Communicating Firm Disclosures & Updates for Compliance

Advisors,

We understand the difficulties in terms of reporting firm updates onto the appropriate documentation for compliance purposes.  Last October, the SEC added another layer of complexity to this matter by requiring additional disclosures for the ADV Part 1A electronic format version.  

In light of current regulations, we suggest that firms consider the creation of a reporting rubric for applying updates across the board.  If you need assistance with this task, we have reporting resources available in the disclosure documents section of our Compliance management software: RIA Review (for premium plus users only).

Advisors with other business activities should also become aware of its other jurisdictional compliance obligations (broker-dealer, securities filing, blue-sky, private funds, ICO’s, etc.).

Q.  Where do we communicate disclosures and/or firm updates?

A. Any of the following may apply:  ADV Part 1A, 2A, 2B, Contracts, Investment Policy Statements, Privacy Policy, Business Continuity Plan, Procedures Manuals. Advertising, Websites, emails (electronic delivery), U-4, ADV-W, and DRPs.

Q. What are separately managed accounts (for ADV 1A-Item 5 reporting)?

A. Assets under management attributable to clients: Individuals, High Net Worth Individuals, Corporations, etc.

Q. Are we required to fill out the new ADV 1A (Section 5.D chart)?

A. Yes, if you provide investment advisory/supervisory services to client accounts such as: Individuals, High Net Worth, Pensions, etc.

Q. Are we required to fill out ADV Sch. D (Section 5.K (1) Separately Managed Accounts)?

A. Yes: For firms with separately managed accounts such as: Individuals, Hi-Net Worth Individuals, Pensions, etc.  excluding 5.D.(3)(d)-(f) client types.

A. No:  For firms with client types in one or more of following categories only*: (d) investment companies, (e) business development companies, (f) pooled investment vehicles (ref Item 5.D (3)(d)-(f)).

Q. How do I fill out ADV Sch. D (Section 5.K(1) Separately Managed Accounts)?

A. Fill out Part A (only)-  if separately managed account assets (after deducting d-f) are over $10 billion.  Fill out Part B (only) - if separately managed account assets (after deducting d-f) are under $10 billion.  Note: Most firms will need to fill out Part B only.  Client asset types must total 100%.

Q. When is the ADV Annual Updating Amendment due?

A. Within 90 days of firm's fiscal year end. For: SEC Registrants and most State registrants*. Note: Check with each state jurisdiction. Some states only require an ADV update within 30 days of a material change.

Q. When are Annual Financial Statements due?

A. Within 90 days of firm's fiscal year end for most states.  Applies to: Some state registrants and/or advisors with discretionary authority (Examples: Florida, New York, California).  Advisors with custody are subject to audited financial statements according to the SEC Custody rule and/or its state jurisdiction.

Q. Do I need to report Assets Under Management (AUM$) in item 5.F, Item 5.D (Schedule D—5.K)

A.  Answer the following

Do you provide continuous and regulator supervisory or management services to securities portfolios?

 Yes, you’ve signed a portfolio management agreement and provide those supervisory services* to clients.

 No, you only receive a solicitor fee for securities portfolio clients and all those account have agreements that are managed by third party only (third party reports AUM$)

Examples of Portfolio Management/Supervisory Services*

Monitoring portfolios, making securities recommendations, and trades on behalf of a client for an advisory fee.

Monitoring client portfolios in connection with a third-party manager and then splitting advisory fees with that manager.

Signing an investment advisory agreement for portfolio management services of securities portfolios.

Assigned an advisor on a client’s securities portfolio/brokerage accounts.

Charging a fee (based on AUM or fixed) for portfolio supervisory services.

Generally, firms wouldn’t include reporting AUM when offering the following services only: Financial Planning, Insurance, seminars, and third-party managers (receiving solicitor fee only) –this would be a separate category from portfolio management services. 

Where to report assets under management on ADV. 

ADV Part 1A

Item 5.D – Separately Managed Accounts

Item 5.F – Regulatory Assets Under Management

ADV Part 2A

Item 2 – For material changes only (significant jump/declines in AUM$)

Item 4 – Advisory Services 

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Investment Advisor/Compliance/Broker Dealer

Cory Roberson is Principal of RIA Review, a compliance and document management portal https://RIAReview.com - 130+ users and growing.  

He is also Principal of RIA Consults -Roberson Consults Group), a consulting firm providing compliance, operations, and business development services for registered investment advisors and next-gen fintech entrepreneurs - RIAConsults.com.  To date, RIA Consults worked with more than 160 SEC & State advisors clients across the US (including a few in Europe).  Our integration division, RegConsults helps to mitigate compliance issues for other Fintech businesses.  

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As a social entrepreneur, through his mission-driven arm SoCap Missions (http://SoCapmissions.com), he provides business support group sessions and has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.