Tips for Staying Ahead of Next Year’s Filing
As investment advisers and their compliance counterparts know too well, March connotes more than just the beginnings of Spring – it is also Form ADV season. Filling out Form ADV can be a complicated and, often times, onerous process, which requires a lot of planning, data collection, communication among key stakeholders and, most importantly, time. For registered investment advisers (“RIAs”) who may not be that familiar with the form’s instructions, regulatory requirements or the SEC’s expectations, the process can be overwhelming, which can lead to things slipping through the cracks if enough time is not allotted.
As the 2022 Form ADV season comes to a close, we thought we would put together a list of some key takeaways from this year’s filings that might help RIAs better prepare and navigate their way through this complex process in 2023 and beyond.
- Don’t forget to fund your IARD account – This point might seem obvious, but it’s surprising how often firms don’t have the appropriate funds in their IARD accounts at the time they log into the system to submit their Form ADV updates, which delays the process. While RIAs typically receive a notification from the IARD in Q4 reminding them to fund their account, often times there is a lag time between when the alert comes through and the account is fully funded. To help simplify things, we recommend that advisers log into the IARD website in January of 2023 in order to ensure the funds have hit and the account is updated from an administrative standpoint (e.g., log-in credentials are accurate and passwords are updated), which will better prepare firms for the upcoming Form ADV season.
- Coordination with investment and finance teams – Form ADV filings not only require that an adviser’s investment strategy and process, along with the risks associated with such investment strategy, are properly disclosed to the SEC, but also that updated AUM data is provided. Frequently, the requisite information needed to make these updates is not always known in its entirety by the compliance professional or third-party service provider filling out the form. Therefore, beginning as early as January 2023, we recommend that advisers meet with their investment team to collect qualitative data relating to the description of investment activities and operations, as well as their finance and accounting teams to begin collecting the firm’s AUM in order to streamline the process. And remember, when it comes to updating the firm’s AUM, don’t stress too much about getting audited financials – estimated values are permissible as long as documented support is retained by the adviser. Firms that meet with these teams early in the year will set themselves up for success because it helps assure that all of the relevant key stakeholders in the process are on the same page and communicating updates to one another.
- Communication with Fund Administrator – To the extent an adviser utilizes a fund administrator, there are various reports that need to be collected and reviewed in advance of Form ADV filings, including those for purposes of disclosing data specific to each private fund in Section7.B.(1) of the Form ADV. This can take some time. We advise clients to reach out to administrators in Q3 of the prior year of the filing (i.e., Q3 2022 for the 2023 Form ADV filing season) in order to ensure that those necessary reports are in process.
- Give yourself some extra time to file – In our experience, as you edge closer to March 31st, when Form ADV filings are due, the increased traffic to the IARD website can sometimes create processing and administrative slowdowns, which can add more stress to this already complex process. We recommend allowing yourself a grace period of at least a week to file early, if possible, in order to help prevent unnecessary glitches and hiccups from impacting your ability to file on time. For your 2023 filing, try to have everything completed and submitted by March 21st, or if that’s not possible, by March 24th at the latest.
- Review SEC alerts and guidelines in advance – It’s vital to keep an eye on any updated SEC issued guidance or risk alerts because they impact how managers should disclose their investment advisory activity. Of course, not all of these updates relate specifically to Form ADV, but there have been instances in the recent past where SEC guidance has impacted Form ADV requirements, which greatly affected filings for some firms in the near and long term. For instance, on December 17, 2021, the SEC issued a “Staff Statement Regarding Form CRS Disclosures” that summarized findings from the Standards of Conduct Implementation Committee (the “Committee”). In the statement, the Committee called on investment advisers to enhance their Form CRS relationship summary disclosures and highlighted a number of areas where Form CRS disclosures should be improved. For firms that are required to fill out the Form CRS, also referred to as the Part 3 of the Form ADV, not understanding this guidance could be detrimental to their Form ADV filing in 2022 if the appropriate information was not provided or represented accurately, potentially resulting in additional regulatory scrutiny. Therefore, we advise clients to carefully take into consideration all SEC issued guidance, statements and risk alerts in advance of the 2023 Form ADV filing season in order to ensure that all necessary and relevant information is included.
There are, of course, other challenges and/or questions that might crop up as you or a third-party service provider work to update and file your firm’s Form ADV in 2023 or beyond. The Silver Regulatory Associates Compliance team is here to answer those questions for you in order to simplify this process. Feel free to contact us today to learn how we can help.