7 Critical Mistakes in Filing Form ADV

7 Critical Mistakes in Filing Form ADV

The deadline is approaching for most Registered Investment Advisors to make their annual Form ADV amendments and filings with the Securities and Exchange Commission or the States that regulate their business.  There are all kinds of compliance areas where RIAs don’t want to make a mistake in front of their regulators but making avoidable mistakes on the From ADV is one that can be easily avoided.

Form ADV contains multiple parts, relies heavily on industry definitions, and has subtle nuances that can trip up an RIA.  Even small mistakes will likely draw the attention of the SEC or state securities regulators and put your firm on the target for regulatory exams, for-cause actions, and possible sanctions.

Here are 7 areas to focus on now if you still have to make your 2023 Form ADV amendment, including Mistakes in Form ADV Filing



  • Form CRS – By now almost every RIA has been contacted by a regulator about their Form CRS (ADV Part 3) and the adequacy of disclosures, language, formatting, filings, and availability. What had been an environment of genuine cooperation between regulators and registrants to assist in meeting the requirements of Form CRS has now evolved into compliance through enforcement. In other words, by now RIAs should have this requirement well in hand or they will likely face disciplinary sanctions.  Registrants violate Section 204 of the Act when they fail to deliver customer relationship summaries to their retail clients when providing new services, new accounts, rollover recommendations, enter into a new advisory agreement, or recommend securities as a broker/dealer. It’s also a violation when registrants miss plain-English disclosure opportunities on accounting monitoring, fees, and conflicts of interest, fail to update the firm’s written policies and procedures, fail to prominently display Form CRS on their website, fail to make updates to Form CRS, or fail to keep records to track the date of delivery to each client.
  • May”, “Might” and “Could” – The use of these words or similar modal verbs in your RIA’s conflict disclosures, Form CRS, or From ADV Part 2A will get the attention of the regulators. While it is often a false comfort to registrants to use these types of qualifiers in order to “soften” disclosures made to clients, the use of this language has become an increasing target of regulatory scrutiny.  If you charge a fee for a service, say you “will” charge a fee – not that you “may” charge a fee.  If you identify a conflict, say you “have” a conflict – not that you “could” have a conflict.  If you can’t mitigate or manage a conflict – own it and say so.  Before you file ADV, complete a simple search of each of your documents to see if you’re using these trigger words in your disclosures and filings.  Remember, the regulators often perform the same simple searches of your documents, and abuses in this area are likely to come with examinations, disciplinary actions, and sanctions.



  • Notice Filings in Certain States – SEC-registered investment advisors are required to comply with applicable notice filing laws in the States in which they have offices or advisory clients.  The challenge in making your ADV amendment is in understanding that each State is different in the way they regulate registrants operating in their State.  How many clients can you have in the State without triggering a notice filing requirement?  What is considered a “client” in the view of the State? Are there exclusions for Institutional clients? How about a place of business in a particular State – does that trigger a filing requirement?  Requirements for Alabama are different from Connecticut which are different from the requirements in Texas or Florida.  SEC registrants need to understand the requirements of each State before they make their Form ADV amendments for 2023.


  • Reporting Assets Under Management (AUM) – Perhaps the easiest way for a firm to draw the attention of the regulators is to overstate their regulatory assets under management. Face it – the majority of firms earn their fees as a percentage of AUM so there is a huge conflict of interest in overstating assets. Likewise, overstating AUM for the purpose of making the firm look larger and more successful is not in the public’s best interest and only serves the interests of the RIA. The SEC and States view this as fraud that typically results in disgorgements, interest, fines, penalties, and bars. Before you amend your Form ADV, registrants should have a sound, documented, written, and consistent methodology for how AUM is calculated.


  • Types of Clients – Item 5 to Form ADV requires advisors to disclose the types of clients it has and the AUM attributable to each type of client. The SEC instructs registrants to “count clients as it normally counts clients”.   Some advisors, for example, treat multiple members of the same family (including family trusts) as one client while other registrants treat members of the same household as separate clients. That means that each RIA should have a written procedure on how it will count clients and be consistent from year to year.  The distinction and headcount of individual clients from high-net-worth clients are often impacted by this determination as well.  The Form ADV Glossary of Terms explains that a “high-net-worth individual” is an individual with at least $1,000,000 managed by the reporting investment adviser, or whose net worth is reasonably believed to exceed $2,000,000.


  • Solicitors – The old Solicitors Rule is gone, and all registrants are now expected to be complying with the revised Marketing Rule adopted in December 2020. This will impact each registrant’s response to Item 5.L. in Form ADV.  The new Marketing Rule requires registrants to provide information regarding the use of testimonials, endorsements, third-party ratings, and previous investment advice, and whether the advisor provides cash or other compensation, directly or indirectly, for such use.  Recordkeeping and written procedures are also important elements of the new Marketing Rule and should support how each registrant responds to this Item on Form ADV.


  • Conflicts of Interest – At the risk of saving the most challenging mistake to overcome for registrants for last, we come to how firms identify and handle conflicts of interest. Under Reg BI and the fiduciary standard of care, a conflict of interest is any interest that inclines an investment advisor – consciously or unconsciously – to make a recommendation or render advice that is not disinterested.  Before filing, review Form ADV Parts 1 and 2A and Form CRS to ensure that all of your conflicts of interest are clearly and accurately disclosed. Registrants have an affirmative duty to identify, disclose, and mitigate their conflicts and any material limitations the conflicts present for the registrant and its clients.  While the expanse of potential conflicts is broad, start with an analysis of compensation.  If you participate in soft dollar arrangements, receive marketing support from investment managers or custodians, sell proprietary products, engage in expense-sharing arrangements, receive commissions or Rule 12b-1 fees based on your recommendations, collect performance-based fees, or receive any other type of variable compensation you have a conflict.  Disclose your conflicts, how you’re compensated based on those conflicts, and whether the conflict can be mitigated.  If you’re not mitigating an existing conflict – say so clearly and succinctly and describe why it is not being mitigated.


B/D Compliance Associates, Inc. recommends that all CCOs and advisory firm principals carefully review SEC guidance, Form CRS requirements, Reg BI, and the fiduciary standard of care before making their 2023 Form ADV amendments.  We provide expert and seasoned resources to many registrants in ensuring that their Form ADV is completed correctly and accurately.  Contact us at www.BD-Compliance.com to set up a complimentary consultation.


What is an ADV filing?

An ADV filing is a regulatory filing that investment advisors must submit to the Securities and Exchange Commission (SEC) or state securities regulators. The filing is made using Form ADV, which contains information about the advisor’s business practices, clients, and investment strategies.

Who is required to file a form ADV?

Investment advisors who manage more than $100 million in assets are required to file with the SEC. Advisors who manage less than $100 million in assets are required to file with their state securities regulator. Certain exceptions may apply.

What does form ADV stand for?

Form ADV stands for “Form for Investment Advisers Registration and Reporting.” It is a form used by investment advisors to register with the SEC or state securities regulators and to report information about their business.

What is the filing deadline for Form ADV?

The filing deadline for Form ADV varies depending on the advisor’s registration status and fiscal year-end. Generally, advisors must file an annual update within 90 days of their fiscal year-end. New advisors must file within 180 days of their registration. Certain exceptions may apply, and advisors should consult with their regulatory authorities for specific filing deadlines.