NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
A state-registered investment adviser (IA) has decided to switch from providing primarily financial planning services to offering discretionary asset management. This change will significantly alter the nature of the IA's business model and the types of clients it serves. Which of the following actions is the IA legally obligated to take regarding its registration?
- ANotify the state administrator in writing within 10 business days, but no Form ADV amendment is required.
- BFile an 'other-than-annual' amendment to Form ADV Part 1 promptly, and update Part 2 for clients.
- CFile a new Form ADV Part 1, but not Part 2, within 30 days of the change.
- DSubmit an updated Form ADV Part 2 to existing clients within 60 days of the fiscal year-end.
Show answer & explanationAnswer & explanation
Correct answer: B. File an 'other-than-annual' amendment to Form ADV Part 1 promptly, and update Part 2 for clients.
Significant changes to an IA's business model, such as shifting from financial planning to discretionary asset management, require a prompt 'other-than-annual' amendment to Form ADV Part 1. Additionally, Part 2 (brochure) must be updated to reflect these changes and offered to clients.
Why the other options are wrong
- A. A written notification is insufficient; Form ADV amendments are specifically designed for these types of changes.
- C. Both Part 1 and Part 2 would likely need updates for such a significant change.
- D. Updating Part 2 for existing clients is necessary, but the promptness and requirement for Part 1 amendment are also critical.
Form ADV Amendments (Significant Changes)
Investment advisers must amend their Form ADV promptly whenever there are material changes to their business operations, services, or other information previously filed.
- Annual amendment is required within 90 days of fiscal year-end.
- Other-than-annual amendments are required promptly for material changes.
- Material changes include changes in business model, disciplinary events, or custody status.
- Both Part 1 (regulatory information) and Part 2 (client brochure) may need updates.
Memory trick: ADV amendments: Annually, or when a material change makes it a 'prompt' concern.