Three crucial compliance requirements to satisfy right now

Advisers who don't know exactly what they need to file, haven't done it or haven't invested the resources to do it right can make big mistakes that can be very time-consuming and costly to undo.

Apr 1, 2019 @ 11:00 am

By Fizza Khan

Every year at this time, registered investment advisers are — or should be — thinking about some of the annual regulatory compliance requirements imposed by the Securities and Exchange Commission.

Yet every year, we are contacted by advisers who either don't know exactly what they need to file, haven't done it or haven't invested the resources to do it right. This often leads to big mistakes that can be very time-consuming and costly to undo.

(More: Can investment advisers disclose away all conflicts? Can brokers?)

Outlined below are three important Q1 and early Q2 compliance requirements, including notable areas where managers need to take extra care to get it right:

1. Form ADV. This is the big one. For private fund managers, Form ADV has specific disclosure requirements about the private funds themselves, from questions about investors, source of investments and capital commitments to the funds' service providers, where one minor change during the reporting year can alter the entire picture that is presented to the SEC. It is critical to ensure that every "i" is dotted and "t" is crossed according to regulatory standards.

For example, the calculation of assets under management that managers may use for marketing purposes may be quite different than Regulatory AUM for Form ADV purposes. When it comes to disclosures on the Form ADV, the devil is in the details.

2. Employee disclosures. Required under the Investment Advisers Act of 1940, as amended (the Advisers Act), it is critically important for investment managers to keep routine employee disclosures current, especially in the event of an SEC exam. Certain parts of that information also drives how the Form ADV is updated. However, we often see clients neglect this piece of their annual housekeeping, which then sends ripples of errors through their Form ADV. This can have serious implications with the SEC and can, and often does, tip off regulators that something is awry.

(More: SEC exams to focus on investor fees, adviser conflicts of interest in 2019)

3. Form PF. This very detailed, data-driven filing for private fund managers, typically due by the end of April, collects exhaustive information, including how the managers derive their assets under management and how managers characterize their mandates. If Form PF does not match up with Form ADV, it can be very problematic. For instance, if a manager characterizes the funds it manages as "hedge funds" rather than "private equity funds" on Form ADV, that changes the requirements that need to be met on Form PF. Form PF is a time- and labor-intensive filing that causes managers the most angst because of the need for Form PF to harmonize perfectly with Form ADV.

Whether you are a newly registered investment adviser or have been under the jurisdiction of the SEC for years, it is all too easy to miss a minor detail that can turn into a major mistake later.

Some mistakes are made because Form ADV looks deceptively simple and managers think they can do it themselves. But just one wrong filing can compound each year to the point where the error becomes nearly impossible to undo.

In this season of compliance heavy lifting, it is especially important to invest the hours and resources to get it right the first time. This will save both time and money in the long run.

(More: Starting a new advisory firm: How to outsource and structure your practice)

Fizza Khan is the founder and CEO of Silver Regulatory Associates, which specializes in compliance for the investment industry.


What do you think?

View comments

Recommended next

Upcoming event

Nov 20


Future of Financial Advice

An innovative conference dedicated to improving the client experience by enhancing digital technology, mainstreaming healthcare and optimizing wealth management strategies.The Future of Financial Advice will provide a forum for... Learn more


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print