Compliance Reviews, Form ADV Amendments & Recordkeeping

JAN 27, 2021 | PRACTUS LLP

Compliance Reviews, Form ADV Amendments & Recordkeeping

Authored by Karen A. Aspinall

Section VI: Compliance Reviews, Form ADV Amendments & Recordkeeping


In this part of our summary, we provide an overview of the compliance review considerations, Form ADV amendments and recordkeeping obligations under the amended advertising rule.  If you made it this far and read all six of our insights on the amended advertising rule, we commend you!

If you have not read our entire update, this summary is one part of a series of updates regarding the amended marketing rule. You can read the entire article for our complete Summary of the Investment Adviser Marketing Rule or you may click on any of the links below to view a particular section.

Compliance Reviews 

1. Do I need to hire an army of people to pre-approve all advertisements?

In an important change from the proposal, the SEC did not adopt the requirement for all advertisements to be reviewed and approved prior to dissemination.  Instead, the final rule allows advisers to tailor their individual compliance review practices to prevent, detect, and promptly correct any violations that have occurred. 

While the SEC has not mandated pre-approval of advertisements under the rule, it does expect that advisers will have “objective and testable” means to prevent violations of the rule.  This could include pre-review or having pre-approved templates, but could also include sampling based on risk, among other types of risk-based reviews.

Form ADV Amendments

1. Do I need to provide any information to the SEC regarding my marketing activities?

Yes.  The final rule includes amendments to Item 5 in Part 1A of Form ADV, which will provide the SEC with information on certain adviser advertising practices.  Advisers will be required to disclose (i) whether any of the adviser’s advertisements include performance results, specific investment advice, testimonials, endorsements or third-party ratings, (ii) whether any of its advertisements include testimonials, endorsements and third-party ratings, (iii) whether the adviser pays or otherwise provides cash or non-cash compensation, directly or indirectly, in the use of testimonials, endorsements and third-party ratings, and (iv) whether the adviser disseminates advertisements that include hypothetical or predecessor performance.  

Amendments to Item 5 are only required to be made in annual updating amendments but can of course can also be updated off cycle.


1. Are there any additional records that I will need to maintain under the new rule?

Yes, the SEC also updated the recordkeeping rule (Rule 204-2) and requires additional records to be maintained by advisers.  Examples of some of the new classes of records, include, but are not limited to:

  • Records of all advertisements that are directly or indirectly disseminated by the adviser, including oral advertisements, oral testimonials and oral endorsements.
    • An adviser can retain a recording of the oral advertisement or a written record (such as a transcript).
    • For compensated oral testimonials or endorsements, the adviser may, instead of recording or retaining the advertisement, make and keep a record of the disclosures provided to investors in connection with the advertisement.  
  • Records pertaining to the rationale for any recommendation to purchase or sell a specific security.  This information can be included in the advertisement otherwise the adviser needs to keep a memorandum of such rationale.
  • Records relating to the performance or rate of return of any portfolios, including:
    • any and all records necessary to demonstrate the calculation of the performance or rate of return included in an advertisement.  
    • Supporting records for displays of hypothetical performance.
  • Records of the “intended audience” with respect to advertisements that contain hypothetical and model fee performance. 
  • Any communication or other document related to the investment adviser’s determination that it has a reasonable basis for believing that a testimonial, endorsement or third-party rating complies with the applicable provisions of the advertising rule.
  • If the adviser obtains a copy, any questionnaire or survey used in the preparation of a third-party rating included in an adviser advertisement.
The Authors
Karen A. Aspinall
Read Full Bio

Practus, LLP provides this information as a service to clients and others for educational purposes only. It should not be construed or relied on as legal advice or to create an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.

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