ANNUAL UPDATING AMENDMENT TO FORM ADV

In Plain English

A publication of THE SECURITIES LAW GROUP | James E. Grand | February 2016

 

ANNUAL UPDATING AMENDMENT TO FORM ADV

All registered investment advisers—including exempt reporting advisers—are required to file various regulatory and compliance filings throughout the year. THE MOST IMPORTANT OF THEM IS THE ANNUAL UPDATING AMENDMENT ON FORM ADV. The various filing requirements differ slightly for SEC-registered investment advisers, state-registered investment advisers and exempt reporting advisers. The specific requirements are summarized in this brief overview.

I. REPORTING REQUIREMENTS FOR SEC-REGISTERED INVESTMENT ADVISERS

1. ANNUAL UPDATING AMENDMENT TO FORM ADV. If the adviser is an SEC-registered adviser, it must amend its Form ADV each year on the IARD within 90 days after the end of its fiscal year. For an adviser whose fiscal year ended December 31, 2015, the deadline is March 30, 2016. This annual amendment must update your firm’s responses to all items of Parts 1 and 2 of Form ADV.

The IARD filing fees for an SEC-registered adviser for an annual updating amendment are (a) $40 if the adviser’s assets under management (“AUM”) are below $25,000,000, (b) $150 if the adviser’s AUM is between $25,000,000 and $100,000,000 and (c) $225 if the adviser’s AUM is over $100,000,000.

2. REQUIREMENT TO DELIVER PART 2 TO CLIENTS. An SEC-registered adviser whose Part 2A has materially changed since the last annual updating amendment must deliver to clients annually within 120 days after the adviser’s fiscal year end either (a) an amended Part 2A, including a material changes summary, or (b) a separate material changes summary that also offers to provide a copy of Part 2A. For an adviser whose fiscal year ended December 31, 2015, the deadline is April 29, 2016. Clients that previously received Part 2B need not be provided with an updated copy of Part 2B unless the disciplinary information disclosed in it has changed materially.

PRACTICE TIP: For advisers to hedge funds, the Part 2 delivery obligation applies to the fund and not to investors in the funds.

3. SWITCHING TO STATE REGISTRATION. If an SEC-registered adviser’s AUM (as reported on its annual updating amendment) is below $90,000,000, the adviser will likely be required to withdraw its SEC investment adviser registration by June 30, 2016. In that case, unless it qualifies for an exemption from state registration, it should file an application for state registration as soon as possible to ensure that it is registered by June 30.

II. REPORTING REQUIREMENTS FOR ADVISERS RELYING ON THE SEC “EXEMPT REPORTING ADVISER” EXEMPTION

1. ANNUAL UPDATING AMENDMENT TO FORM ADV. If the adviser is an “exempt reporting adviser,” it must amend its Form ADV each year on the IARD by filing an annual updating amendment within 90 days after the end of its fiscal year. For an exempt reporting adviser whose fiscal year ended December 31, 2015, the deadline is March 30, 2016. The IARD fee for an annual updating amendment by an SEC exempt reporting adviser is $150.

2. SWITCHING TO SEC REGISTRATION. If the adviser is relying on the SEC exempt reporting adviser exemption, it must register with the SEC before accepting any client that is not a hedge fund.

PRACTICE TIP: As a practical matter, this means a hedge fund manager that is relying on the exempt reporting adviser exemption cannot manage any separate accounts (unless it registers).

If the adviser reports on its Form ADV annual updating amendment that it has AUM of $150,000,000 or more, the adviser must file an application to register as an investment adviser with the SEC within 90 days after filing that annual updating amendment.

III. REPORTING REQUIREMENTS FOR CALIFORNIA ADVISERS CERTIFICATED BY THE CALIFORNIA COMMISSIONER OF CORPORATIONS

1. ANNUAL UPDATING AMENDMENT TO FORM ADV. If the adviser is a California- registered adviser, it must amend its Form ADV each year on the IARD within 90 days after the end of its fiscal year. For an adviser whose fiscal year ended December 31, 2015, the deadline is March 30, 2016. The adviser must update all of Parts 1, 2A and 2B.

For 2016 renewals, the IARD has waived its annual $100 system processing fee for investment advisers and reduced its $45 system processing fee for investment adviser representatives to $10.

2. REQUIREMENT TO DELIVER PART 2 TO CLIENTS. The California Commissioner of Corporations encourages all California-registered advisers to deliver Part 2 to clients on the same schedule that applies to SEC-registered advisers, which is summarized above.

3. SWITCHING TO SEC REGISTRATION. If the adviser’s AUM is $100,000,000 or more, you should contact us to discuss whether the adviser must register with the SEC as an investment adviser.

4. SWITCHING TO THE SEC EXEMPT REPORTING ADVISER EXEMPTION. An adviser with AUM under $150,000,000 that advises only one or more hedge funds (no separate accounts) is exempt from SEC registration as an exempt reporting adviser. California has a similar registration exemption.

Exempt reporting advisers are required to file Part 1A of Form ADV on the IARD and disclose organizational and operational information, but do not need to include all of the information that SEC-registered investment advisers are required to include. An exempt reporting adviser is not required to prepare and deliver to investors Part 2 of Form ADV.

An investment adviser that is exempt from registering with the SEC as an investment adviser because it is an exempt reporting adviser may also be required to register as an exempt reporting adviser or investment adviser in each state where it has an office.

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This newsletter is published as a source of information only for clients and friends of The Securities Law Group and should not be construed as legal advice or opinion on any specific facts or circumstances. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship.

The Securities Law Group

James Grand

jgrand@tslg-law.com

415-644-9501