NEW Background - Practices (Transactions & Corporate)

Transactions & Corporate


2015: Investment Adviser Annual Requirement Checklist


The New Year serves as a good reminder for private fund sponsors, both those that are registered investment advisers (RIAs) with the Securities and Exchange Commission (SEC) and those that are exempt reporting advisers (ERAs), of their periodic regulatory obligations and the prudence of reviewing their compliance policies and procedures.

Crowell & Moring's Investment Advisers and Investment Funds teams are pleased to present the following checklist as a reference for such obligations. This update does not represent a comprehensive summary of all of the compliance obligations to which advisers may be subject, which may differ depending on the nature of that adviser's business.

I. Annual Regulatory Filings

Deadlines in the table below assume a fiscal year of December 31.




Form ADV

March 31, 2015

All RIAs and ERAs must file an annual amendment to Form ADV with the SEC and/or state securities authorities within 90 days of fiscal year end. Note that any material change to an adviser's business in the course of the year requires amending the Form ADV promptly after the change. Information regarding investment advisory representatives also should be updated and properly reported on the IARD system.

Form ADV - Brochure Delivery

April 30, 2015

RIA's must disclose Part 2A (the Brochure) to "clients" within 120 days of the end of an RIA's fiscal year. The SEC has acknowledged that "clients" for this purpose does not include fund investors. Nevertheless, many RIA's voluntarily deliver the Brochure to fund investors.

Form PF

April 30, 2015

RIAs generally must file an updated Form PF with the SEC within 120 days of fiscal year end. Advisers to large hedge and liquidity funds must file on a quarterly basis within 60 days and 15 days, respectively, of quarter end. 

SEC Form D

Anniversary of Initial Filing

Form D filings for funds with ongoing offerings need to be amended annually at a minimum, on or before the anniversary of the initial Form D filing. Certain changes during the course of a year also may trigger a Form D amendment obligation.  Additionally, note that offers to U.S. persons may trigger filing obligations in an investor's state of residence. 

Schedule 13G/D and Section 16 Filings

February 14, 2015

Advisers with investment discretion over funds that are beneficial owners of 5 percent or more of a registered voting equity security must report these positions on Schedule 13G or Schedule 13D. Schedule 13G filings must be updated annually within 45 days of the end of the calendar year. Schedule 13D filings need to be amended when any material change (including a change of 1 percent or more of the securities reported as beneficially owned) in the prior Schedule 13D has occurred.  Any necessary Section 16 filings (i.e., Form 3, 4 or 5) also should be reviewed.

Form 13F

February 14, 2015 for first time filers

An adviser must file a Form 13F if it exercises investment discretion with respect to $100 million or more in certain identified 13F securities within 45 days after the end of the year in which the adviser reaches the $100 million filing threshold. The measurement date for calculating $100 million threshold is as of the last calendar day of any month in a given year. Thereafter, advisers must make 13F filings within 45 days after end of calendar quarter. A hyperlinked list of 13F securities may be found here.

Form 13H

February 14, 2015

Advisers meeting the SEC's "large trader" thresholds (i.e., trades (i) 2 million shares or $20 million FMV daily or (ii) 20 million shares or $200 million FMV monthly) are required to file an initial Form 13H with the SEC within 10 days of triggering the threshold. Large traders also need to amend Form 13H annually within 45 days of year-end and make quarterly update filings to the extent that information changes.

Annual Privacy Policy Notice


Under SEC Regulation S-P, current privacy policies should be circulated annually to investors, even if no changes were made to such policies.

Commodity Pool Operator Exemption

March 1, 2015

Advisers relying on the exemption from registration with the U.S. Commodity Futures Trading Commission pursuant to the "de minimis exemption" of CFTC Regulation 4.13(a)(3), must reaffirm their claim of exemption with the National Futures Association each year annually within 60 days of the end of the calendar year.

Special Note on California Private Fund Adviser Exemption

March 31, 2015

California advisers that are eligible for exemption from adviser registration with the California Department of Corporations (DOC) must file Part 1 of the Adviser's Form ADV with the DOC within 90 days of fiscal year end.


II. Internal Compliance Matters

Under Rule 206(4)-(7) of the Investment Advisers Act of 1940 (as amended, the "Advisers Act"), RIAs must conduct an annual review of their compliance policies and procedures and implement any updates, if necessary. Such annual review should be conducted with a special attention to an RIA's business model and operating environment. The review should be tailored to reflect any changes during the year and reflect a determination of controls needed to manage or mitigate the unique risks applicable to the RIA. The review should be documented and such documents presented to the RIA's chief executive officer or executive committee, as applicable, and retained in the RIA's files.

The SEC's Office of Compliance Inspections and Examinations (OCIE) closely scrutinizes private fund sponsors and gives particular attention to conflicts of interest, fees, valuation, performance and compliance and controls. This link leads to the SEC's January 2014 release regarding examination priorities. 

As we discussed in a recent client alert, which may be found here, the SEC's OCIE director indicated in a May 2014 speech that half of all private equity advisers examined by the OCIE have been found to be violating laws or to have material weaknesses with respect to how they assess fees and expenses. Fund sponsors need to be cognizant that the SEC will be examining for deficiencies, and, in the majority of cases, expects to find them. Adequate disclosure regarding transaction and monitoring fees are presently a particular focus of the SEC.

With the heightened attention given to private fund sponsors, we note that many sponsors are conducting mock SEC and FINRA examinations in anticipation of an actual SEC or FINRA exam. Such mock examinations can prove valuable in identifying the efficacy and scope of an adviser's compliance program. In conducting a mock exam, we recommend that advisers retain an outside compliance firm through external counsel. We are happy to discuss proper protocol directly with our clients.

Advisers should keep in mind the following list of annual notices and certifications:

  • Compliance Manual/Code of Ethics/Annual Training & Certification—An assessment should be made of the effectiveness of implementation and a determination of whether an adviser's compliance manual and code of ethics should be enhanced in light of current business practices. Whistleblower policies and procedures should be reviewed to ensure effectiveness. Employees should be asked to reaffirm their understanding and awareness of the compliance manual and code of ethics, which is advisable to do in conjunction with an annual compliance training. 
  • Internal Violations and Changes—Any violations arising during a year should be documented and retained.
  • Custody/Annual Audits—Private fund sponsors should have their funds audited by registered independent accountants and provide audited financial statements annually to investors within 120 days of a fund's fiscal year end. Sponsors that do not have their funds audited should determine whether they are deemed to have custody of those funds' assets, which would subject the sponsors to annual surprise audit and other requirements. Certain states have specific obligations regarding audits and custody rules that bear applicable to ERAs. The SEC staff is giving heightened to compliance with the custody rules of RIAs of private funds.

In addition to the foregoing, following is a list of items fund sponsors should, at a minimum, review:

  • Offering Materials Update—Offering materials, including private placement memoranda and pitchbooks, should be kept up to date and be consistent with one another and contain all material disclosures that may be required for a prospective investor to make an informed decision. Updated materials should reflect recent market conditions and be current with respect to investment objectives and strategies, valuation practices, performance statistics, risk factors, personnel, service providers, principle governance terms and any relevant legal or regulatory updates. 
  • Subscription Agreements—Subscription agreements should be reviewed for completeness and forms should be reviewed in light of any applicable regulatory changes.
  • Side Letters—A review of outstanding side letters should be conducted regularly to ensure compliance with all terms. It is a good practice to conduct a review annually at a minimum.
  • Conflicts of Interest—A review of potential conflicts of interest should be reviewed, with particular attention given to valuation practices, accuracy of disclosures, marketing documents and performance disclosures, side letter obligations, personal trading, allocation practices, undisclosed compensation arrangements, soft-dollars, best executions, withdrawals/redemptions and affiliated transactions.  Advisers should insist upon annual updates from employees regarding outside business activities.
  • Valuation Procedures—Valuation procedures should be evaluated to reflect correspondence with applicable governing documents.
  • Pay-to-Play and Lobbyist Rules—Advisers should review state and local lobbyist rules to ensure that lobbyist reporting is current for internal investor relations and capital raising professionals who may meet the definition of placement agents. Rules can be complicated and often differ from on a state and even county level.
  • Finder Disclosures—Ensure that disclosures with respect to finders and finders' fees are up to date and distributed to prospective investors. Investor acknowledgements of such disclosures should be retained.
  • Cybersecurity—The SEC's OCIE will be conducting examinations with a focus on cybersecurity, which we expect will be pronounced in 2015 given recent newsworthy cybersecurity threats. OCIE has provided a sample cybersecurity request list to which RIA's should be prepared to respond. 
  • Record Retention—Recordkeeping is a key focus area for the SEC. A review of an advisers' business model in light of the Advisers Act and Rule 204-2 and current best practices should be conducted to ensure that appropriate records are maintained and preserved.
  • Business Continuity/Disaster Recovery—Bi-annual and annual reviews of an adviser's business continuity and disaster recovery plans, and periodic simulation exercises, are advisable.
  • Vendor Policies—A review of principal vendors' policies with respect to business continuity, privacy, business interruption and confidential personal information protection and document destruction is advisable.
  • New Issue StatusAdvisers need to confirm or reconfirm on an annual basis the eligibility of investors that participate in initial public offerings or new issues pursuant to both FINRA Rules 5130 and 5131.
  • Annual Personal Securities Holdings Report—An adviser must annually collect from each "Access person" an annual personal securities holding report containing information required securities holdings and securities accounts.
  • ERISA Status—Advisers should consider annually confirming the ERISA percentage of their funds. For funds that rely on VCOC and REOC exemptions, they will have testing periods that are proscribed by the date of their initial investment.
  • FATCA— Foreign Account Tax Compliance Act (FATCA) mandates certain financial institutions (including advisers to pooled investment funds) to identify and disclose direct and indirect US investors and withhold U.S. income tax on nonresident aliens and foreign corporations or be subject to a 30 percent US withholding tax. Advisers should review their compliance with FATCA and ensure subscription documents contain current language pertaining to FATCA compliance.
  • Bad Actor Rule—In 2013, the SEC added new Rule 506(d) (the Bad Actor Rule) to Regulation D, preventing private funds and other issuers from relying on the Rule 506 registration exemption if the offering involves certain felons or "bad actors" who have experienced a "disqualifying event." The New Year is a good time for advisers to identify pertinent covered persons, determine whether any have disqualifying events and ensure appropriate policies and procedures are in place so as not to lose eligibility to rely on Rule 506.
  • Manager Liability Insurance—Investor lawsuits are increasing and regulatory scrutiny of fund sponsors is increasing such that some sponsors have begun to seek insurance coverage. An annual review of the types of coverage available, or the adequacy of existing coverage, is advisable.

ERAs do not face the same obligations as RIAs and are not required per se to maintain a comprehensive compliance program. Nevertheless, ERAs should adopt reasonable policies, procedures and oversight to protect against allegations of violations of the anti-fraud provisions and the ERA's fiduciary duty to clients. ERAs contemplating registration should consider implementing appropriate policies, procedures and oversight in anticipation of registration.

Please contact for more information.