By this point, all advisors with a Dec. 31 fiscal year-end should have filed their annual updating amendment to Forms ADV Part 1 and 2 with the Securities and Exchange Commission through the Investment Adviser Registration Depository. If any material changes occurred since the last annual updating amendment, advisors should have also delivered to clients at least a summary of such material changes by this point as well.
Nothing needs to be updated until this time next year, right? Not necessarily. As Confucius once said, “Only the wisest and stupidest of advisors never change.”
Okay, maybe Confucius said “men” instead of “advisors,” but you get the point: things happen, and it’s the SEC’s position that clients need to know promptly when certain of those things happen.
The bush I’m beating around is what’s known as an other-than-annual amendment to Forms ADV Part 1 and/or 2; more simply, it’s an updated version of an advisor’s ADV that is filed with the SEC at any point in between annual updating amendments. The question becomes, what triggers such an other-than-annual amendment to an advisor’s ADV?
The SEC addresses this very issue in section four of its general instructions to Form ADV (here), sections two and four of its instructions for ADV Part 2A (here), and its IARD FAQs (here). The instructions are specific and vague at the same time, as explained below.
For ADV Part 1, an amendment is triggered depending on the particular item number. Specifically, Items 1, 3, 9 (except 9.A.(2), 9.B.(2), 9.E., and 9.F.), or 11 of Part 1A or Items 1, 2.A. through 2.F., or 2.I. of Part 1B need to be updated promptly if a response to such item becomes inaccurate in any way. Notice that there is no materiality standard for this category of items — any inaccuracy triggers an amendment.
Items 4, 8, or 10 of Part 1A or Item 2.G. of Part 1B, on the other hand, need to be amended if such item becomes materially inaccurate. An advisor is not required to update its responses to Items 2, 5, 6, 7, 9.A.(2), 9.B.(2), 9.E., 9.F., or 12 of Part 1A or Items 2.H. or 2.J. of Part 1B even if the responses to those items have become inaccurate.
For ADV Part 2 (more commonly known as the brochure), an amendment is triggered any time information provided therein becomes materially inaccurate. Notice that the brochure has a blanket materiality standard for all items, unlike the item-by-item distinction in the Part 1.
It’s also important to note that an advisor need not amend its ADV solely because its assets under management or fee schedule have changed; however, if an advisor is updating other items in its ADV, it should go ahead and update AUM numbers and fee schedules as well, if they have changed.