Nearly all investment advisers who provide investment advice for compensation are required to file Form ADV electronically through the Investment Adviser Registration Depository (“IARD”) system, which is operated by the Financial Industry Regulatory Authority (“FINRA”). Form ADV is a mandatory disclosure document for investment advisers to register with or claim an exemption from registration with the Securities and Exchange Commission (the “SEC”) or an applicable state securities authority.
Below is an overview of ongoing Form ADV filing requirements for advisers required to file Form ADV with either the SEC or a state securities authority. For more detailed filing specifics, see the Form ADV instructions available at SEC.gov. For a longer discussion on ERAs (including California ERAs) and California state-registered advisers, please see SEC and California Exempt Reporting Adviser Compliance Filing Requirements and Investment Advisers Certificated by California DFPI Compliance Filing Requirements.
Overview of State & SEC Asset Thresholds
Whether an adviser files an ADV with the SEC or a state securities authority (or both) through the IARD system primarily depends on the adviser’s amount of regulatory assets under management (“RAUM”):
- Large advisers managing $110 million or more in RAUM that do not otherwise qualify for an exemption must register with the SEC (although an adviser may register with the SEC when it acquires $100 million in RAUM).
- A mid-sized adviser with RAUM between $25 million and $100 million either (1) must register with the applicable state securities regulator, or (2) if it is exempt from state registration, must register with the SEC unless an SEC registration exemption is available. However, if a mid-sized adviser’s principal office and place of business is in New York, then it must register with the SEC, unless an exemption from registration is available.
- Small advisers managing less than $25 million in RAUM are regulated by state securities authorities and must register with an applicable securities regulator if a state exemption from registration does not apply.
An adviser that qualifies for certain exemptions from registration under the Investment Advisers Act of 1940 (the “Advisers Act”) or applicable state registration rules is an exempt reporting adviser (“ERA”). ERAs file an abridged version of Form ADV as a report to the SEC and/or to an applicable state securities authority.
Annual Updating Amendment to Form ADV
An SEC-registered adviser must amend its Form ADV each year on the IARD system within 90 days after the end of its fiscal year. For an adviser whose fiscal year ends on December 31 of a given year, the deadline for the annual amendment to Form ADV is usually March 31 of the following year. The annual amendment must update the adviser’s responses to all items in Parts 1 and 2 of Form ADV.
When you amend Part 1, the IARD system will prompt you to indicate the type of amendment. You should select “annual updating amendment” and indicate the year that the amendment is for. Unlike Part 1, Part 2A is not an online form. Instead, you must upload Part 2A to the IARD system as a separate document in text-searchable PDF format. An SEC-registered adviser is not required to file Part 2B, or any amendments to it, but must keep its updated Part 2B in its records and deliver it to clients (as applicable).
The IARD filing fees for an adviser’s annual updating amendment filed with the SEC are (a) $40 if the adviser’s RAUM is below $25 million, (b) $150 if RAUM is between $25 million and $100 million and (c) $225 if RAUM is over $100 million. You must fund your IARD account with the appropriate amount before you submit the amendment. Information about funding your firm’s IARD account is at the IARD Accounting Information site.
To determine your firm’s RAUM, include the securities portfolios for which your firm provides continuous and regular supervisory or management services as of the date you file the Form ADV amendment (e.g., March 31 if you wait until the final day). Your firm’s RAUM should be based on the current market value of the assets in those portfolios as of a date that is within 90 days of the Form ADV amendment filing date. You should determine market value using the same method you use to report account values to clients or calculate your investment advisory fees.
SEC ERAs are required to file Part 1A of Form ADV on the IARD system and disclose organizational and operational information about their firms, but they are not required to include all of the information required of SEC-registered (or state-registered) investment advisers. In addition, SEC ERAs are not required to file Parts 2A or 2B of Form ADV. If your firm is an SEC ERA, you must file an annual updating amendment to Form ADV, Part 1A each year on the IARD system within 90 days after the end of the firm’s fiscal year (i.e., by March 31 if the adviser’s fiscal year ended on the previous December 31). When you submit your firm’s annual updating amendment, you must update the responses to all required items of Part 1A, including corresponding sections of Schedules A, B, C and D.
Most state ERAs are subject to the same requirements, although state ERAs should consult with counsel regarding applicable state requirements. There is no IARD filing fee for a state ERA’s annual updating amendment.
Other Amendments to Form ADV
In addition to the annual updating amendment, advisers must amend Form ADV promptly following certain events.
An SEC-registered (or state-registered) adviser must promptly amend Part 1 of its Form ADV, including corresponding sections of Schedules A, B, C, D, and R, promptly, if:
- It is adding or removing a relying adviser as part of its umbrella registration;
- Information in Items 1 (except 1.O. and Section 1.F. of Schedule D), 3, 9 (except 9.A.(2), 9.B.(2), 9.E. and 9.F.) or 11 of Part 1A, Items 1, 2.A. through 2.F. or 2.I. of Part 1B or Sections 1 or 3 of Schedule R, becomes inaccurate in any way; or
- Items 4, 8, or 10 of Part 1A, Item 2.G. of Part 1B, or Section 4 of Schedule R become materially inaccurate.
An adviser must also promptly amend its Form ADV when it receives its annual audit if question 23(h) of Item 7.B.(1) was previously answered as “Report Not Yet Received,” Failure to file this amendment exposes private fund advisers to SEC enforcement actions under the Advisers Act Custody Rule. An SEC-registered (or state-registered) adviser is not required to file an other-than-annual amendment to update Items 2, 5, 6, 7 (except 7.B.(1), question 23(h)), 9.A.(2), 9.B.(2), 9.E., 9.F., or 12 of Part 1A, Items 2.H. or 2.J. of Part 1B, Section 1.F. of Schedule D or Section 2 of Schedule R, even if those items have become inaccurate.
An ERA must amend its Form ADV, Part 1 promptly if:
- Information in Items 1 (except Item 1.O. and Section 1.F. of Schedule D), 3 or 11 becomes inaccurate in any way; or
- Information in Item 10 becomes materially inaccurate.
SEC-registered and state advisers that are required to file ADV Part 2 must amend Part 2 promptly whenever any information in it becomes materially inaccurate, although no update of Part 2 between annual amendments is required if only the amount of assets an adviser manages or its fee schedule have changed. However, if you update Part 2 for another reason, and the amount of assets you manage listed in Item 4.E. or your fee schedule listed in Item 5.A. have become materially inaccurate, you should update that item. An other-than-annual amendment to Part 2 does not need to include a summary of material changes.
SEC-registered advisers that advise retail clients are required to file ADV Part 3, a relationship summary known as Form CRS. Advisers required to file a Part 3 must update their Form CRS when any information in that relationship summary becomes materially inaccurate.
SEC-Registered Advisers Switching to State Registration or ERA Status
If the RAUM reported on your SEC-registered firm’s annual updating amendment is below $90 million, the firm will likely be required to withdraw its SEC adviser registration no later than 90 days after the annual amendment filing date. In that case, unless the firm qualifies for an exemption from state registration, you should file an application for state registration in time to ensure that it is registered by such applicable date. State registration may take several months.
An SEC-registered adviser that is switching to ERA status must first withdraw its registration by filing Form ADV-W on IARD. Thereafter, the adviser will need to file its first Part 1A of Form ADV as an ERA.
ERAs Switching to SEC Registration or State Registration
An adviser with RAUM under $150 million that advises only private funds may be exempt from SEC registration as a private fund ERA under Advisers Act Rule 203(m). An investment adviser that only advises venture capital funds may be exempt from SEC registration as a venture capital ERA under Advisers Act Rule 203(l). These exemptions are the two most commonly relied on and many states have similar exemptions that apply to small advisers under state law.
An adviser relying on the exemption under Advisers Act Rule 203(m) must switch to full SEC registration if the adviser exceeds $150 million in private fund RAUM. If the adviser’s RAUM is over $150 million, the adviser must register with the SEC within 90 days after the firm’s fiscal year end (assuming the adviser was previously in compliance with all SEC ERA reporting requirements). An adviser relying on the exemption under Advisers Act Rule 203(l) must switch to full SEC registration if the adviser advises a private fund that does not qualify as a venture capital fund and has more than $150 million in RAUM. Likewise, the adviser must also register with the SEC within 90 days after the firm’s fiscal year end (assuming the adviser was previously in compliance with all SEC ERA reporting requirements).
If an adviser relying on either the exemption under Advisers Act Rule 203(l) or Rule 203(m) begins advising any non-private fund clients, the adviser must register with the SEC or, if applicable, a state securities authority, prior to commencing such services.
Specific state requirements vary, mid-sized and small ERAs that are exempt from registration with the SEC must still comply with applicable state law. For example, an ERA may be required to switch to state registration in states where the adviser does business when its RAUM falls below $100 million, if an applicable state registration exemption does not apply.
State Notice Filings
An SEC-registered adviser may be required to make notice filings and pay fees in each state in which it has clients or a place of business. Some states require an SEC-registered adviser making notice filings to file Form ADV Part 2 and other documents. An SEC-registered adviser that has previously made state notice filings should receive a notification from FINRA in the fall with instructions for renewing those notice filings and paying the required renewal fees through the IARD system. These state notice fees are in addition to IARD filing fees.
Please contact one of the Shartsis Friese attorneys in the Investment Funds & Advisers Group if you have any questions regarding your firm’s compliance with its Form ADV requirements.
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