Advisors: Preparing for Form ADV 1A changes

By Cory Roberson, Principal at FIN Compliance and FIN Lancer 

As of October 1, 2017, firms that make an ADV amendment would notice additional reporting requirements on the Part 1A form (electronic format). 

We recommend that firms review the summary of changes and prepare ahead time to comply with additional burdens.  ADV 1A Changes include:

Client Reporting Chart:

Item 5.D.1 - Breakdown of clients 

Type of Client	Number of clients	Fewer than 5 clients	AUM ($)
Individuals
High Net Worth Individuals
Banking or thrift institutions
Investment companies
Business development companies
Pooled investment vehicles (other than investment companies and business development companies)
Pension and profit sharing plans (but not the plan participants or government pension plans)
Charitable organizations
State or municipal government entities (including government pension plans)
Other investment advisers
Insurance companies
Sovereign wealth funds and foreign official institutions
Corporations or other businesses not listed above
Other:

Additional reporting questions include:

Item 1.F.(5) – What is the total number of offices?

Item 5.C.(1) – What is the total number of clients?

Item 5.I.(1) – Does the firm participate in a wrap fee program?

Item 5.J.(2) - Does the firm report client assets that are computed using a different method?

Item 5(K) – Does the firm have assets under management for separately managed accounts?

Item 8.B(2) – Does the firm recommend the purchase of securities to advisory clients?

Item 8.H(1) – Does the firm compensate any non-employee for client referrals?

Item 8.H(2) – Does the firm compensate any employee for client referrals?

Item 8.I – Does the firm compensate any person for client referrals?

Firms (with separately managed accounts in Item 5.D.1):

Must file:

Schedule. D (Section 5.K (1)(a) - firms reporting over $10 billion 

Schedule. D (Section 5.K (1)(b) - firms reporting under $10 billion 

(1)(B) example shown below

Asset Type	End of year (%)
Exchange-Traded Equity Securities
Non-Exchange-Traded Equity Securities
U.S. Government/Agency Bonds
U.S. State and Local Bonds
Sovereign Bonds
Investment Grade Corporate Bonds
Non-Investment Grade Corporate Bonds
Derivatives
Securities Issued by Registered Investment Companies or Business Development Companies
Securities Issued by Pooled Investment Vehicles (other than Registered Investment Companies or Business Development Companies)
Cash and Cash Equivalents
Other

SEC-Umbrella filling firms with Relying Advisors: 

Must file:  Schedule R. 

Firms who report Private Funds:

Must include a: Public Company Accounting Oversight Board (PCAOB) number for their auditor.  Link to auditor search: https://pcaobus.org/Pages/AuditorSearch.aspx

Summary of all Part 1A changes: https://www.sec.gov/about/forms/formadv-part1a.pdf

Regulatory (Grace) period

Some advisors may experience additional headaches in compiling reporting data, but there is some relief---a regulatory grace period through the next ADV amendment cycle.

The SEC will not recommend enforcement actions for firms that fail to report assets of separately managed accounts (Schedule D, Section 5.K.(2)) prior to next annual amendment cycle (e.g. “other than annual amendment filing’s).

Excerpt from IM Guidance:  “if a filer does not have enough data to provide a complete response to a new or amended question in Item 5 or the Schedule D sections related to Item 5 during the period ranging from October 1, 2017 to the filer’s next annual amendment to the form, the staff would not recommend enforcement action to the Commission under section 207 of the Investment Advisers Act of 1940 if the filer responds “0” as a placeholder in order to submit its Form ADV, with a corresponding note in the Miscellaneous section of Schedule D to identify that a placeholder value of “0” was entered”.
https://www.sec.gov/divisions/investment/imannouncements/im-info-2017-06.pdf

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Compliance and Business Management

FIN Compliance (FINCompliance.io) is a consortium of compliance services including: RIA Consults-Roberson Consults Group, a compliance consulting firm, RIA Review, a compliance-management software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management software tool, and FINLancer is a business management portal featuring:  E-signature tools; Invoicing integration, Vendor Directory, continuity directory*, business client document portal, and more (available by Q3 2019).  Access all services on one site: FINCompliance.io.

Impact

FIN Missions (FINmissions.com) provides business support group sessions for other entrepreneurs.  In addition, Cory has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.