For most investment advisers, March signals the beginning of Form ADV season, where compliance officers gather all kinds of firm data to update a document fraught with potential regulatory liability.

For the uninitiated, Form ADV is the uniform form investment advisers (RIAs) use to register with the SEC and state securities authorities. Exempt reporting advisers (ERAs) are also required to provide an amended form of this filing with the SEC. RIAs and ERAs are required to file an annual update of Form ADV no later than 90 days after their fiscal year end, which, for many firms, is March 31, 2025.

This document includes important disclosures about the firm’s business practices, fees, conflicts of interest and disciplinary information. Form ADV is also publicly available on the Investment Adviser Registration Depository (IARD) system. 

Perhaps even more significantly, the SEC uses Form ADV extensively during the examination process. Because SEC examiners go over this document with a fine-tooth comb, firms need to provide accurate and complete information. Unfortunately, the questions can be confusing, and the SEC’s expectations about the required level of disclosure seem to increase every year. So we have provided some practical advice on how to approach the annual update.

Fund the IARD

First, make sure the firm has sufficient funds in its IARD Daily Account to cover the filing fee. The annual updating amendment fee for advisers with assets under management (AUM) of $100m or more is $225.  For firms with AUM between $25m and $100m, the fee is $150; for firms with less than $25m, the fee is $40 (see the SEC’s IARD Filing Fee webpage.) For ERAs, the filing fee is $150. For more information about fees and payment methods, check out the IARD Fees & Renewals page.

In addition to the SEC registration renewal fee, firms must also pay their annual state notice filings in those states where they do business and have clients. Firms should review their client lists, focusing on client addresses, to determine whether new state notice filings need to be made. Exemptions are available for RIAs with five or fewer retail clients and no place of business in that state.

RIAs that serve only institutional clients may also be exempt from state notice filings. There are a few states where an RIA must submit a notice filing before doing any business in that state, including Louisiana, Nebraska, New Hampshire, and Texas. IARD provides the mechanism for firms to pay their state notice filings. A list of state filing fees is available on www.iard.com.  This website from Thompson Hine compiles the investment adviser notice filing laws for all 50 states.   

Start early

Firms should start the annual updating amendment before the March 31 due date to ensure that the final submission gets entered without any issues. The form can be saved as a draft until the firm is ready to file.

The IARD system also runs a completeness check that identifies any incomplete or unanswered questions and whether the firm has sufficient funds to cover filing fees. Any errors must be resolved, and appropriate funds deposited before IARD will accept the submission. Do not wait until the last minute to run the completeness check since this could delay the filing.

Be consistent

Form ADV Part 1A and 2A require the same information about assets under management, personal trading, custody, compensation and referrals. Form ADV Parts 1A, 2A, 2B and CRS require disclosure about the firm’s relationships and services, fees and costs, conflicts of interest, and disciplinary history. Ensure the answers in all four parts of the Form ADV are consistent.

Don’t forget important disclosures

We advise firms to maintain a table of conflicts affecting the firm. This could be conflicts presented by the firm, an affiliate, or an employee. This list should include the efforts made to eliminate or mitigate the conflicts and the places they are disclosed. You should use this as a reference when reviewing your ADV.

Don’t just use the word “may” and think it’s ok

Given this word had been the subject of enforcement cases, we advise you to be cautious when using it. It becomes an issue if it could be perceived as keeping things confusing for the investor or client when it could be described more clearly. Consider using descriptive words that best explain a particular situation such as “most of the time”, “infrequently”, “typically”, “regularly.”

Maintain backup

The SEC expects to see evidence supporting the responses to Form ADV and that evidence should be credible. For example, firms should have reports substantiating the number and types of clients, types of investments, and assets under management. 

In addition to these records, RIAs should have a standard operating procedure that documents the source of the information, how the reports were created, what fields were used to pull the data, and how the data was scrubbed. Having a process in place will make compiling the information for next year easier.

Make it a team effort

Form ADV is a public document that discloses important information about the firm. Operations should be helping with pulling the necessary information. Firm management should be engaged in the process and know what it says. 

We recommend that the president or chief executive officer sign the Form ADV filing to ensure that firm management takes responsibility for the document. We also recommend getting all department heads involved in the review to ensure accuracy. 

Double check how you calculate AUM

“Assets under management” means there are ongoing components including trading, rebalancing and review. What is “ongoing” you might ask?  The SEC likes to see things happening in the accounts quarterly. It doesn’t work just to bill quarterly and not have any activity. 

For this reason, many advisers also have “Assets under advisement”. If you miscalculate your assets under management and bill incorrectly, you could find yourself recalculating and returning management fees with interest.

Accurately reflect custody

There are certain exceptions to custody rule where you don’t have to do a surprise exam, but you still have custody for ADV purposes. For example, managers with Standard Letters of Authorization must ensure that the Custody section is completed accurately reflecting custody despite adherence to the no action letter. 

Be sure to peel the onion here and explore where you have custody.

Update Form ADV to reflect audit status

Over the last few years, the SEC has entered a number of settlements with private fund managers because of their failure to update disclosures on Form ADV about the status of financial statement audits. Specifically, Schedule D, item 7.B(1), question 23(h) asks whether all of the reports prepared by the auditing firm for each of its private funds since the last annual updating amendment contained unqualified opinions.

Given the timing of the annual update, many private funds may not have received their funds’ audit reports for the most recently completed fiscal year and respond “not yet received” to this question and then forget about it. However, the instructions to Form ADV state that “If you check `Report Not Yet Received,’ you must promptly file an amendment for your Form ADV to update your response when the report is available.” 

Therefore, private fund managers should mark their calendars to update Form ADV Part 1A to change this response once the audit report has been received.  Fortunately, updating this response through an “Other than annual amendment” does not require payment of any additional filing fees.

Disclose performance

Most know that projected returns are hypothetical, but not everyone knows, so we are including this in case it saves anyone by reading it here.

Stay up to date

The SEC staff updated its Frequently Asked Questions on Form ADV and IARD (the FAQs) with 38 new and updated answers.  Although there have been no additional updates since then, firms should review these FAQs before completing their Form ADV update to confirm they are responding to the questions in line with the latest SEC interpretations.

Know that exclusions apply

Form ADV Part 2B and Form CRS are not required to be updated as part of the Form ADV Annual Updating Amendment. Form ADV Part 2B, also known as the Brochure Supplement, is a document that contains information about the education, business experience, business activities, conflicts of interest and disciplinary history of individuals who provide advisory services to the clients of an RIA.

Brochure supplements are not filed with the SEC but must be provided to clients either before or at the time that the individual provides investment advice to that client. The form must be updated and provided to clients when any of the information provided becomes materially inaccurate.

The information on the brochure supplement is available through the Investment Adviser Public Disclosure website. Firms should also ensure the information in the brochure supplement is consistent with the disclosures provided by an investment adviser representative on Form U4, the Uniform Application for Securities Industry Registration or Transfer, which is filed through the FINRA gateway. State laws require that investment adviser representatives file a Form U4 to register in any state where they have a place of business, unless an exemption applies.

We advise firms to provide their investment advisory representatives with a copy of their Form ADV Part 2B and U4 on an annual basis so they can review and make any necessary changes.

Form CRS, also known as the Client Relationship Summary, does not have to be updated as part of the Form ADV Annual Updating Amendment. However, Form CRS includes some of the same information as Form ADV Part 2A, so firms should review Form CRS at the same time they update Form ADV Part 2A to ensure consistency.

RIAs that serve retail investors must amend Form CRS whenever any information in the Form becomes materially inaccurate by filing an amendment on IARD within 30 days. Each amended Form CRS must also be delivered to retail investors who are existing clients or customers and must highlight the most recent changes by marking the revised text or including a summary of material changes. 

Firms that are required to file Form CRS and have a public website must also post the most current version of Form CRS prominently on that website (which is generally understood to be on the firm’s landing page). RIAs should make sure that an updated copy of the Form CRS is posted on the website whenever changes are made.

Use the miscellaneous section wisely

We advise firms to consider whether there is a guidance or assumption that you are relying on for one or more responses. Adding a bit of text to Schedule D Miscellaneous can help to clarify certain responses.

Don’t worry, be happy

Yes, that seems like an oxymoron when we are mentioning above that disclosure mishaps can land a firm with an enforcement case. While this is true, most ADV errors don’t cause this much trouble. During an examination, the SEC may question responses and if, in the staff’s view, the firm responded incorrectly, but tried to disclose all information clients might want to know, the most likely result is that the Form ADV will need to be revised.

In our experience, if a firm has a reasonable explanation for the response and had no intent to defraud, the issue will not go any further.