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Investment Advisers and Annual Filings

Saturday, February 16, 2019

If you have yet to submit, or at least begin, your annual amendment, time is running out. Remember, whether you are State or SEC registered, your annual amendment is due 30 days from the last day of the registered adviser’s fiscal year end. For most, this means the amendment is due by March 31.

Below are some helpful tips to assist you navigate the Form:

  1. The Part 1 is to report the AUM and activities conducted during the previous fiscal year. The ADV Part 2 is the disclosure brochure used to inform prospective and current clients of the business you offer;
  2. We receive many calls and emails from our clients concerning separately managed account clients. Remember, in regard to the ADV Part 1, a separately managed account client is referring to all clients listed on the Schedule D, other than private fund clients, mutual fund company clients and business development clients; meaning, that if your clients are not private funds, mutual fund companies and/or business development clients, then they are considered separately managed account clients for the purposes of completing the ADV Part 1;
  3. The total AUM provided under Item 5.F.(2)(c) must match the total AUM provided for all client types in Schedule D, Item 5.D, so verify your calculations before hitting the submit button;
  4. If you allow clients to choose their own broker dealer/custodian (do not require clients to use the custodian with whom you have a custodial relationship), Items 8.C(3) and (4) should be marked to indicate No;
  5. If your adviser has any standing letters of authorization (SLOA) with its clients, please refer to the SEC’s February 21, 2017 No Action Letter regarding SLOA’s and custody when completing Item 9 of the ADV Part 1;
  6. Reading and following the instructions to the Part 1 and 2 is very important when submitting any amendment, not just the annual amendment. This especially important when completing Part 2A, Item 10, Part 2B, Item 4 and 5 and the U4 for all registered investment adviser representatives to ensure all outside business is disclosed as required;
  7. If your adviser has ever filed a 13 filing, Form PF, Regulation D exemption, etc. with the SEC, make sure you conduct a search of EDGAR for the Central Index Key (CIK) number(s) for the filing(s) and report those on Part 1, Item 1.D(3), and;
  8. If your adviser is owned by another entity and employee compensation is paid out of the entity owner account, do not answer yes to ADV Part 1.J. The regulators are wanting to know if the adviser is outsourcing its Chief Compliance Officer. FYI, this will put you much higher on the risk matrix the regulators use in determining their annual audit schedule, and;

The most important thing to remember is, don’t submit your amendment late. You have three months to make the filing and there is no reason why the deadline cannot be met. The regulators may be lenient on newly registered advisers, but those who have been in the industry for a while know better.

Written by: Steven Horn, Senior Compliance Consultant and Audit Manager, Red Oak

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.