Annual Requirements for Investment Advisers

Two Key Annual Obligations for SEC-Registered Investment Advisers

SEC-registered investment advisers must navigate numerous regulatory and compliance obligations on an ongoing basis. Among these, two crucial annual requirements include the submission of an annual updating amendment to the Form ADV and the completion of an annual review. Non-compliance with these obligations can expose investment advisers to regulatory scrutiny, enforcement actions, fines, censures, reputational damage, and other penalties.

Form ADV Annual Updating Amendment

The Form ADV must be updated annually, within 90 days of the investment adviser's fiscal year-end, most commonly requiring submission by March 31st.

Given that the Form ADV is distributed to clients and is publicly accessible, it is critical for investment advisers to ensure accuracy and consistency in business models, additional services, fee structures, etc. Inaccuracies and inconsistencies in the Form ADV are a common deficiency category during SEC examinations.

Aside from the required annual updating amendment, an investment adviser's Form ADV may need additional updates throughout the year.  Other-than-annual amendments to the Form ADV are triggered by specific circumstances, such as material inaccuracies or material changes to an investment adviser’s business.

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Rule 206(4)-7 under the Advisers Act mandates SEC-registered investment advisers to conduct an annual review of their written policies and procedures to assess their adequacy and effectiveness. During SEC examinations, regulators often observe that investment advisers cannot demonstrate that they performed an annual review. Failing to perform and document this annual review has been a recurring compliance issue during SEC examinations, leading to fines and penalties.

The annual review should encompass compliance matters from the previous year, changes in business activities, and compliance program revisions necessitated by alterations in the Advisers Act or other relevant regulations. Key areas for review include advertising and marketing, client agreements and disclosures, regulatory filings and registrations, portfolio management processes and trading, custody and safeguarding of client assets, business continuity, and cybersecurity.

An annual review is considered a best practice for various other types of investment advisers, such as Exempt Reporting Advisers, and is mandatory for FINRA-regulated firms, such as broker-dealers, under FINRA Rule 3120. This rule requires these firms to annually prepare a report detailing their supervisory control system, highlighting findings, and outlining any modified supervisory processes or procedures resulting from the review. For more information, please refer to our blog regarding the Private Fund Reform Rule.

How Can Coast to Coast Compliance Can Help.

If you are an SEC-registered investment adviser, Exempt Reporting Adviser, or State-registered investment adviser and would like assistance with the annual updating amendment to your Form ADV, or assistance with your firm’s annual review, please reach out to us!