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Friday, March 30, 2018

Compliance - ‘Tis the Season . . . . to File or Renew (Advisors)

By Cory Roberson, Principal at RIA Review and RIA Consults


Filing season is in full swing.  As such, we wanted to give you an opportunity to assess your annual compliance reporting requirements.  Below are a few key filings that may apply to your firm.  
Disclosure Documents:   
ADV Annual Updating Amendment filing

Firms should review updates on the Form ADV Part 1A, 1B*, 2A and/or 2B for accuracy.

Some filing examples include: custody, regulatory assets under management (AUM), disciplinary history, types of clients, services, and other business activities.

Most firms are required to file their annual updating amendments within 90 days of firm’s fiscal year end.  SEC advisors must file an annual amendment as its registration filing fees are also due at that time.  

ADV ‘Other Than Annual’ Amendment filing (material changes — for all firms)

Firms should update their Form ADV Part 1A, 1B*, 2A, and/or 2B when certain information becomes inaccurate. Clients must also be notified of changes.

Some filing examples include: staff updates, large AUM changes, new services, and/or fee schedule amendments. This notice should occur within 30 days of the material change.

U-4 Initial/Amendment filing

Advisors should update their U-4 when there are changes in an Investment Advisor Representative’s business activity.

Some filing examples include: (1) updates in registration jurisdictions, (2) address changes, (3) disciplinary history, and/or (4) employment updates.

*State-Registered Firms.

Financial Statements and Custody Rule disclosures:

Unaudited Financial Statements filings (state-advisors):
Some state jurisdictions require firms to deliver financial statements on either an annual or monthly basis.  In most cases, these financial statements are due within 90 days of the firms’ fiscal year end.   Advisors may review these general guidelines on our compliance management software:  RIA Review.
California requires financials + supplemental documentation
The California Department of Business Oversight (Section 260.237.2) requires the delivery of a: (1) Balance/Income sheet, (2) Minimum Financial Requirements Worksheet, and a (3) Verification form on an annual basis.  Firms, who do not meet minimum net worth requirements, are required to file interim reports on a monthly basis until statement balances reach compliance thresholds.
This rule applies to firms who: (1) maintain Discretionary authority, (2) charge a prepayment of $500 or more for services, and/or (3) maintain custody of funds/securities.
Audited Financial Statements Filings (all advisors with custody):
Both SEC and State-registered firms, who have custody (possession of client funds or securities), must adhere to either SEC Rule 206(4)-2 or similar state adapted guidelines.  State regulators usually require the delivery of audited statements on at least an annual basis.
SEC Rule 206(4) -2 - Custody of Client Funds or Securities
SEC firms, who are deemed as having custody of securities, must adhere to standard guidelines.  State advisors must rely on similar guidelines within their jurisdictional framework.
SEC Custody Rule provisions include:
Safekeeping – A qualified custodian must keep separate account records for each client or in an account that contains only client funds in a Custodian's name. 
Notification - Inform client(s) in writing of the qualified custodian's name, address, and the manner in which the funds are maintained when the account is opened and following any other changes.

Account statements - Advisor or custodian must send Quarterly statements to each client identifying the amount of funds and of each security in the account at the end of the period and showing all transactions.

Independent CPA must verify all client accounts once each calendar year at a time that is chosen by the accountant without prior notice (surprise examination) and that is irregular from year to year.  Form ADV-E must be filed with the Commission within 30 days after completion stating that it has examined the funds and securities and describing the nature and extent of the examination. Discrepancies must be filed within one business day.

A client may designate an independent representative to receive account statements. Mutual fund owners may use the funds transfer agent.

SEC vs. State Custody: differences
Generally, state guidelines can mirror SEC Custody rule provisions as stated in the Investment Advisors Act.  As mentioned below, guidelines may differ in some cases.
Custody disclosure for direct fee debiting in California and Florida:
California and Florida require safekeeping disclosures on the ADV for firms that directly debit client accounts for fee billing purposes and for “enhanced custody” which refers to the actual possession of funds or securities. 
Colorado designates a CPA or an Attorney as representative:
An excerpt from Colorado Rule 51-4.10(IA) states the following: “Independent representative” means a certified public accountant or attorney who:  Acts as agent for an advisory client, including in the case of a pooled investment vehicle, for limited partners of a limited partnership, members of a limited liability company, or other beneficial owners of another type of pooled investment vehicle and by law or contract is obliged to act in the best interest of the advisory client or the limited partners, members, or other beneficial owners;”
We encourage firms to check with their state securities regulator to confirm custody rule guidelines.  Some states may or may not require a surprise examination. 

Other Filings

Edgar (13F, 13D, 13G)

Some advisors may need to adhere to securities filings for institutional holdings, beneficial owners, and/or 5% owners in a publicly held stock.

Form PF filings

Some large firms, who are also private equity or venture capital advisors, may need to file this specialized type of form.

Reg D. (Rule 505, 506, etc.)

Some advisors, who also manage private placement investments, private funds, and/or hedge funds may need to file these types of forms. 

Email us at: or call us at: 650-305-2688.

Our Mission: “Serving the Investment Community to Make a Social Impact”

Cory Roberson is Principal of RIA Review, a compliance and document management portal ( - 120+ 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 ( more than 160 SEC & State advisors clients across the US (including a few in Europe).  His third platform, RegTech Review, a FinTech compliance portal site: ( is currently in prototype stage.   

As a social entrepreneur, through his mission-driven arm SoCap Missions (, he provides business support group sessions and has volunteered for more than 15 youth programs in locations such as S. Korea, China, S. Africa, Thailand, and India.

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