Annual ADV Update FAQs
Contact Information
Q: How do I find my historical ADV Part 1A?
Login to Finra Gateway > Click “Profiles” icon located underneath the Home icon in the left ribbon > In the ‘Actions’ box to the right hand side, click “Form ADV” > You will see a box labeled ‘Select ADV Filing’ to your left > Click on “Historical Filing” > Click “View” to be taken to the document. If you want to print the document, the printer friendly selection is in the upper right-hand corner.
Type of Clients
Q: What type of clients are those excluded from RAUM?
If you cannot count a client as a client that is attributable to your AUM, then you’ll want to count them here (e.g., financial planning only, assets held away clients, pension consulting clients)
Q: What is considered a Non-United States Person?
The Glossary to Form ADV provides that a “United States person” has the same meaning as in rule 203(m)-1 under the Advisers Act, which includes any natural person that is resident in the United States.
Q: Should I include a married couple as one or two clients? What about children with managed accounts:
This is really up to you, however you want to be consistent in how you calculate all clients.
The SEC definition for “client” includes, “any relative, spouse, or relative of the spouse of the natural person who has the same principal residence”.
If you have separate agreements with each of those individuals and/or your management style lends itself to working with each person on an individual basis and not as a family of clients, you may count them as separate clients.
Q: What is considered a high net-worth individual?
Using FINRA’s definition for the ADV Part 1A: A “high net worth individual” is an individual with at least $1,100,000 managed by an adviser, or whose net worth exceeds $2,200,000. The net worth of an individual may include assets held jointly with his or her spouse.
Q: What if I have clients that fit into two “client type” categories?
For purposes of Item 5 of the ADV Part 1, you must determine which client type is most appropriate for that client.
Q: Does the number of financial planning clients include hourly and project based clients, or just ongoing?
For purposes of the Annual ADV Update, and when counting your number of clients in each state, you should include any project based and hourly clients that you had in the preceding 12 months.
Investment Management - Firm Regulatory AUM
Q: How do I determine Discretionary vs. Non-Discretionary?
Discretionary AUM would include any assets in which you have the authority to choose the securities to purchase or sell in a client’s account without obtaining their consent each time you make changes in that account. Even if you do not exercise this authority, you would count those assets as discretionary AUM if you have the authority to exercise discretion when trading or rebalancing accounts.
Discretionary or non-discretionary trading authority should be spelled out at a minimum in the client’s agreement but may also be explained in an investment policy statement.
Q: How do I calculate Regulatory Assets Under Management?
The SEC indicates that regulatory assets under management should only include “the securities portfolios for which you provide continuous and regular supervisory or management services as of the date of filing of this Form ADV" (Instructions for calculating RAUM start on page 19 of this .pdf: https://www.sec.gov/about/forms/formadv-instructions.pdf)
You would not include assets or portfolios for which you advised on but only review on a periodic basis with the client, such as quarterly or annual meetings, and where the client is responsible for implementing any recommendations.
Q: Do I include my Assets Under Advisement?
Not when determining your Regulatory Assets Under Management on the ADV Part 1. For purposes of your ADV Part 1, you do not include Assets Under Advisement.
Although it may be permitted on the ADV Part 2A, subject to certain conditions, we recommend using the same method for calculating Regulatory Assets Under Management on the ADV Part 2A as you do on the ADV Part 1 which does not allow for Assets Under Advisement to be included.
The ADV Part 2A instructions ask for the amount of assets you manage on a discretionary and non-discretionary basis. If you choose to include Assets Under Advisement and therefore calculate that total amount differently than you calculate Regulatory Assets Under Management, then you must maintain clear documentation of your methodology behind that calculation for a period of at least 5 years.
Breakdown of AUM by Asset Type
Q: What asset type do mutual funds and ETFs fall into?
Typically mutual funds and ETFs are best categorized as securities issued by a Registered Investment Company or Business Development Company.
Q: What if a security could potentially be reported as more than one asset type?
Determine what you believe the most appropriate type should be and only count the percentage toward that asset type. Do not count it toward more than one asset type. Keep in mind this is for the security itself and not the underlying holdings of funds.
Marketing Activities
Q: Does google reviews count as testimonial?
Item 5 asks if any of YOUR advertisements include any testimonials. Since advisors do not own or control google reviews, technically google reviews would not be considered YOUR advertisement and this answer should be answered ‘no’. HOWEVER, if you repost any reviews on your website or other advertisements (e.g., social media) that you do own and control, then you would want to mark this answer ‘yes’.
Custody
Q: What states require me to answer ‘yes’ for direct fee deduction in Item 9?
If your HOME state (where your principal place of business is located) is in Maryland or Florida and you directly deduct your fees from client accounts, Item 9 should be marked ‘yes’.
Q: What is considered a first party vs. third party SLOA?
See our resource HERE.
Primary Custodians
Q: Which Custodian(s) am I required to list?
Each custodian that holds ten (10) percent or more of your regulatory assets under management must be disclosed.
Q: What if I’m in the process of changing custodians?
List the appropriate custodians and values as it was on December 31, 2024.
Financial Planning Services - Investments
This question is asking for an estimate of the total securities (and non-securities) investments made by your clients as a result of your financial planning recommendations. It is intended to be a reasonable estimate. This is for unmanaged accounts that you provided investment recommendations over as part of the financial planning service and process.
Q: What if I do not know the exact amount of investments that were made?
The question on your ADV Part 1B regarding securities and non-securities investments made as a result of your financial planning recommendations asks for the approximate amount by selecting the most appropriate range.
Q: Do I include managed assets (AUM) or only outside investments that I made recommendations on?
This depends on how your services are set up. If you have investment management and financial planning as separate services, we recommend only including the investments that you made recommendations on as part of the financial planning services.
If you have one service that includes both investment management and financial planning, it would be reasonable to include both your AUM and outside investments that you recommended to those financial planning clients.
Miscellaneous
Separately Manages Accounts
Q: I do not manage any separately managed accounts (SMAs), why is this marked yes?
ADV Part 1A, Item 5.K(1) asks: “Do you have regulatory assets under management attributable to clients other than those listed in Item 5.D.(3)(d)-(f) (separately managed account clients)? This means any AUM that is NOT from (d) investment companies, (e) business development companies, or (g) Pooled investment vehicles are considered SMAs (for ADV purposes), see illustration below. For the majority of firms, this question should be answered yes.
Item 5.D
ADV Delivery
Q: Can I send my ADV & Privacy Policy via email or does it have to be hard copy?
So long as clients have consented to electronically delivery, which for many is included in the Advisory Contract, then you can send your ADV electronically. Though, you should factor in whether that is the right form of communication for your client.
Q: Can I just link my ADV or do I need to include it as an attachment? Can I just upload it to the Client Vault in my financial planning software?
This depends. Generally, regulators would like to see the least amount of barriers for a client to access your ADV. In addition, you are required to show evidence/proof that you sent your ADV. Using links can be faulty in that those links can break or no longer work after a few years (note, your record-keeping requirement is from 5-6 years). For these reasons, we generally recommend sending the ADV as an attachment.
If you upload copies of your ADV to a client vault or portal, you must still ensure the client is notified when that occurs and can access a copy of the ADV.