Thorough Form ADV Preparation May Translate into Better Examination Results

For chief compliance officers, the start of the new year brings with it renewed optimism about the business opportunities that lie ahead, tempered by the stress of a looming Form ADV filing season. This feeling of trepidation is well-founded and should not be understated. It comes from prior experience meticulously compiling the necessary data required to update Form ADV Parts 1A, 1B, 2A and 2B (as applicable). Form ADV is one of the first points of reference and, therefore, a roadmap for the SEC during a regulatory examination of an investment adviser.  Examiners are consistently laser-focused on the accuracy of Form ADV disclosures year-over-year, with 2024 being no exception. 

But this year’s filing season brings additional challenges. First is the increased scrutiny around the need for transparent reporting among registered investment advisers (RIAs) and private fund managers, following the passage of regulations like the New Marketing Rule and the Private Fund Adviser Rules, which further put Form ADV filings under a microscope. Next, it is important to note that 2024, being a Leap Year with Good Friday falling on March 29th, presents unique challenges regarding the Form ADV filing deadline. This means the deadline for most private fund managers and RIAs to file an annual updating amendment is Saturday, March 30, 2024.

As a result of these unique obstacles present in the 2024 Form ADV filing season, Silver’s regulatory compliance team is recommending to clients that they complete their filings by Friday, March 22, 2024, to mitigate the risk of potential logistical missteps.

As we approach the finish line of this year’s filing deadline, we put together some best practices that RIAs and private fund managers can complete internally, and with the assistance of outside service providers, to ensure your firm is ready for whatever may come from the SEC in 2024 and beyond:

1. Fund your IARD account: Sometimes the simplest and most obvious items are missed – funding one’s IARD account is a perfect example of this. Firms should avoid possible delays by logging into their IARD accounts now to ensure credentials are accurate, passwords are updated and funds are deposited. RIAs must pay the following fees based on the amount of their regulatory assets under management (filing fees waived for state-registered firms):

Advisers should also be aware of any notice filings they may be responsible for making and the associated fees, which can be as little as $30 for Idaho or as much as $500 for Puerto Rico, for each applicable jurisdiction. 

1. Review Relevant SEC alerts, guidance and new rules: This tip can sometimes be difficult to achieve due to the vast number of alerts, guidance and new rules that are passed down each year. But remember, it is vital to have a list of any updated SEC-issued guidance, statements, rules and risk alerts affecting the 2024 Form ADV filing season in order to ensure that all necessary and relevant information is included. Given the volume of updates coming from regulatory agencies this year, and likely in the years to come, finding experienced, trustworthy and well-reputed third-party service providers will help ease the burdens associated with keeping track of (and understanding) any new regulations that come down from the SEC for RIAs and private fund managers. 

1. Track all deadlines: In addition to the aforementioned filing deadline of Saturday, March 30, 2024, and with the SEC ratcheting up compliance concerns, here is a  chart outlining other key 2024 regulatory deadlines that all investment advisers should have on their radar:

1. Gather Materials/Information from Fund Administrators: If you happen to be an RIA that utilizes a fund administrator, we advise clients to reach out now, if they have not done so already, to obtain various reports, including those for purposes of disclosing data specific to each private fund in Section7.B.(1) of the Form ADV. 
2. Gather Materials/Information from Internal Teams: Similar to external service providers, it is also imperative that you meet with, and gather information from, your internal teams, such as key investment, finance and accounting stakeholders, to ensure that all relevant facts and data are in hand prior to completing and filing Form ADV. Silver recommends meeting with these teams now, if you have not done so already, to collect data required on Form ADV filings, including advisers’ investment strategies and processes, along with the risks and conflicts associated with the firm’s investment strategies and overall advisory business, as well as data points related to regulatory assets under management (RAUM) and client/private fund financial information. A key fact to remember regarding RAUM: unaudited values are acceptable, as long as the adviser retains documented support substantiating the values reported.
3. File Early: As noted above, the Form ADV deadline is Saturday, March 30, 2024, but that does not mean you should wait until that day, or even the prior day, to actually file. Remember that the IARD website will experience a significant increase in traffic that can potentially pose processing and administrative delays. Instead of waiting, the Silver team recommends filing by Friday, March 22, 2024, to prevent unnecessary logistical glitches impacting your ability to file on time, while also avoiding added stress to this already laborious and complex process.
4. Don’t Forget to “Promptly” File Necessary Amendments: The Division of Examination’s 2024 Examination Priorities put investment advisers to private funds on notice that compliance with the Custody Rule, including accurate Form ADV reporting related to private fund audits, is an area of continued focus. What’s more, targeted sweeps in 2022 and 2023 resulted in penalties for advisers who failed to “promptly” file amended Form ADVs to reflect they had received audited financial statements. So, just because ADV season is over, don’t forget to update any Form ADVs marked “report not yet received” once those audited financial statements come in, ideally within 30 days of the Form ADV deadline.

Completing Form ADV is a complicated and, often times, onerous process for any investment adviser.  Particularly for advisers who are not familiar with the form’s instructions, regulatory requirements or SEC expectations, this process can be overwhelming, which can lead to mistakes if enough time is not allotted. By implementing the aforementioned tips, investment advisers can get ahead of Form ADV missteps and ensure they have the relevant materials and information needed to accurately represent their advisory business on the Form ADV – that roadmap that will be scrutinized by SEC examiners. 

As always, please contact a member of Silver’s Regulatory Compliance Team at [email protected] if you have any questions or concerns about your firm’s 2024 Form ADV filing, or your firm’s overall regulatory compliance program.