Tips and Considerations for Form ADV Annual Amendments

March 3, 2021

SEC-registered investment advisers (“advisers”) must submit an annual updating amendment (“annual amendment”) to their Form ADV within 90 days after the end of their fiscal year.  Accordingly, advisers whose fiscal year ended on December 31, 2020 must submit their annual amendment by March 31, 2021.1 Below are certain tips and considerations to keep in mind as advisers prepare to file their annual amendments.

Filing Deadline

We recommend filing the annual amendment with the SEC’s Investment Adviser Registration Depository (“IARD”) electronic filing system at least a few days in advance of the deadline to avoid any last minute technical difficulties that may delay the submission.2

Filing Fee

IARD filing fees apply to annual amendments.  Fees are charged based on advisers’ regulatory assets under management (“RAUM”) and must be credited to advisers’ IARD Flex-Funding Account before annual amendments can be submitted.3 We recommend advisers fund their IARD Flex-Funding Accounts in advance of their filing date to avoid any last-minute complications regarding funding.

Maintaining Notes

Various items in Form ADV Part 1A, such as the number of clients in particular client categories in Item 5.D. or the amount of RAUM in Item 5.F., require advisers to perform calculations and make interpretive determinations.  In order to ensure a consistent reporting methodology in the future and be prepared for subsequent inquiries by regulators, we recommend advisers maintain detailed notes on how they arrived at their responses to Form ADV.

Consistency between Part 1A and Part 2A

Certain topics, such as assets under management, the types of compensation received, personal trading, use of soft dollars, and custody are addressed in both Form ADV Part 1A and Part 2A.  Advisers should ensure that they have provided consistent responses on these topics in Part 1A and Part 2A.4

Summary of Material Changes

Item 2 of Form ADV Part 2A requires advisers that are amending Part 2A for their annual amendment to identify and discuss material changes from their last annual update to Part 2A.  Advisers must disclose all material changes since their last annual update to Part 2A, not just changes since their last other-than-annual amendment to Part 2A.

Form CRS

There is no annual update requirement for Form CRS, however, Form CRS must be amended within 30 days whenever any information in the relationship summary becomes materially inaccurate. Advisers must deliver Form CRS to each new retail investor on an ongoing basis.5 Advisers that do not have any retail investors to whom they must deliver Form CRS are not required to prepare or file Form CRS.  Specifically, advisers are not required to deliver Form CRS to retail investors in pooled investment vehicles, such as hedge funds, private equity funds and venture capital funds, unless advisers have a separate basis for delivering Form CRS to these investors, such as separately managed account arrangements.6 Therefore, advisers that only advise these types of pooled investment vehicles are not required to prepare or file Form CRS even if those vehicles include retail investors.

S&K Observations

The annual amendment requires a significant amount of information and disclosures and may necessitate coordination with multiple parts of an adviser other than the legal and compliance department.  Many of the items in Form ADV call for interpretations of the Form’s questions and instructions.  We recommend advisers begin the process of completing their annual amendment as early as possible.  Please contact your primary attorney in Seward & Kissel’s investment management group or any of the attorneys listed below for assistance with your annual amendment.

Seward & Kissel has created a Guide to Completing Form ADV Part 1A, Model Form ADV Parts 2A & 2B, and Guide to Completing Form CRS for Investment Advisers to assist advisers with completing Form ADV.  These documents as well as other compliance tools, resources, webinars and publications are available on the SKRC Portal, which is free to our active investment adviser clients.  Please click here to request free client access.

______________________________________________________

1 Similarly, SEC-exempt reporting advisers (“ERAs”) whose fiscal year ended on December 31, 2020, must amend their ERA Report by filing an annual updating amendment by March 31, 2021.

2 In addition, advisers must have annually renewed any state notice filings and paid renewal fees through the IARD Renewal Program by the renewal deadline. Our prior client alert on the 2021 IARD Renewal Deadline is available here.

3 The IARD filing fee for annual amendments is $40 for advisers with RAUM of less than $25 million; $150 for advisers with RAUM of $25 million to $100 million, and $225 for advisers with RAUM of $100 million or more.

4 Moreover, advisers should ensure that their Form ADV responses and disclosures are consistent with their policies and procedures and other client disclosures, including private fund offering documentation and marketing material.

5 A “retail investor” is defined as “a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” See Instructions to Form CRS, General Instruction 11, at page 9 available at https://www.sec.gov/rules/final/2019/34-86032-appendix-b.pdf.

6 See SEC FAQs on Form CRS available at https://www.sec.gov/investment/form-crs-faq.