Each year as we approach the annual update of disclosure documents for investment advisory firms, there seem to be more requirements and new questions to answer. The annual update due by March, 2018, is no exception.
One of the biggest changes is the level of detail required to report the client assets we manage. In the past, Form ADV Part 1 asked for the total of assets under management as of year-end and a general description of the types of clients served by showing a percentage range for clients in various categories. This coming spring, we will need to state the precise number of clients in each applicable category together with the amount of assets under management for each client category.
Although this information should be readily available to each firm, reporting those actual breakdowns will almost certainly require firms to set up a new process for ensuring we have those numbers and that they are correct. It will take a bit more time and likely also require a quick review or cross-check of the numbers to ensure we have it right for the filing.
Other expanded asset related requirements include reporting information about managed assets – requiring firms to report how much they manage in specific categories of investments, whether they use derivatives or other borrowings and more. Where firms have multiple locations, additional information will be required and, not surprisingly, specific information about social media platforms used by a firm and its investment adviser representatives.
Finally, copies of advisor communications – specifically those to clients with investment recommendations or “marketing” information such as calculation of rates of return or performance – must ALL be archived and available to the regulators for review on audit or other activity.
These changes all seem to be an expansion of the requirements already in place and will make much more data available to the regulatory bodies for a variety of uses. The burden on advisory firms will be noticeable because of the changes and additions of information required. It is time now to begin thinking about preparing for that annual update.