Annual updating amendment to form adv
” If the answer is yes, err on the side of caution and always remember the fundamentals of fiduciary duty.
Conclusion Failure to recognize when an other-than-annual amendment to Form ADV may be required can carry significant consequences, and failure to sync up various disclosure documents (including an individual advisor’s Form U4) will only make matters worse.
For many firms whose operations have not changed throughout the year, the update should be fairly straight forward – for private fund managers in this situation, the focus mostly will be on the Schedule D, Item 7.
It’s also important to note that an advisor need not amend its ADV solely because its assets under management or fee schedule have changed; however, if an advisor is updating other items in its ADV, it should go ahead and update AUM numbers and fee schedules as well, if they have changed.A fund manager’s RAUM may be higher than its normally reported AUM because it includes: RAUM should be calculated based on the current market value of the assets as determined within 90 days prior to the date of filing the Form ADV.For private funds, the SEC has stated that a manager may rely on the gross assets as reflected on the fund’s balance sheet, and the manager may assess the value of financial instruments under the applicable accounting standards, which is GAAP in this industry.Generally, RAUM should include the securities portfolios for which a manager provides continuous and regular supervisory or management services as of the date of filing or update of the Form ADV.Unlike AUM, the RAUM calculation requires managers to report assets managed without the deduction of any outstanding indebtedness or other accrued but unpaid liabilities (including accrued fees or expenses) that remain in a client’s account.The process generally will entail a review of the current Form ADV, and Form ADV Part 2 if applicable, to make sure that all information is up to date and accurate.In general, once the review process has begun, the update can be completed in a few days depending on the complexity of firm’s operations and the capacity of the updater to make changes in the system.If any material changes occurred since the last annual updating amendment, advisors should have also delivered to clients at least a summary of such material changes by this point as well. That said, the SEC also includes a “catch-all” provision that harkens to an advisor’s fiduciary duty: “As a fiduciary, you have an ongoing obligation to inform your clients of any material information that could affect the advisory relationship.Nothing needs to be updated until this time next year, right? As Confucius once said, “Only the wisest and stupidest of advisors never change.” Okay, maybe Confucius said “men” instead of “advisors,” but you get the point: things happen, and it’s the SEC’s position that clients need to know promptly when certain of those things happen. As a result, between annual updating amendments you must disclose material changes to such information to clients even if those changes do not trigger delivery of an interim amendment.” Materiality and Promptly Though the alphanumeric soup of triggers described earlier provides clear-cut guidance, the SEC’s references to “materially inaccurate” and “promptly” bask in the gray area of potential interpretive license.The SEC addresses this very issue in section four of its general instructions to Form ADV (here), sections two and four of its instructions for ADV Part 2A (here), and its IARD FAQs (here). The best I can offer is that an advisor should not lollygag and procrastinate when a specifically enumerated trigger occurs or when a disclosure becomes materially inaccurate.The instructions are specific and vague at the same time, as explained below. Knowingly withholding need-to-know information without a damn good excuse is not looked upon kindly by the SEC.