Advisers may blow deadline on ADV-2 forms

Narrative format, disclosures seem to be stumbling blocks

Mar 27, 2011 @ 12:01 am

By Dan Jamieson

Flooded with last-minute calls from registered investment advisers who haven't filed their new plain-English ADV Part 2 forms, compliance consultants estimate that a third or more of them will miss the Securities and Exchange Commission's Thursday deadline.

Patrick Burns, a compliance consultant with the law offices of Patrick J. Burns Jr. PC, said that he has been getting up to two dozen calls each day from desperate financial advisers.

Many advisers have been challenged to complete the new narrative format, which requires plain-English disclosures about their businesses and conflicts. Advisory firms whose fiscal year ended in December are required to meet this week's deadline.

“The majority of people calling in at this late stage are the ones who thought they could do [the filing] themselves or got stuck on some parts of the ADV,” Mr. Burns said.

About 90% of the 11,000 advisory firms registered with the SEC and 15,000 state-registered firms face this week's deadline. No major repercussions are expected for missing the deadline, but late filers could face more regulatory scrutiny, compliance sources said.

“Do you want to put yourself on the SEC's radar screen [by filing late]?” asked Scott Gottlieb, chief executive of U.S. Compliance Consultants LLC.

One adviser, who asked not to be identified, said that he is still working on his update, which he called “an utter waste of time,” and said that he might miss the deadline.

“My first responsibility is to clients — the government comes second,” he said.

Zachary Gronich, founder of compliance consulting firm RIA In A Box, said that he has helped set up more than 1,000 RIA firms, but only about 350 have hired him to prepare the updated ADV form.

“I blasted e-mails to all of them, saying in big, bold red letters, "This applies to you,'” he said.

For some, the question is whether to file a hastily prepared form to meet the deadline or do it right and file late, said Brian Hamburger, founder of MarketCounsel LLC.

“I think it's better to file late, as opposed to filing something that's incorrect,” he said. “If it's incorrect, you leave legal breadcrumbs for clients” to pursue claims, and a regulator could ask “why you swore under penalty of perjury that the filing was correct when you knew it wasn't.”

Advisory firms that file late updates most likely will face consequences no worse than a warning and a reminder to file, observers said.

“We assume everyone is going to meet their obligations,” said Robert Plaze, associate director for regulation in the SEC's Division of Investment Management. He declined to say what the SEC would do about late filers.

“If you miss the deadline for the annual updating [ADV] amendment, it's always been my understanding that you just file it when you can,” Mr. Gottlieb said.

“My guess is that based on the [large] number of firms that will not meet the deadline, Draconian things [such as fines or revocations] would not happen unless a firm failed to follow up” and file, Mr. Burns said.

“If you don't file [an updated ADV at all], you just made the short list of those a state [regulator] or the SEC will visit,” he said.

Mr. Gottlieb said that he doesn't understand why so many RIAs have failed to file. The new form was well-publicized, observers said.

One major change in the new form is an emphasis on discussing in detail an adviser's investment strategy, said Jane Stafford, founder of Stafford + Associates LLC.

Since the SEC had long made clear that it wanted better disclosure of strategies, “people who have kept up [with SEC guidance] shouldn't have had trouble” with the new format, he said.

E-mail Dan Jamieson at


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