Form ADV is meant to provide investors and regulators a reasonably accurate, up-to-date description of a firm. It doesn’t always work out that way.
For many financial advisors, the document remains a significant source of confusion. Many simply neglect those forms and fail to update the documents when something changes with the firm that the SEC might view as significant. Yet planners need to view Form ADV as a living document which must be periodically scrutinized and updated. The same is true for the FINRA-required U4 form, say compliance experts.
"You should be regularly or frequently reviewing your ADV documents, your U4 documents, and that would include your advisory agreements, also," said Teresa O'Grady, senior compliance consultant with RIA Compliance Consultants, during an online presentation. "In the least you want to review those documents as part of your compliance program annually."
Such annual reviews are a bare minimum, O’Grady stressed. Firms should generally review their documents more frequently, particularly if their businesses undergo significant changes, such as changing fee structures or adding new services or representatives.
But there is another reason to promptly update the SEC on any changes in the firm, particularly as the commission is trying to calibrate its exam program to ensure that it dispatches its examiners to the firms that appear to pose the greatest risk.
"Let's say you have an affiliated broker-dealer that you're shutting down and it's going away — I would definitely go into the ADV and update and remove that affiliation as soon as possible,” said Jarrod James, senior compliance consultant with RCC, during the presentation. “Keep in mind, the SEC does risk profiles based on how you answer the ADV. There might be something technically you could wait on until your annual amendment, but I wouldn't. I'd go ahead and get it done right away.
"The real point here is you guys should be looking at your ADV on a quarterly basis to see if anything should be changed, and just not blindly think, 'Oh we'll wait 'til the end of the year to take care of this stuff,'" James added.
Several times a month, James and his colleague Tom Zielinski receive calls from advisor clients who ask about their forms, but also express reluctance to update them, James said.
"My clients will call up and they will not want to make an amendment to their ADV because they're under the impression they have to send out a new ADV to all their clients immediately, and that's just not the case," Zielinski said. "You just make an amendment to the ADV [and] you start using the new version going forward."
