Annual Update of Form ADV and Recent Regulatory Changes Affecting Advisers

As a reminder, each registered investment adviser must file an annual updating amendment to its Form ADV within 90 days of its fiscal year end. This means an adviser with a December 31 fiscal year end will be required to file an annual updating amendment to its Form ADV by March 31, 2023. We are here to help with the legal needs affecting your advisory business, including:

1. Preparing for the annual updating amendment
2. Responding to new items to be included in Form ADV
3. Navigating recent and upcoming regulatory changes

Preparing for the annual updating amendment

In the annual updating amendment, advisers must update their responses to all items in Part 1A, 1B, 2A and 2B (as applicable), including the corresponding sections of all schedules. Advisers may, but are not required to, submit amended versions of the relationship summary required by Part 3, as part of the annual updating amendment.

SEC-registered investment advisers must pay the fee reflected in the table below based on the amount of their regulatory assets under management. Filing fees are waived for state-registered firms.

Fees must be deposited to the firm's IARD Flex-Funding Account before the annual updating amendments may be submitted. Each firm should review their Flex-Funding Account now to determine whether it must make any deposits to their accounts—this is not something to save for the last minute as account transfers can take days. Firms may submit payments by check, wire transfer, or electronic payment/transfer. Instructions and relevant addresses are available at the following links:

• Funding Instructions: https://www.iard.com/accounting#methods [iard.com]
• User Guide: https://www.finra.org/registration-exams-ce/e-bill/user-guide [finra.org]

Within 120 days of its fiscal year end, an adviser must deliver to each client (1) a free updated brochure that either includes a summary of material changes or is accompanied by a summary of material changes, or (ii) a summary of material changes that includes an offer to provide a copy of the updated brochure and information on how a client may obtain the brochure. This means an adviser with a December 31 fiscal year end will be required to deliver its brochure to clients by April 30, 2023.

Responding to new items to be included in Form ADV

In 2020, the Securities and Exchange Commission (SEC) adopted new rules governing investment advisers that market their services to clients and investors. These rules included amendments to Item 5 of Form ADV to require information about an adviser’s use in its advertisements of performance results, testimonials, endorsements, third-party ratings, and references to its specific advice. The compliance date for the new rules was November 4, 2022, but Form ADV does not require an adviser to update its responses to Item 5 promptly by filing an other-than-annual amendment; therefore, many advisers will be responding to new Item 5.L for the first time in their annual updating amendment.  

Navigating recent and upcoming regulatory changes

Numerous regulatory changes have recently, or may soon, affect investment advisory businesses.

1. Investment Adviser Marketing (SEC compliance date was 11/4/2022), adding new items to Form ADV and updating the rules that govern investment adviser marketing.
2. Amendments to Electronic Filing Requirements (SEC final rule), updating filing requirements for certain documents by investment advisers and amending Form 13F to change the information reported on the form.
3. Outsourcing by Investment Advisers (SEC proposal), proposing new due diligence and monitoring requirements for advisers that outsource certain services or functions.
4. Enhanced Disclosures about ESG Practices (SEC proposal), proposing that advisers provide additional information about their environmental, social, and governance (ESG) practices.
5. Cybersecurity Risk Management (SEC proposal), proposing new policies and procedures regarding cybersecurity risks and reporting requirements on significant cybersecurity issues.
6. Continuing education requirements for investment adviser representatives (effective in Wisconsin January 1, 2023).
7. SEC examination priorities, including national initiatives for compliance with the Investment Adviser Marketing Rule and upcoming priorities for 2023.

About the Author

We are pleased to announce that Vanessa Meeks joined Quarles’ Business Law Group in the firm’s Washington, DC office in December of 2022. Vanessa counsels registered investment companies, their investment advisers and their boards of directors/trustees on a wide variety of regulatory, compliance and business matters, including fund governance matters. Before joining Quarles, Vanessa served for more than ten years at the SEC, where she worked in the Division of Investment Management and the Office of Investor Education and Advocacy. At the SEC she had responsibility for advising on enforcement cases and examinations, including on-site investment adviser examinations. She has extensive experience with the Investment Advisers Act of 1940 and Investment Company Act of 1940, including related SEC rulemakings, no-action letters and exemptive relief. She is an avid equestrian who regularly competes in dressage.