The Importance of an
Annual Updating Amendment for Investment Advisors

Author:

Kyrstin Ritsema, IACCP®
Executive Director - Compliance Services at Confluence

Investment advisors have a crucial responsibility: maintaining transparency and compliance with regulatory standards. One key aspect of fulfilling this responsibility is filing an annual updating amendment of Form ADV with the Securities and Exchange Commission (SEC) or the state regulator for state-registered firms. This filing must be made within 90 days of the advisor's fiscal year's end.

What is Form ADV?

Form ADV is a critical document investment advisors must complete and submit to regulatory authorities. It includes detailed information about the firm's business practices, fees, investment strategies, and any disciplinary actions against the firm or its employees. The form is divided into several parts:

• Part 1A and 1B (if applicable): Provide identifying information and details about the firm's business operations.
• Part 2A: Known as the "firm brochure," which outlines the firm's services, fees, and investment strategies.
• Part 2B: The "brochure supplement" includes information about the firm's key personnel.

Why is the Annual Updating Amendment Important?

Filing an annual updating amendment is crucial for several reasons:

1. Regulatory Compliance: It ensures that investment advisors are operating in compliance with SEC regulations or state regulations for state-registered firms. This helps maintain the integrity of the financial industry.
2. Transparency: Clients and potential clients rely on the information provided in Form ADV to make informed decisions about engaging the services of an investment advisor. Accurate and up-to-date information builds trust and credibility.
3. Avoiding Penalties: Failure to file an annual updating amendment can result in severe regulatory consequences, including penalties, fines, and potential suspension of the advisor's registration.

Common Mistakes to Avoid

Despite the importance of filing an accurate and timely Form ADV amendment, many investment advisors make common mistakes. Some of these include:

• Inaccurate Disclosures
• Incorrect Calculation of Regulatory Assets Under Management (RAUM)
• Non-Disclosure of Disciplinary History
• Failure to Disclose Outside Business Activities
• Failure to Recognize Custody
• Inconsistencies Between Parts 1 and 2A of the form

How to Avoid These Missteps

To ensure compliance and avoid the common pitfalls associated with filing Form ADV amendments, investment advisors should take the following steps:

1. Carefully Review and Revise Annually: Regularly review and update the information in Form ADV to ensure it is accurate and complete.
2. Involve the Chief Compliance Officer (CCO): Ensure that the CCO is involved in the process and is aware of any upcoming changes to the business that could impact the firm's disclosure documents.
3. Develop Form ADV Maintenance Procedures: Establish procedures to promptly update Form ADV when material changes occur.
4. Thoroughly Review Each Question: Carefully review each question and response for completeness, accuracy, and consistency.
5. Second Set of Eyes: Have at least one other person review the forms before filing to catch any errors or inconsistencies.

Need Help? Count on Confluence Compliance Services

For firms with a fiscal year-end of December 31, the deadline for the annual ADV amendment is March 31, 2025. If your firm has added new products or services or if you are unsure whether certain changes are considered "material," it is crucial to reach out to your consultant or the Confluence team for assistance and additional guidance. Accurate and timely filing is crucial for maintaining regulatory compliance and fostering client trust.

Make Our Experts Your Experts. Confluence offers consulting services for compliance management. Contact us to learn more or explore our breadth of compliance services.