Avoid the Most Common Mistakes on ADV Filings – Not Allocating Enough Time and Not Including the Business
Investment Advisors must file their annual ADVs no later than 90 days after the end of the firm’s fiscal year; for most firms this means March 30th. It’s hard to find people that like to complete the ADV, and procrastination is a significant factor in reducing the quality of filings. The ADV is an easy thing to set aside for another day when other urgent matters arise, but it is also an extremely important task, and you should give it the time it deserves.
The General Instruction for Part 2 of Form ADV is a good reference that includes:
“Under federal and state law, you are a fiduciary and must make full disclosure to your clients of all material facts relating to the advisory relationship. As a fiduciary, you also must seek to avoid conflicts of interest with your clients, and, at a minimum, make full disclosure of all material conflicts of interest between you and your clients that could affect the advisory relationship. This obligation requires that you provide the client with sufficiently specific facts so that the client is able to understand the conflicts of interest you have and the business practices in which you engage, and can give informed consent to such conflicts or practices or reject them. To satisfy this obligation, you therefore may have to disclose to clients information not specifically required by Part 2 of Form ADV or in more detail than the brochure items might otherwise require. You may disclose this additional information to clients in your brochure or by some other means.”
Use Plain English. At Oyster we believe that you fulfill the requirements with plain English (just be blunt) disclosures.
Get input from your portfolio managers, traders, operations and sales teams to make sure that the disclosures “are true and do not omit any material facts.”
Schedule time to complete the task, or get some help to make sure that your disclosures stand up to scrutiny.
When in doubt, include it. A summary of material changes must be sent to each client, as well as an offer to provide the full ADV2A. If you have any doubt as to whether something could be perceived material, put it in there. Even well-crafted ADVs can get picked apart by regulators and litigators, and it is expensive to go through the process to prove you were right.
Limit the use of the term “may” and instead use “will”. Even when “may” is the accurate term, it can lead to findings in an exam or worse.
Make sure you can document your Assets Under Management (AUM) calculations and be sure that they are consistent between Forms ADV1 and ADV2A. “Clients” may be counted as either individual accounts or as households, but the way clients are counted must be consistent across all filings.
For more information on filing Forms ADV1 and ADV2 and how Oyster Consulting can assist your firm with these and other Investment Advisor services, please contact one of our Associates at (804)-965-5400 or visit our website at www.oysterllc.com.