Ensuring Consistency in Your Firm’s Form ADV Filing: Key Risks and Best Practices

Preparing to file your firm’s annual updating amendment to Form ADV isn’t just about updating regulatory assets under management. Regulators, potential clients and investors, and industry professionals rely on the information reported on your firm’s Form ADV for transparency into the current state of your firm’s business. It’s important that you review your firm’s responses to all questions and sections for Form ADV to ensure consistency.

This isn’t as easy as it may sound. Did you know that there are over 20 topics that are covered in more than one section of the various parts of Form ADV? Do you know if your firm’s responses across these sections are consistent? Is there a chance some of your responses conflict with one another? Are your responses consistent with your client agreements and with your adopted policies and procedures? Are they consistent with actual practice?

Inconsistent responses on Form ADV can be problematic for your firm and for your clients and prospects. Here are the key dangers:

1. Regulatory Scrutiny: Inconsistent responses and disclosures can raise red flags and trigger regulatory investigations, which can lead to fines or other legal consequences. Regulators expect transparency and consistency. Discrepancies can be viewed as misleading, or worse, as an attempt to hide information.
2. Client Trust and Transparency: Clients rely on the information reported on your Form ADV and your firm brochure to make informed decisions about working with you. Inconsistent answers can undermine client trust.
3. Compliance Risks: Inconsistent responses to various parts of Form ADV -especially stale responses - suggest non-compliance with regulations. This can increase regulatory scrutiny.
4. Reputation Damage: Identified inconsistencies can harm your firm’s reputation. Errors and inconsistent responses may imply dishonesty or poor management of regulatory requirements which can diminish client confidence and damage your professional image.
5. Legal Liabilities: Failing to provide accurate and consistent information on Form ADV could expose you to claims of negligence if clients feel they were misled or if they suffered harm based on the discrepancies.

As mentioned above, it’s not only important to ensure that your firm’s Form ADV responses are accurate and consistent; it’s equally as important to ensure those responses align with the terms of your client agreements, disclosures made on your firm’s website, and with your adopted policies and procedures.

STP ComplianceAdvisor has compiled this Guide to Form ADV Consistency to help you review your firm’s responses to Form ADV before submitting your filing. Please contact us if you have any questions or would like help preparing your firm’s Form ADV annual updating amendment.