By Cory Roberson, Principal at RIA Review and RIA Consults
Advisors,
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.
Our Mission: “Serving the Investment Community to Make a Social Impact”
Cory Roberson is Principal of RIA Review, a compliance and document management portal (www.riareview.com) - 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 (www.riaconsults.com) 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: (http://regtechreview.com) is currently in prototype stage.
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 15 youth programs in locations such as S. Korea, China, S. Africa, Thailand, and India.
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