How To Register As Ia And + Form Adv

This article addresses the procedure by which an investment adviser registers with the The states Securities Exchange Commission ("SEC") under the Investment Directorate Deed of 1940, as amended (the "Advisers Act"). Although this article deals primarily with the procedural aspects of SEC registration of Registered Investment Advisers ("RIA"), other memoranda are available with regard to related topics, such as affiliate registrations, CFTC registration, exemptions from registration in sure cases^[one], or how to gear up up a hedge fund in the Us.

I. Summary of Steps and Obligations

One time an investment adviser determines that information technology is either required to register or, assuming it is eligible, wishes to register voluntarily, the applicant must complete and file Form ADV, which tin be found on the SEC's website at http://world wide web.sec.gov. Course ADV contains two parts, which are described in more detail in Sections III and 5 of this commodity:

Part 1 of Class ADV is filed electronically with the Investment Adviser Registration Depository ("IARD"). Information regarding the IARD filing tin can be found on the Commission's website at: http://www.sec.gov/divisions/investment/iard.shtml. Office 1 provides for disclosure of detailed information nearly the applicant, which, in one case filed, will exist publicly available on the IARD.
Part 2 of Form ADV contains boosted information about the investment adviser (Part 2A) and its supervised persons (Part 2B). Part 2A (the "Brochure") must be filed electronically with the IARD. An applicant is non required to file Part 2B (the "Brochure Supplement") of Form ADV, merely it must maintain a copy of each supervised person's Brochure Supplement in its files at all times. An investment adviser must initially furnish its Brochure to a client before or at the time the investment adviser enters into an advisory contract with such customer, and it must initially replenish a supervised person's Brochure Supplement to each client before or at the fourth dimension when that specific supervised person begins to provide advisory services to that specific customer.

Two. Getting Started – The SEC Registrant Entitlement Parcel

An applicant, i.e., the investment adviser, must designate at to the lowest degree one person to serve every bit the Super Business relationship Administrator with respect to the IARD. A Super Account Administrator is the person responsible for maintaining and updating an investment adviser'due south Class ADV in the IARD system. As farther described below, the Super Account Administrator will be provided with access codes to log into IARD and to update an investment adviser'southward Class ADV.

Earlier an applicant tin can consummate and file Parts 1 and 2A of Form ADV, the applicant must kickoff establish an business relationship with the IARD (referred to as the IARD User Business relationship). To establish an IARD User Business relationship, the bidder accesses the IARD website and completes the SEC Registrant Entitlement Parcel that can be accessed at http://www.iard.com. The SEC Registrant Entitlement Packet consists of the following:

A memorandum from the Financial Industry Regulatory Potency (the "FINRA")
Ii forms for completion:
1. The FINRA Entitlement Agreement ("FEA"); and
2. The IARD Super Account Administrator ("SAA") Entitlement Class.

The applicant submits (i) the FINRA Entitlement Agreement, (ii) the IARD Business relationship Ambassador Entitlement Form, and (iii) the CRD Participant IA-Simply Business relationship Administrator Entitlement Form (CRD Participant IA-Only AEFF) in newspaper grade to the FINRA Entitlement Group. The FINRA Entitlement Group processes the forms. Thereafter, FINRA volition contact the applicant's Super Account Administrator and provide the Super Account Administrator with the following:

The investment adviser'southward CRD number;
The Super Business relationship Ambassador's User ID; and
The initial password for accessing IARD.

At that point, FINRA does the post-obit:

Sets upwardly the bidder's IARD User Account; and
Sets up the IARD Financial Account for billing and payment of fees.

Next, within vii to x business days, FINRA volition contact the Super Account Administrator via e-mail with a link to the IARD Confirmation Packet. The IARD Confirmation Parcel provides the Super Business relationship Administrator with information regarding the Super Business relationship Administrator'due south function, responsibilities, security information, and links to other data. The IARD Confirmation Packet contains the following six attachments:

Recommended Hardware/Software Configuration;
Account Management Tool Full general Overview;
IARD Account Administrator Roles & Responsibilities;
Countersign Change Instructions;
Countersign Change Instructions for IARD Users; and
FINRA Entitlement Program Support.

Three. The IARD Financial Account

An applicant is required to have sufficient funds on deposit to cover its initial setup fee prior to filing Parts ane and 2A of Form ADV. Moreover, once the applicant has go a RIA, information technology must ensure that there are sufficient funds in the IARD Financial Account to comprehend the annual updating fees. The fees are rather modest, assessed on a sliding scale depending upon the corporeality of assets nether management. Currently, the fee schedule is as follows:

Note that the applicant may send the advisable fees by Web East-Pay, cheque or by wire. Details on how to submit funds by Web CRD/IARD East-Pay, check or wire can be found at http://www.iard.com/fee_schedule.asp. Allow 48 hours for the processing of funds. Once the funds are credited to the applicant's IARD Financial Business relationship, the filing may keep.

Iv. Completing Part ane of Form ADV

A. General

Role 1 of Grade ADV requires the investment adviser to disclose information well-nigh its business organization, the persons who own or command information technology and whether information technology or its key personnel accept been sanctioned for violating securities or other laws. Information technology is critical that the bidder provide full disclosure considering it is unlawful under the Advisers Human activity to willfully make an untrue argument of textile fact or to willfully omit a material fact in any registration awarding or report.^[2] An applicant that fails to comply runs the take chances of having its registration revoked and/or potentially existence subject to administrative proceedings and civil penalties.

B. Responses and Disclosures

When completing Part i of Class ADV, an bidder is required to disclose, among other things, the following:

The investment adviser's principal office and place of business, its contact information, and business concern hours.
The investment adviser's web site address, if whatsoever.
Where the investment adviser's books and records are maintained.
Whether the applicant has filed find as an investment adviser at the state-level and, if so, with which states.
The investment adviser's course of organization: corporation, sole proprietorship, Express Liability Company, partnership, limited liability partnership or other.
The number of employees and their functions.
The number of clients and type of client.
Compensation arrangement (details regarding the investment adviser's existing compensation arrangements with its clients).
The amount of assets under management.
Whether the investment adviser is registered in another chapters, e.g. a commodity pool operator.
Whether the investment adviser is affiliated with another financial institution, e.grand. a broker-dealer.
Whether the investment adviser engages in master transactions or agency cross transactions.
Whether the investment adviser has custody of its clients' cash or securities.^[3]
The identity of the investment adviser's straight owners, indirect owners and executive officers.^[4]
The disciplinary history of the investment adviser.
The disciplinary history of the investment adviser's "advisory affiliates."^[5]

Pursuant to the SEC's recent amendment of Course ADV Part 1, the post-obit information is now also required to be disclosed:

The requirements met past the investment adviser which allow for registration with the SEC.
Additional information about the investment adviser's advisory concern.
Additional client information.
Information regarding each private fund advised by the investment adviser.

The investment adviser's business and custodial practices.
Boosted disciplinary issue information.

Note that the term "assets under direction" now refers to "Regulatory Assets Under Direction" ("RAUM") which is unlike from "AUM" and "Net Asset Value" ("NAV") as used in the industry. RAUM starts with the nugget side of the balance sheet and includes assets that previously were disregarded and now must be included such as: (i) family unit or proprietary avails, (ii) assets brash without receiving bounty and (iii) assets of foreign clients. In improver, investment advisers must calculate their regulatory assets under management on a gross basis. With respect to the avails of individual funds, the SEC imposed certain additional requirements for directorate to such funds in computing their regulatory assets under management: (i) an investment adviser must include the value of avails of whatever private fund for which information technology provides "continuous and regular supervisory or direction services" regardless of nature of the assets of the fund (i.e., once a fund is a "individual fund" all of the fund'south avails must be included in the calculation regardless of what portion of such fund'southward portfolio is comprised of "securities"); (2) an investment adviser must include uncalled capital commitments of private funds in its calculation, and (iii) an investment adviser must utilise market value for assets of private funds, or fair value where the market is not available.

C. Approval

Once Function 1 of Form ADV is filed with the SEC, the SEC generally has forty-5 (45) days after receipt of the Class ADV to declare an applicant'due south registration constructive or to plant a proceeding to determine whether to deny registration. The SEC volition mail an Effective Gild to an applicant one time an applicant's registration is alleged constructive. In practice, an applicant can look a response from the SEC granting registration within two calendar week after filing Part 1 of Form ADV.

Five. Continuing Obligations with Respect to Function 1 of Class ADV

A registered investment adviser is obligated to file certain amendments to Form ADV Function 1 through the IARD system as follows:

A. Prompt Amendments

An investment adviser must promptly file an amendment if:

Information provided in the virtually recent Form ADV in response to the following items in Part 1A becomes inaccurate in any way:
1. identifying information, including name of the investment adviser, accost, contact person, etc. (Item i);
2. type of entity (e.m. limited liability company, express liability partnership, corporation, etc.) and/or state of system or fiscal year information (Item three);
3. changes to an investment adviser'southward or related person'due south custody of customer avails (Item 9); and
4. disciplinary disclosure for the investment adviser and its "advisory affiliates" (Particular 11).
Data provided in the near recent Form ADV in response to the following items in Part 1A becomes materially inaccurate in any way:
1. succession to the business of another investment adviser (Item 4);
2. participation or involvement in client transactions (including whatsoever proprietary or sales interest or changes in investment or brokerage discretion) (Item 8); and
3. direct and indirect command persons of the investment adviser (Detail 10).

B. Annual Amendments

With respect to whatever other changes to Part 1 of Form ADV, amendments are required to exist filed annually within ninety (ninety) days afterwards the investment adviser's fiscal year end. The investment adviser volition be charged the IARD almanac fee at the time the investment adviser makes its annual amendment, which is due within ninety (90) days afterward the investment adviser'southward fiscal year stop.

VI. Completing Part two of Form ADV

A. The Brochure

Part 2A contains xviii separate disclosure items on topics such as fees and bounty agreements, conflicts, types of advisory clients, investment strategies and hazard, brokerage practices and other fiscal information that must be addressed in a "obviously English" manner in the Brochure. The SEC amended Directorate Act Dominion 204-ane to require all investment directorate to file their new Brochures electronically with the SEC via the IARD arrangement as a text-searchable PDF attachment to Form ADV Part one. There is also a new requirement to summarize material changes fabricated to Part 2A since the investment adviser's final annual amendment. The Brochure must be updated annually, and investment directorate may create carve up brochures for different types of advisory clients.

Advisers Act Rule 204-3 requires investment advisers to make an initial delivery of a current Brochure before or at the time the investment adviser enters into the contract with a client. An investment adviser must also evangelize to each customer annually (within 1 hundred and twenty (120) days of the stop of such investment adviser's financial year) either a copy of the current Brochure that includes a summary of all textile changes, or a summary of all changes with an offer to provide a re-create of the electric current Brochure without accuse. Investment advisers must also make interim deliveries of the updated Brochure to clients when in that location is a new disclosure of a disciplinary event or a material change to disciplinary information. As an alternative to delivering the Brochure on an interim basis to reflect these changes, investment directorate may deliver a argument describing the material facts relating to the change.

B. The Brochure Supplement

Directorate Human action Rule 204-3 requires that each Brochure be accompanied by Brochure Supplements that provide information near the advisory personnel on whom the particular client relies for investment advice. Brochure Supplements must be prepared for each supervised person who either (i) formulates investment advice for that client and has direct client contact, or (ii) makes discretionary investment decisions for that customer'south assets, even if the supervised person has no direct customer contact.^[6] The Brochure Supplements comprise disclosure items nearly the relevant supervised persons including (but non limited to) their formal didactics and business organisation background for the past five (5) years, material legal or disciplinary events, compensation, economic benefits and an explanation of how the investment adviser monitors the communication provided by the supervised person.

Investment directorate are non required to file the Brochure Supplements with the SEC. However, the Brochure Supplements for supervised persons must initially exist given to each client or prospective client before or at the time when that specific supervised person begins to provide informational services to that detail client. Every bit with the Brochure, interim deliveries must likewise be made when in that location is new disclosure of a disciplinary result or a material change to disciplinary information already disclosed, accompanied past a argument describing the revised material facts. However, dissimilar the Brochure, investment directorate are not required to deliver Brochure Supplements annually to existing clients.

VII. Selected Standing Obligations of a Registered Investment Adviser

A. Books and Records

Once the investment adviser is registered with the SEC, the SEC has the ability to conduct an examination of the adviser's books and records. The recordkeeping requirements for all investment directorate are set up forth in Advisers Act Rule 204-2 and generally fall into two categories: general accounting and business records, and additional records required due to the fiduciary nature of the informational business. All records must exist maintained in a "true, accurate and current" mode.^[7] Of note, the SEC has stated that for strange advisers registered in the The states, only records relating to transactions involving United states resident clients must be maintained for sure recordkeeping requirements (equally detailed below).^[eight]

Rule 204-2 requires that all advisers maintain the following general records (amidst others):

Accounting records (ledgers, checkbooks, banking concern statements, bills, financial statements, etc.);
A memorandum detailing each security order (which must include terms and conditions of each order, identity of persons involved and account data, for transactions involving US persons only);
Documents supporting performance data (for transactions involving United states persons just);
All written contracts;
Lists of discretionary accounts;
All powers of attorney (for transactions involving United states persons only);
Documents supporting personal securities transactions of any "advisory representatives";
All written communications (including all writing related to recommendations and communication, the execution of orders and the receipt and disbursement of client funds, for transactions involving US persons only, in certain circumstances);
All e-mail and electronic communications (For transactions involving US persons only, in certain circumstances);
- Split retentiveness policies apply for e-mail and electronic tape storage.
Client solicitation agreements; and
Disclosure documents.^[9]

Rule 204-2(b) requires that advisers who take custody of client assets must maintain additional records, including only not limited to:

Record of all purchases, sales, receipts and deliveries of securities;
Separate tape for each client's account showing all of the higher up information;
Record of all securities in which any client has a position;
Copies of custody compliance procedures;
Copies of transaction confirmations; and
Copies of all internal command reports.^[x]

All advisers to private funds must as well maintain separate records relating to each individual fund that is advised. These records include but are not limited to:

The amount of avails under direction ("AUM") and use of leverage;
Records of each client's securities transactions;
Information regarding each security owned by any client;
Copies of all proxy voting procedures (if applicable); and
Additional proxy voting records.^[11]

In addition to maintaining all necessary records, registered directorate must also have policies and procedures in place to ensure that all records are maintained in the correct fashion. All records required to exist maintained under Rule 204-ii must exist kept for a period of at least five (5) years following the end of the fiscal year during which the terminal entry was made on a particular record, the offset two (ii) years of which the records must be kept in an "appropriate office" of the adviser.^[12]

Depending on the type of advisory activities that an adviser engages in, at that place may be additional recordkeeping rules that apply (i.e. Commodity Futures Trading Commission ("CFTC") or National Futures Clan ("NFA") rules). Delight contact u.s.a. for a complete listing of all of the required books and records that must be maintained by a registered investment adviser nether the Directorate Human action and whatsoever other applicable statutes.

B. Custody

If a registered investment adviser is accounted to have custody of its clients' avails, it must comply with Dominion 206(iv)-2 of the Advisers Act. The adviser must therefore maintain those funds and securities with a qualified custodian and must notify all clients promptly in writing of the proper noun and address of the qualified custodian as well as the fashion in which the funds and securities are maintained. The qualified custodian is also required to send business relationship statements to all clients of the adviser on at to the lowest degree a quarterly basis. These statements must:

Identify the corporeality of funds and each security in the client'southward account; and
Item all the transactions in the customer's account during the by quarter.

In improver, the adviser must have a reasonable basis, after due inquiry, for believing that the qualified custodian has sent the business relationship statements to all clients. The adviser can form this "reasonable belief" by obtaining a copy of the account statement delivered to the clients by the qualified custodian.

While the adviser may also ship account statements to its clients, this cannot substitute for the requirement that the statements must be sent by the qualified custodian. If the adviser voluntarily sends its own statements to clients, the required notice and the statements sent past the adviser must include a legend directing the client to compare the account statements received from the adviser to those received from the qualified custodian.

The adviser must also exist subject field to a "surprise examination," an examination that takes place at to the lowest degree in one case each calendar year by the adviser'southward contained public accountant. This examination must take place at the fourth dimension of the auditor'south choosing without whatsoever prior notice to the adviser. The adviser must also enter into a written understanding with the auditor that provides the following:

The offset surprise exam must occur inside half dozen (6) months of the adviser having custody of client funds;
The accountant must file Course ADV-E with the SEC within 1 hundred and twenty (120) days after the exam, confirming that the surprise examination has taken identify and describing the nature of the examination;
The accountant must notify the SEC inside one (one) business day of finding whatever cloth discrepancies during the examination; and
The accountant must file Grade ADV-E inside four (4) business days of resignation, dismissal or termination of the engagement, accompanied by a statement that includes the nature of the resignation, dismissal or termination of the engagement and an explanation of any related issues concerning the examination.

Advisers to hedge funds and certain other private funds tin avoid the "surprise examination" requirement the find requires and the quarterly account statement requirement if those hedge funds and individual funds are audited at least annually past an independent public accountant that is registered with, and subject to regular inspection by, the Public Visitor Bookkeeping Oversight Board ("PCAOB") and the fund distributes its audited fiscal statements prepared in accordance with By and large Accepted Accounting Principles ("GAAP") to all investors within one hundred and 20 (120) days of its fiscal yr end (or ane hundred and 80 (180) days for fund of funds). However, if the adviser advises only managed accounts, this relief is not available. As well, the "surprise examination" requirement volition not use to an adviser that maintains client funds and securities with a qualified custodian and has custody of customer assets solely because of the adviser'southward authority to deduct advisory fees from client accounts.

C. Blue Sky/State Regulation Bug

Depending on where the investment adviser's investors are located, the adviser may need to make the advisable "Blueish Heaven" filings in certain states. The filing requirements and fees vary from state to country. Some states also require notice registration filings.

VIII. Form PF

Any RIA that advises one or more individual funds and has more than $150 1000000 in AUM^[thirteen] must file Form PF.

Form PF refers to ii categorical "sizes" of investment advisers that impact the frequency and particular of an investment adviser'south reporting requirements.

"Smaller" private fund investment advisers are those that have between $150 million and $1.v billion in AUM. These investment advisers will have to make Form PF filings annually. All smaller private fund investment advisers will take to make their first filing within one hundred and twenty (120) days of the end of the investment adviser'due south fiscal year. These investment advisers must fill out Form PF Department 1a (full general information well-nigh the investment adviser and its clients), Section 1b (specific data regarding its individual funds) and Department 1c (specific information about any hedge fund clients).
"Large Private Fund Advisers" are those that have at least $1.5 billion in aggregate AUM. These investment advisers will accept to file Form PF reports quarterly rather than annually within sixty (lx) days following the end of each quarter. In addition to filling out Sections 1a, 1b and 1c of Course PF, Large Private Fund Advisers who advise hedge funds must also fill out Sections 2(a) and 2(b), which require information well-nigh the hedge funds beingness brash, exposures and trading, risk metrics, financing and investor information. Advisers to liquidity funds must fill out Section 3, which requires information on their aggregate advised liquidity funds' identifying and operation information, assets, financing and investor information. Advisers to private equity funds must fill out Department 4, which requires information on their aggregate advised private equity funds' identifying, financing and investment data.

If an investment adviser's AUM increases to over $1.5 billion then equally to affect its categorization under Grade PF, it may have to transition from the smaller adviser reporting level to the Large Individual Fund Adviser reporting level. Such investment advisers will switch from annual to quarterly reporting at the next end-of-quarter post-obit the same change in AUM. If an investment adviser's AUM decreases under the Big Private Fund Adviser threshold, information technology must file a supplemental Form PF confirming its eligibility for the new almanac reporting level equally a smaller individual fund adviser.

Lastly, in addition to the above the following investment advisers must comply with Grade PF filing requirements:

Any investment adviser with at least $five billion in RAUM attributable to hedge funds as of the concluding day of the fiscal quarter nigh recently completed;
Any investment adviser managing a liquidity fund with at least $5 billion in RAUM attributable to both liquidity funds and registered money market place funds as of the final day of the fiscal quarter well-nigh recently completed prior to; and
Any investment adviser with at least $five billion in RAUM attributable to private equity funds as of the final day of its kickoff fiscal year.

^[ane] Note that while there are several exemptions from SEC registration that are bachelor to investment advisers, there are also reporting requirements that utilise, even for those directorate that are otherwise exempt. Such directorate are called "Exempt Reporting Directorate" (ERAs) and care should exist taken to comply with those requirements. Please contact the states if you need further information virtually this aspect the regulations.

^[ii] Department 207 of the Directorate Human activity.

^[3] In the context of Us domiciled funds, a hedge fund manager acting equally the general partner to a express partnership (or as the managing member to a limited liability company) is deemed to have custody and therefore must comply with the custody rule nether Rule 206(four)-2 under the Advisers Act. In the context of not-United states domiciled funds, the SEC staff has taken the position that if a member of the investment adviser is interim as one of the directors of the not-Usa domiciled fund, the SEC may deem the investment adviser to take custody because the position of being a director gives that person the power to straight funds and securities and therefore such a person can potentially abscond with the funds and securities.

^[4] Notation that Dominion 206(4)-7 of the Directorate Act requires a registered investment adviser to identify the Primary Compliance Officeholder on Schedule A, Item 2(a) of Form ADV Office one.

^[5] ^"Advisory affiliates" are (1) all of the adviser'due south electric current employees (other than employees performing simply clerical, authoritative, support or similar functions); (two) all of the adviser'due south officers, partners, or directors (or any person performing similar functions); and (3) all persons directly or indirectly controlling the adviser or controlled by the adviser.

^[6] If advice for a customer is provided by a team of more than v (v) supervised persons, Brochure Supplements need but be provided to the client for the 5 (5) supervised persons with the nearly meaning responsibleness for the 24-hour interval-to-day advice given to that client.

^[7] Encounter Advisers Act Rule 204-2(a).

^[8] See Mercury Asset Management plc, SEC No-Action Letter of the alphabet (Apr. 16, 1993).

^[9] See by and large Advisers Act Rule 204-2.

^[ten] Encounter Advisers Human action Rule 204-2(b).

^[11] See Advisers Act Rule 204-2(c).

^[12] Encounter Advisers Act Rule 204-2(e)(three)(i).

^[13] For the purposes of Grade PF, included in whatsoever aggregate AUM calculation are (i) "parallel managed accounts" and (ii) the AUM of any "related person" of the adviser. "Parallel managed accounts" are "assets of managed accounts advised past the firm that pursue substantially the same investment objective and strategy and invest in essentially the same positions as the private fund." Yet, parallel managed accounts practice not need to exist included if the value of those accounts exceeds the value of the private funds with which they are managed. A "related person" is any officer, partner or director of the adviser, all persons straight or indirectly decision-making, controlled by or under mutual control with the adviser, and all of the adviser'southward employees (other than those performing clerical function), other than related persons that are "separately operated".

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