All registered investment advisers must file a Form ADV with the SEC and update it as necessary. In this brief educational post, we discuss some of the basics about the Form ADV and the important compliance issues that all registered managers should know about.
The Form ADV has two parts:
- Part 1 - This online form discloses general information about the Manager and its key personnel (e.g., disciplinary history, number of clients, assets under management, custody issues, identity of Chief Compliance Officer, etc.). Form ADV Part 1 is filed electronically via the IARD system, is publicly available and must be updated on an annual basis.
- Part II – This part discloses the Manager’s services, fees, privacy policies, proxy voting procedures, brokerage practices, conflicts, and investment strategies. Part II serves as the brochure that MUST be provided to potential clients prior to entering into an advisory services agreement and it must also be offered to clients on an annual basis. The Part II is not regularly submitted to the SEC and is not publicly available. It should be noted however that the SEC has released a proposed rule that WOULD result in significant changes to ADV Part II. If adopted, ADV Part II would become “ADV Part 2”, would be electronically filed via the IARD system, and would require a “plain English” format.
Form ADV Updates
Certain material changes to the information and disclosures in the ADV must be updated “promptly” and filed with the SEC. Although there is a long list of items that may require a prompt amendment, a few examples would be changes to any of the following:
- the Manager’s legal name
- the Manager’s principal place of business
- the location of the Manager’s books and records
- the Chief Compliance Officer
- the Manager’s organization form
- the status of certain persons related to the Manager with respect to violations of the certain statutes, orders and regulations
- the Manager’s custody policies
- controlling persons of the management entity
- the business activities of the firm
You can view the full list of items which will require prompt updates on Page 2 of the ADV instructions. You should also note the the Adviser’s Act does not define the term “promptly,” but from a best practice standpoint, filing amendments within 10 days of any changes should satisfy the requirements.
All other changes to the Form ADV (such as personnel, number of clients, and assets under management) may be updated in the annual amendment which must be filed within 90 days of the end of each year.
Managers should keep in mind that there are fees associated with the IARD system, although those fees have been waived through December 31, 2009.
Chief Compliance Officers should familiarize themselves with the full list of changes that require prompt amendments and build a system regular reminders into their compliance infrastructure to ensure that all updates are made in a timely manner.
