ADV-E Guidance

Form ADV-E: Certificate of Accounting of Client Securities and Funds in the Possession or Custody of an Investment Adviser

Form ADV-E electronic filing functionality for state-registered investment advisers and their accountants became available in the Investment Adviser Registration Depository (“IARD”) on October 28, 2013, replacing paper-based filings for state-registered investment advisers and their accountants. Form ADV-E IARD filing functionality for state-registered investment advisers is based on the requirements of the NASAA model custody rule.

What is FORM ADV-E?

FORM ADV-E is the Certificate of Accounting of Client Securities and Funds in the Possession or Custody of an Investment Adviser. Investment advisers that have custody of client funds or securities and that are subject to an annual surprise examination complete Form ADV-E. The requirements of Form ADV-E apply to SEC-registered investment advisers pursuant to SEC Rule 206(4)-2 (“SEC custody rule”) and to certain state-registered investment advisers, depending on the applicable state-level custody rule (see State Investment Adviser Registration Information).

How is FORM ADV-E used?

Form ADV-E is used as a cover page for a certificate of accounting of securities and funds of which the investment adviser has custody (“surprise exam report”). Form ADV-E contains information about the adviser and the surprise exam conducted. Form ADV-E may not be used to amend any information included in an investment adviser’s registration statement (e.g., business address) and is designed solely to be used as a surprise exam report.

The requirements of Form ADV-E stem from the SEC approving amendments to the custody rule under the Investment Advisers Act of 1940 and related forms. The amendments, among other things, require certain registered investment advisers that have custody of client funds or securities to undergo an annual surprise examination by an independent public accountant to verify client funds and securities (for more information, click here).

States requiring Form ADV-E filings have adopted the NASAA model custody rule (see, below, for further information) or language similar to either the NASAA model custody rule or the SEC custody rule. State-registered investment advisers and applicants for state investment adviser registration should become familiar with the requirements in the state(s) in which they are registered or seeking registration to understand whether Form ADV-E filing requirements may apply to them.

In September 2011, NASAA approved amendments to its custody model rule, aligning it closely to the SEC custody rule, particularly for purposes of Form ADV-E filing requirements. It is important to note that while there are two NASAA custody model rules (Model Rule 102(e)(1)-1 under the 1956 Uniform Securities Act and Model Rule USA 2002 411(f)-(1) under the 2002 Uniform Securities Act) the rules are identical: 1956 model custody rule, as amended  and 2002 model custody rule and known as the “NASAA model custody rule.”

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