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ADV Updates: Is Your Firm Meeting its Ongoing Obligation to Update Regulatory Filings?

If your firm is a registered investment adviser and your fiscal year-end is December 31, you have an important deadline approaching: Form ADV annual updates are due within 90 days after the end of your fiscal year.

The information included in your Form ADV is intended to help both investors and regulators understand your firm, so it is important to ensure the continued accuracy of that information. Firms are required to update the form throughout the year as material changes occur. In addition, every firm must file an annual updating amendment to ADV Part 1 and Part 2A within the first calendar quarter after the end of their fiscal year. For most firms, this means the annual updating amendment is due no later than the end of March.

Understanding Requirements

RIA firms’ compliance teams need to be aware of when a change is considered “material” as opposed to being “non-material.” For material changes, firms must promptly update their Form ADV registration documentation with the SEC. If a change is non-material, firms can generally wait to change their ADV filings until their annual updating amendment is due.

What is a “Material” Change?
In trying to determine whether a change is material or not, one approach is to think about it from the standpoint of an investor. Would the information be something that could cause the investor to change their mind about becoming (or remaining) a client of your firm? If so, it is likely material.

Some examples of material changes include the following (Note: This is not an exhaustive list of material changes):

  • New product or service offerings
  • Changes to the way your firm charges clients for services
  • Changes in the firm’s leadership
  • New contact information (address, phone number)
  • Conflict of interest changes, including new relationships with custodians or brokers
  • Changes to regulatory or legal issues disclosed on the form (or new issues)

What about Non-Material Changes?

Non-material changes are more routine items that investors and regulators should reasonably expect to change over time. For example, your firm’s number of clients served and assets under management are important numbers, but they are considered non-material for the purposes of Form ADV. When you prepare and complete your annual updating amendment, these numbers must be updated, along with the rest of the items on Form ADV.

Of course, the annual ADV amendment is not the only filing deadline firms must meet. Be aware of all deadlines, including annual registration renewals due in December each year, Form PF, 13d, 13g, 13f, 13h, and Section 16 filings, Form D and Blue Sky requirements, and all other obligations. State-registered investment advisers may also need to adhere to state-specific filing requirements, which often include submitting financial statements and other records on an annual basis.

Misfiling Regulatory Updates Carries Risks and Potential Consequences

Firms should resist the urge to wait until the last minute and then rush through the annual updating amendment for Form ADV, simply to finish the filing and check a “to-do” off the list. Regulators and investors alike rely on the data contained in periodic and annual ADV filings. If that information is inaccurate or incomplete, firms run the risk of regulatory fines and sanctions, along with the negative publicity and loss of client trust that can come with such actions.

A better course of action is to start early and take a methodical approach to completing the ADV update. Consider involving other departments’ leaders in completing the update, by assigning relevant sections of the document to different individuals to review for accuracy and completeness. Taking this approach can create a spirit of collaboration and can help reinforce the importance of the compliance department’s mandate.

Leverage RegTech to Ensure Filing Requirements are Met

There is no question that preparing and filing your Form ADV annual updating amendment is no small feat. One way firms can make sure they are staying on top of their filing requirements, and that Form ADV amendments include all relevant changes, is to leverage compliance technology solutions.

When your firm has an enterprise-wide compliance system in place, querying the system for relevant data and running targeted reports is simple and fast. By capturing and housing compliance information in one place, you can be confident you have all the information needed to put together your responses to each item on Form ADV Part 1 and Part 2A. Built-in system workflows and other functionality ensure the process keeps moving, so filing deadlines don’t sneak up on you.

For questions about your ADV filing, check out the SEC’s Frequently Asked Questions page.