Even with the Annual Update Form ADV (“AUA”) change in the rearview mirror, advisors should stay abreast of changes in their business, as well as regulatory updates, that could impact n’ any part of your Form ADV (i.e. Form 1A, 2A, 2B and Form SCR). Like your compliance program, your Form ADV is not a “set and forget” document. If you have a material change after completing your AUA, you should promptly update your ADV form and, in some cases, redistribute it to your clients. Note that there is a difference between simply updating your ADV and having to make an interim delivery to your customers between annual updates. Specifically, Form ADV Part 2A instructions state that you must update your brochure “promptly whenever any information in the brochure becomes materially inaccurate.” However, you are only required to deliver an Interim Change to clients if the change includes information in response to Item 9 of Part 2A (Disciplinary Information). Keep in mind, however, that as a fiduciary, “you have an ongoing obligation to inform your clients of any material information that may affect the consulting relationship. Therefore, between annual updates, you must disclose material changes to this information to customers, even if those changes do not trigger the delivery of an Interim Change.

There are a few exceptions to this requirement to update your brochure. The instructions note that you “are not required to update your brochure between annual changes just because the amount of client assets you manage has changed or because your fee schedule has changed.”

So, what elements require modification of the ADV? Some think that “materiality” is in the eye of the beholder, but it’s best to think of material changes as ones that could impact a customer who engages or stays with you. Here are examples of significant changes:

  • Offer or remove a service
  • Fee Changes
  • Change affiliation
  • The inclusion of a new type of asset in the client portfolio that carries new risks (e.g. digital assets)
  • Obtain or remove custody of client assets
  • Add or remove a custodian
  • Compensation structures (both for firm and individual investment advisor (“IAR”) representatives)
  • Identify a conflict
  • Disciplinary elements (both for the company and the IARs)
  • Ownership changes
  • Changes of address

The SEC Instructions for SEC and State Registered Advisors are quite concise as to what they consider a change that rises to the level of requiring a Form ADV update. Instructions on what constitutes the need for an update include:

  • Item 1 of form ADV 1A. Your Business “Credentials” If you have changes to most of the items in this section, you will need to file an update.
  • Article 3 of the company ADV 1A. The “organizational form” of your business. If you have changes in your business structure, practice, or the state in which your legal entity is organized, you must update your file.
  • Item 9 of Form ADV 1A describes your company’s “custodial” practices. If you get custody or no longer have custody, this section needs to be updated.
  • Item 11 of Form ADV 1A. “Disclosure Information” for your business. Any firm or individual item that arises could trigger an update to this section.
  • Additionally, the SEC states that if any section of Form ADV becomes inaccurate, it should be corrected promptly. This includes your Part 2A ADV, Schedule 1 (WRAP brochure), CRS form and 2B(s) for your IARs*.

Although the AUA is an opportunity for you to review your entire Form ADV and all of its parts for accuracy, you should remember that when changes occur in your business or regulatory changes occur in the industry, you need to re-examine the ADV form to see if you need to file an update. In the end, it’s better to be on the safe side and file a non-annual Form ADV amendment than to give the regulator an easy reason to issue a misstatement or create an enforcement action. If you have any questions about your specific situation, please contact your compliance consultant who will be happy to discuss them with you.

*Although SEC-registered advisers are not required to file Form ADV 2B(s), an important update should be provided to IAR clients.