Each year, investment advisers complete one of the most important regulatory obligations on their compliance calendar: the Form ADV annual updating amendment. While the process may feel routine, regulators increasingly view Form ADV as a real-time disclosure document that must accurately reflect how a firm actually operates.
Recent SEC enforcement actions, evolving expectations under the Marketing Rule, amendments to Regulation S-P, and the rapid adoption of AI have significantly raised the stakes. During a recent ComplianceAdvisor webinar, we discussed recurring ADV errors, emerging risks, and practical steps firms can take to strengthen their disclosures.
Form ADV Is a Disclosure Document — Not a Filing Exercise
A central theme of the discussion was that Form ADV is far more than an annual filing requirement. It is the primary tool regulators use to understand an adviser’s business model, conflicts, and compliance posture.
Examiners routinely compare Form ADV against marketing materials, and internal practices to identify inconsistencies. Inaccurate or outdated disclosures can lead to deficiency findings, enforcement exposure, and reputational risk. As a result, firms should treat ADV updates as a substantive compliance review rather than a check-the-box exercise.
The Most Common ADV Errors Still Persist
Despite years of regulatory guidance, several mistakes continue to appear during annual updating amendments.
RAUM Miscalculations
Determining what should and should not be included in regulatory assets under management continues to be a common source of confusion for advisers. Firms often incorrectly include assets under advisement, one-time planning engagements, or retirement plan assets where they lack ongoing supervisory authority. Misstating RAUM can affect registration eligibility and exam risk, making proper documentation critical.
Client Classification Confusion
Advisers also continue to conflate key investor classifications such as accredited investors, qualified clients, and high-net-worth individuals. Each serves a distinct regulatory purpose, and applying the wrong standard can lead to performance fee violations, improper private offering access, and inaccurate reporting.
Inconsistencies Across Disclosure Documents
Inconsistency remains one of the fastest ways to trigger exam findings. Regulators frequently identify mismatches between Part 1, Part 2A, Form CRS, and marketing materials, particularly regarding services offered, fee schedules, discretionary authority, and referral arrangements.
Failure to Update Material Changes Promptly
Another recurring issue is firms waiting until their annual amendment to update material business changes. New services, fee structures, custodians, disciplinary events, and changes to private fund audit status generally require prompt amendments often within 30 days. For private fund advisers, this means going back and updating Schedule D once audited financial statements are completed, as regulators do not view waiting until the next annual amendment as “prompt.”
Marketing Rule and Custody Remain High-Risk Areas
The webinar emphasized two areas that continue to generate enforcement activity: marketing disclosures and custody reporting.
Under the Marketing Rule, solicitors are treated as endorsements, making disclosure of compensation arrangements and conflicts essential. Regulators continue to focus on unsupported performance claims, third-party ratings, and inconsistencies between marketing content and ADV disclosures.
Custody also remains a key exam focus, particularly for private fund advisers. Common issues include late delivery of audited financial statements and failure to promptly amend ADV disclosures once audits are completed.
Emerging Disclosure Risks: Cybersecurity, AI, and Vendor Oversight
The regulatory landscape is evolving quickly, and new risks are increasingly reflected in ADV reviews.
Regulation S-P amendments are heightening expectations around cybersecurity disclosures, incident response planning, and vendor oversight. Examiners are paying close attention to whether firms’ ADV disclosures align with their actual operational practices.
Artificial intelligence is another growing area of focus. Firms using AI in portfolio management or marketing must accurately disclose those practices and substantiate related claims. The SEC has already brought enforcement actions for “AI washing,” underscoring the importance of transparency and governance.
What Regulators Are Emphasizing in Exams
Across recent exam priorities and enforcement actions, several consistent themes have emerged:
These themes reinforce that regulators view disclosure quality as a direct reflection of an adviser’s compliance culture.
Practical Takeaways for Advisers
Several practical insights emerged from the discussion:
The Bottom Line
Form ADV season is more than a regulatory requirement , it is an opportunity for firms to reassess risk, strengthen disclosures, and align regulatory filings with operational reality. Advisers that take a proactive and thoughtful approach are better positioned for exams, regulatory scrutiny, and long-term growth.
If you have questions about your Form ADV, regulatory AUM calculations, or emerging compliance risks, working with experienced compliance professionals can help ensure accuracy, consistency, and peace of mind.