Compliance Solutions for Investment Advisers

Common ADV Deficiencies

Regulatory examiners always look for inconsistencies between an advisory firm’s Form ADV Part 1 and Part 2. In fact, inconsistencies between these documents is one of the leading deficiencies found by SEC and state examiners during a regulatory audit. The problem lies in the fact that there is overlap in the information called for in ADV Part 1 and in Part 2. For example, in both Part 1 and Part 2, an adviser is required to disclose:

  • The types of client the adviser services;
  • The adviser’s financial industry affiliations;
  • Certain participations in client transactions; and
  • Certain brokerage practices, including discretion and soft dollars.

When the same information is called for twice, there is always the chance that one answer will differ from the other. This is especially true with the ADV Part 1 and Part 2 because the instructions to these documents, as well as some of the defined terms, differ for the same subject matter (e.g., calculation of AUM, disciplinary disclosures).

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