Annual Compliance Reviews
All investment advisers registered with the Securities and Exchange Commission (SEC) are required to review their compliance policies and procedures at least annually. Many advisers traditionally conduct this review in March of each year. Registered advisers should commence their annual reviews promptly and document the review process.
Form ADV – Annual Amendment Due by March 30th
Form ADV must be updated by March 30, 2008 through the Investment Adviser Registration Depository website (www.iard.com). In order to get credit for the filing, please select “annual amendment” when updating the form. Failure to update Form ADV could lead to registration being revoked.
In addition, either an updated Part II of the Form ADV, or a written offer to provide the updated Part II, must be circulated to advisory clients at some point during the year. Advisers are also reminded to circulate a summary of their privacy policy to advisory clients who are natural persons each year.
Section 13(f) Filings
Investment advisers who are required to file Form 13F with the SEC must make such filings by February 14, 2008 using EDGAR. This filing is necessary if in the previous calendar year the adviser had under management at least $100 million in securities traded on U.S. securities exchanges. Failure to file Form 13F in a timely manner could lead to an enforcement proceeding by the SEC.
Section 13(g) Filings
The SEC permits “qualified institutional investors” (such as registered advisers) and “passive investors” (which may include non-registered advisers) who have five percent beneficial ownership of a class of registered equity securities to report this ownership on Schedule 13G, instead of the more demanding Schedule 13D. Schedule 13G must be filed by February 14, 2008 using EDGAR. In addition, a registered adviser who files Schedule 13G as a qualified institutional investor must notify any person on whose behalf it holds five percent beneficial ownership of any transaction that person may be required to report (for example, the acquisition of that five percent).
Please note that both qualified institutional investors and passive investors must make additional filings upon certain changes in ownership or changes in investment purpose.
“New Issues Rule” – Annual Eligibility Verification
The New Issues Rule requires FINRA members or their associated persons (“Members”) to obtain within the twelve months prior to a sale of a new issue to an account holder, either from the account holder or its authorized representative, an affirmative written statement that the account is eligible to purchase new issues in compliance with the New Issues Rule. Members are required to verify this status on an annual basis. The initial verification of an account holder’s status under the New Issues Rule must be a positive affirmation of the account holder’s non-restricted status. However, the New Issues Rule allows Members to follow a “negative consent” process for annual verification of an account holder’s status by sending a notice asking the account holder if there has been any change in its status. Unless an account holder affirmatively reports a change in status, the Member is permitted to rely on its existing information regarding a particular account holder. In many cases, Members rely on representations from investment managers who must, in turn, determine the eligibility status of separate account clients and investors in hedge funds. Investment managers investing in new issues should remember to undertake the annual verification as to new issues eligibility with their clients and investors.