Compliance Corner: It’s ADV Season – What Does That Mean and What Do I Need To Do?

Estimated Time to Read: 5 minutes

Background

The first quarter of each year is a busy time for your compliance team at tru. We fondly like to say January 1^st begins “ADV Season” – the time in which we must file an annual ADV update for each Firm.

The Form ADV is a regulatory filing required by the U.S. Securities and Exchange Commission (“SEC”) for investment advisers. Investment advisers must file Form ADV annually to maintain registration with the SEC and provide updated information about their business, operations, and financial condition.

Frequency

Registered investment advisers must file the annual updating amendment to Form ADV within 90 days of the end of their fiscal year. For all Firms that tru works with, the due date is March 31^st of each year. This ensures that the SEC and clients have current information about the adviser.

If there are material changes to the information in Form ADV during the year, advisers are required to promptly amend their filing to reflect these changes.

Contents of Form ADV

There are typically four, sometimes five (as described below) sections of the ADV that must be amended annually:

1. Part 1 - This section includes data about the adviser's business, ownership, clients, employees, business practices, affiliations, and any disciplinary events.
   
2. Part 2A - This section is the "brochure" that advisers provide to clients, offering detailed information about the adviser's services, fees, and strategies. This must be written in “plain language” that the general public would understand easily.
3. Part 2B - Form ADV Part 2B, also known as the "Brochure Supplement," provides information about the key personnel of the advisory firm, specifically those individuals who provide investment advice or have discretionary authority over client accounts. The Brochure Supplement is intended to give clients additional details about the professional background, qualifications, and potential conflicts of interest of the individuals directly involved in providing advisory services. Think of it as the individual advisor’s resume.
4. Part 3 (Client Relationship Summary – CRS) - Form CRS, is a maximum two-page document for RIAs (BD Form CRS do not apply here) designed to provide retail investors with information about the relationship and services offered by their investment adviser or broker-dealer. It is a concise and standardized document intended to help investors make informed decisions about choosing or continuing a relationship with a financial professional or firm. This is a summary of the ADV Part 2A.
5. Wrap Brochure (if applicable) - In the context of a wrap fee program, advisers are typically required to provide clients with a brochure that outlines the details of the wrap fee program. This document is designed to help clients understand the structure of the program, associated costs, services provided, and potential conflicts of interest.

tru's Process

tru follows a set process in order to update and file annual ADVs.

1. The compliance team will prepare the ADV package for the Firm to review. Compliance will:
   • Prepare an ADV Update Worksheet which contains most of the information requested on the ADV Part 1.
   • Run a report with all pertinent data in order to determine the Firm’s AUM. With this, clients must be coded to fit certain “buckets” which include if the client is HNW, a charitable institution, an ERISA plan, a corporate entity, and other factors.
   • Update all parts of the ADV and send it to the Firm to review and make edits.
2. Once the package is returned to compliance, we will then review and update all pertinent parts, get payment from the Firm for the annual filing ($255), and file. Form ADV is filed electronically through the Investment Adviser Registration Depository (IARD), which is a system developed by FINRA (Financial Industry Regulatory Authority) and the SEC. The ADV Part 2B is not required to be filed in IARD unless the Firm is not SEC-registered.
3. Once the ADV is filed, the Firm is notified and provided a binder (contains all parts of the ADV as well as the Firm’s Privacy Policy) as well as the CRS, Part 2A, Wrap Brochure (if applicable) and the Privacy Policy to have updated on their Firm website.
4. Within 30 days of filing, the Firm must email the binder to all clients. Tru provides verbiage to be used but Firms can certainly customize. The letter being emailed must be submitted via ComplySci for review and approval prior to use per our advertising and marketing policies.

Once all steps are completed, the Firm is done for the year – unless a material change occurs that would require an update.

SEC Review

The SEC reviews the filed Form ADVs to ensure compliance with regulatory requirements and to protect investors. The Filing is also a declaration to the SEC that the Firm continues to maintain over $100 million in assets which is the asset requirement to continue registration with the SEC.

The information provided in Form ADV is also publicly available on the SEC's website or the Investment Adviser Public Disclosure (“IAPD”) website.

Summary

It is important for investment advisers to carefully review and update their Form ADV each year to ensure that the information provided is accurate and up-to-date. Failure to comply with these filing requirements can result in regulatory action and potential consequences for the adviser. Keep in mind that regulations may evolve, so it is advisable to check for any updates or changes to filing requirements.