The Form ADV has been amended. Form ADV Part 2 has been broken out into two new parts, ADV Part 2A and ADV Part 2B. This amendment to Form ADV will not affect the vast majority of investment advisers until their annual amendments are due. As a reminder, ADV annual amendments are due ninety (90) days after the firm's fiscal year end. Therefore, investment advisers with a December fiscal year end are required to file their annual amendments by March 31st.
New Form ADV - Provides more Disclosure and Greater Transparency
The new Form ADV Part 2A, or Brochure, shall take the place of an investment adviser's old ADV Part II and Schedule F. The Brochure shall be the investment adviser's primary disclosure document. The ADV Part 2A contains eighteen (18) disclosure items, each to be included in the investment adviser's Brochure. Each disclosure item is to receive a narrative, plain English response. There is significant overlap between the required content of the new ADV Part 2A and the content that was required by the old ADV Part 2 and Schedule F. The new ADV Part 2A attempts to homogenize the way that investment advisers disclose their business practices and conflicts of interest. The intent of the revised Form ADV is to provide investment advisory clients with greater transparency; thereby helping investment advisory clients better assess the services, investment strategies, risks and conflicts of interest associated with the selection of a particular investment adviser. The ADV Part 2A must be filed electronically through the IARD system by all investment advisor firms.
New Requirement - The Brochure Supplement
Unlike the old ADV Part II and Schedule F, the new ADV Part 2A does not require a section in which investment adviser representatives of the firm are listed with their education and business backgrounds. Instead, investment advisers shall be required to provide investment advisory clients with a Form ADV Part 2B, or Brochure Supplement, for each investment adviser representative providing that particular client with advisory services. The Brochure Supplements must be delivered to the client before or at the time that an investment adviser representative begins to provide advisory services to a client.
A Brochure Supplement shall detail the educational background and business experience of each investment adviser representative, just as the old Form ADV Part II and Schedule F previously required. However, unlike the old Form ADV Part II and Schedule F, the Brochure Supplement must also detail any legal or disciplinary events material to a client's, or prospective client's, evaluation of the investment adviser representative.Effective Dates and Reporting Deadlines
All investment advisers registered with the SEC as of December 31, 2010, and having a fiscal year ending on December 31, 2010 through April 30, 2011, have until July 31, 2011, to begin delivering Brochure Supplements to new and prospective clients. By September 30, 2011, these advisers must deliver Brochure Supplements to all existing clients. The compliance due dates for delivering Brochure Supplements for existing registered investment advisers with fiscal years ending after April 30, 2011 shall be the same as their ADV Part 2A deadline - (120) days after their firm's fiscal year end.
New Procedures for Material Changes
There are also new procedural requirements. Under the new requirements, each year, within 120 days of the investment adviser's fiscal year end, the adviser must deliver or offer to provide an updated Brochure to each client. (See note below concerning disclosure statement delivery requirements for 2011) In addition to this requirement, the investment adviser must also provide the client with a Summary of Material Changes, if applicable. The Summary of Material Changes must identify and discuss each material change made to the Brochure since the investment adviser's last annual updating amendment filing. The Summary of Material Changes is a part of each investment adviser's annual updating amendment and will accompany the entire Form ADV when the investment adviser's annual updating amendment is filed electronically each year.
Please Note: The SEC has advised that the annual offer of an adviser's written disclosure statement will not suffice for 2011. Due to the substantive changes each adviser's disclosure statement must undergo as part of the new Part 2A and Part 2B format, all SEC registered investment advisers MUST, in lieu of an annual offer, deliver to advisory clients both their initial ADV Part 2A as well as all relevant ADV Part 2Bs. Advisory clients must receive the adviser's Part 2A within 120 days of the investment adviser's fiscal year end. (May 31st for those advisors with a December 31st fiscal year end).
Please Also Note: The above discussion is a Summary only. Investment Advisers should consult with their SEC counsel to address specific questions on how the changes to the Form ADV will affect their business.
Thomas D. Giachetti, is Chair of the Securities Practice Group of Stark & Stark, a law firm with offices in New York, Princeton and Philadelphia that represents investment advisers, financial planners, broker-dealers, registered representatives and public and private investment companies.