Your Form ADV – Beyond Checking the Box
Additionally, Reg BI requires that firms file Form CRS. The SEC has said that to answer some parts of Form CRS, you may link to other places where the relevant information resides, and a lot of that information is already in your ADV part 2A brochure. Even if you don’t take advantage of your new ability to link, it’s very important to make sure your CRS and your ADV Part 2A are consistent.
Your form ADV 1A and 2A are more than a matter of checking the box – you are telling the SEC who you are and what your business looks like. They use the boxes you check in ADV 1A to evaluate your business and determine the risks you pose to the marketplace- so accuracy is critical. Avoid some of the common mistakes in your ADV by:
- Getting 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.”
- Scheduling time to complete the task. 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.
- 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.
- Use “will” instead of “may.” 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.
Oyster also provides free resources such as podcasts and blogs, as well a team of consultants and software to help you organize and automate your compliance program. Oyster Consulting has the knowledge and experience to support your efforts to achieve compliance. To receive assistance with the design or implementation of your business continuity plan, please give us a call at (804) 965-5400 and a Relationship Manager will be glad to connect you with an Oyster expert.
About the author: Lance Whittemore has designed, implemented and maintained compliance programs for SEC- and State-registered investment advisors, and has served as CCO for several of them. He has also worked in multiple engagements of varying scope with Registered Investment Advisors, broker-dealers and clearing firms, performing examinations, audits, and remediations of various aspects of their control and supervisory programs. Lance began his more than 20 years in the financial services industry at NationsBanc Capital Markets (now Banc of America Securities) in municipal fixed-income trading and underwriting. His extensive experience also includes bond sales for Bank of America, retail investor financial consultant for UBS, and just prior to joining Oyster, Lance was in fixed income trading at Wachovia Securities (now Wells Fargo Advisors) where he traded high yield corporate, emerging market, international, and non-dollar credit securities.