November 11, 2014

CCO Series: Top 12 Regulatory Deficiencies for RIAs -- #2: Registration

What You Need to Know

The second most common compliance deficiency for RIA firms is omissions or inaccuracies in the firm’s Form ADV. Some of these result from inconsistent upkeep of the ADV as the firm evolves. But in most cases we see, the deficiencies occur when firms use cookie cutter ADVs or borrow some/all of the content from another firm’s ADV.

On at least a yearly basis, RIAs are required to review and update their Form ADV so that it accurately describes the nature of their business to clients and prospects. (This occurs within 90 days of the firm’s fiscal year end.)

Advisors are also expected to immediately update their Form ADV to reflect any material changes that occur throughout the year. These updates include, but are not limited to:
  • An accurate description of their fee structure
  • Full and accurate description of their business and services
  • Disclosure of any conflicts of interest or affiliations
  • Significant changes in their business (e.g. meaningful changes in AUM)
  • Changes in how clients may contact the firm (e.g. Address, Phone Number)

Why You Should Care

While it may seem like a hassle to maintain an accurate Form ADV, these documents will not only make a difference from a regulator’s perspective, but also from the point of view of clients and prospects. While not always apparent, your Form ADV creates an initial (sometimes lasting) impression on prospects, clients and competitors. Ensuring the accuracy of your Form ADV can lead to to more productive and efficient relationships by removing (or at least not creating) any potential ambiguity in the early stages of your relationships.

It is not only important that the information contained in Form ADV is comprehensive and accurate, but you must also be able to evidence its timely delivery to all clients and prospects, keeping in mind that regulators must take a stance that if it’s not documented, it didn’t happen.

Our Recommendations

To ensure that your firm is keeping up with regulatory requirements and industry best practices in this area:
  • Avoid using a “one size fits all” approach to creating your Form ADV so that you can be sure that it accurately reflects your firm’s business practices, conflicts of interest, fee schedule, etc.
  • Update both Parts 1 and 2 of the Form ADV at least annually, keeping in mind that it must be updated more frequently if there have been material changes in your RIA.
  • Deliver Form ADV to clients in a timely fashion (within 120 days following your fiscal year end or upon any material update of the document).
  • Deliver Form ADV to all prospects prior to them signing your investment advisory agreement.
  • Maintain records of these distributions to ensure proper documentation for regulators.

AdvisorAssist’s CCO Series: Top 12 Regulatory Deficiencies for RIAs is a series of articles that will help your firm understand and avoid the most common compliance deficiencies found by regulators. Our goal is to help you increase your confidence that your firm remains “exam ready.” Click here to read more posts from our CCO Series: Top 12 Regulatory Deficiencies for RIAs. We would welcome the chance to learn more about you and your firm. Click here to request an introductory call from one of our consultants.


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