub-contractors to vendors, and
   • Documenting how oversight is conducted, by whom, and what level of documentation exists or would be appropriate around the due diligence process for each vendor.
5. Conflicts relating to particular assets: The 2025 Priorities signal a focus on whether advisers have adequately disclosed their conflicts with respect to:
   • High-cost products
   • Unconventional instruments
   • Assets sensitive to higher interest rates or changing market conditions
   • Illiquid assets
   • Difficult-to-value assets
   • Commercial real estate
6. “Non-standard fee arrangements”: The 2025 Priorities call out “non-standard fee arrangements” as a “consideration” in evaluating advisers’ compliance with their fiduciary duties. In discussing whether advisers’ compliance programs are reasonably designed to prevent advisers from placing their interests ahead of clients’ interests, the Priorities also call out “fee-related conflicts, such as those associated with select clients negotiating lower fees when similar services are provided to other clients at a higher fee rate.” Read together, these passages suggest that examiners will consider unequal treatment of similar clients, at a minimum, as a conflict of interest that requires disclosure.
7. Private credit and real estate: The 2025 Priorities’ emphasis on strategies sensitive to interest rate fluctuations, difficult-to-value assets, and fund level lines of credit suggest advisers, including managers of private credit and real estate funds should draft their disclosures to address these issues with the expectation that they may be scrutinized by SEC examiners.
8. Dual capacity advisers: The 2025 Priorities give added emphasis to the conflicts of advisers that are also registered broker-dealers. Dual capacity advisers should review their disclosure that explains when they will act as brokers for their clients and when they will act as advisers.
9. Advisers to private funds: The 2025 Priorities signal the SEC’s ongoing focus on how disclosures by private fund advisers mesh with their actual practices in managing conflicts of interest with respect to:
   • Preferential redemptions
   • Adviser-led secondary transactions
   • Debt
   • Fund-level lines of credit
   • Affiliated transactions
   • Use of affiliated service providers
   • Investments held by multiple funds
   • Allocation of investment opportunities
   • Calculation and allocation of fees and expenses
   • Market volatility risks
   Inadequate disclosure regarding adviser-led secondary transactions was also the subject of a 2023 enforcement order, while preferential redemptions were the subject of a 2024 enforcement order.
   
   The 2025 Priorities also indicate that examiners will assess whether private fund advisers have disclosed fees and expenses to all investors in Form ADV consistently with their disclosures in fund documents. As always, Form ADV should not diverge from disclosure in fund documents.
10. Cybersecurity: The recent reorganization of the SEC Enforcement Division’s cyber effort underscores the SEC’s commitment to strengthening the cybersecurity of regulated firms, including investment advisers. The SEC’s 2025 Examination Priorities call out a long list of cyber risks for firms to manage, with a particular focus on the risk of third-party vendors and the cyber risks associated with a geographically dispersed workforce. Advisers should consult their cyber experts to be sure that their cybersecurity disclosure is accurate and up to date.
    
    Firms should also consider whether the cyber events of 2024 revealed risks that should be disclosed in the 2025 update, including the CrowdStrike outage and the warning from the U.S. National Counterintelligence and Security Center (NCSC) regarding infiltration of investment advisers by malicious third-party actors.
11. Review all fees paid to the adviser and its affiliates to ensure disclosure of conflicts. See for example: IA-6568, IA-6603, IA-6696, IA-6725, IC-35132, 34-100691, 34-100183-s, and 33-11329. Note also the mention in the 2025 Priorities of “alternative sources of revenue or benefits” as a focus area.
12. Confirm that your controls for managing conflicts associated with trade allocations and expense allocations are described accurately. See, for example, LR-25953, 33-11338, LR-26183 (trade allocations) and IA-6811 (expense allocations).
13. Review outside employment of investment personnel and relationships between investment personnel and clients to ensure disclosure of conflicts. See for example: IA-6615 (outside employment) and IA-6802 (client relationship).
14. Confirm that calculation of regulatory assets under management is consistent with SEC guidelines. See for example IA-6600 and IA-6694.
15. Confirm that representations about ESG policies match reality before making them. See for example IA-6753 and IA-6770.
16. Update your soft dollar disclosure: Part 2A of Form ADV, Item 12.A.1 requires disclosure of the soft dollar benefits your firm obtained in the past 12 months so be sure to check last year’s information and update it if anything has changed.
17. The last word: Don’t forget to update your Form ADV, Part 1A, Schedule D, Section 7.B.23.(h) when you distribute annual audited financial statements pursuant to the custody rule. See for example: IA-6665, IA-6804.

How we help

Financial institutions 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 regulatory filings.

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

Contact us