How to Use Form ADV Data to Identify Investment Advisors for Investment Banks

Explore the realm of investment advisor selection in the context of investment banking, using the invaluable insights provided by SEC Form ADV data via an API.

Introduction

Selecting the right investment advisor is a crucial decision in investment banking. The right advisor can mean the difference between substantial gains and missed opportunities. One of the most powerful tools in this selection process is the analysis of Form ADV data.

This SEC-mandated document offers a wealth (pun intended) of information about registered investment advisors (RIAs). In this article, we'll explore how investment banks can leverage SEC Data APIs to access and analyze Form ADV data, making the process of finding the ideal investment advisor(s) more efficient, accurate, and tailored to specific needs.

The Essence of Form ADV

Before diving into the specifics of how to use Form ADV data, let's understand what this form entails at a high-level. Form ADV is a required submission for all RIAs registered with the SEC and state securities authorities. It consists of two parts:

• Part 1: Provides basic information about the advisor, including their business practices, affiliations, and the nature of their clientele.
• Part 2: Often referred to as the brochure, this part includes more detailed information about the advisor’s services, fees, investment strategies, and risk assessment.

Both parts of Form ADV are publicly accessible through the IAPD database in PDF format and offer a window into the practices and performance of investment advisors.

Who Files Form ADV and When

Advisors required to file Form ADV fall into two distinct categories:

• Registered Investment Advisors: Any advisor managing $100 million or more in client assets must register with the SEC and file Form ADV.
• State-Registered Advisors: Advisors managing smaller amounts are generally registered at the state level, where they also must file Form ADV.

Note that certain advisors, such as those exclusively managing private funds with less than $150 million in assets, may be exempt from filing.

In terms of timing, an investment adviser must annually update their Form ADV. This update must occur within 90 days of the end of the adviser's fiscal year.

Additionally, investment advisers are required to amend their Form ADV promptly if certain information becomes inaccurate. This can include changes in contact information, custody information, disciplinary information, and ownership structure, among others. These amendments should be filed promptly, typically within 30 days of the event that triggered the change, to ensure that the Form ADV provides accurate information at all times.

Form ADV Data In Depth

Out of the two parts, Form ADV Part 1 is more valuable for investment banks in initially identifying or filtering suitable investment advisers due to its emphasis on quantifiable and objective data. Unlike Part 2, which focuses on qualitative, narrative descriptions of services, fees, and strategies, Part 1 provides concrete, numerical information that can be more easily analyzed and compared.

Part 1 is primarily for regulatory purposes and contains information about the investment advisor’s business and ownership. It is organized into several sections or “Items”, each focusing on different aspects of the advisor's business and operations:

1. Item 1: Identifying Information
   • Legal name and any other names used.
   • Main office and mailing addresses.
   • Contact information, including telephone, fax, and website address.
   • Date of formation and jurisdiction of organization.
2. Item 2: SEC Registration
   • SEC reporting file number.
   • Date of initial SEC filing and effective date of registration.
   • Indication of notice filings with other states.
3. Item 3: Form of Organization
   • Type of organization (corporation, partnership, LLC, etc.).
   • State or country of organization.
   • Fiscal year end.
4. Item 4: Successions
   • Information on any changes in legal structure or ownership.
   • Details about any acquisition or succession events.
5. Item 5: Information About Your Advisory Business
   • Number and types of clients (individuals, corporations, etc.).
   • Assets under management, both discretionary and non-discretionary.
   • Types of advisory services offered.
6. Item 6: Other Business Activities
   • Description of any other business activities of the advisor or its affiliates.
   • Percentage of time spent on those activities.
   • Any compensation received for additional activities.
7. Item 7: Financial Industry Affiliations and Private Fund Reporting
   • Details about affiliations with other financial industry firms.
   • Information on private funds advised, including size, type, and investor demographics.
8. Item 8: Participation or Interest in Client Transactions
   • Advisor’s practices regarding participation or interest in client transactions.
   • Details on any conflicts of interest.
9. Item 9: Custody
   • Disclosure of custody of client funds or securities.
   • Information on account statements and audits.
10. Item 10: Control Persons
    • Names and business backgrounds of control persons.
    • Relationship of control persons to the advisor.
11. Item 11: Disclosure Information
    • Disclosure of legal or disciplinary events involving the firm or its employees.
    • Details about the nature, date, and resolution of these events.
12. Item 12: Financial Industry Regulatory Authority (FINRA) Arbitration and Civil Litigation Disclosure
    • Information on any arbitration claims or civil litigation relevant to the advisor’s professional conduct or integrity.

Part 1 also includes a series of supplemental schedules that provide additional in-depth information for some of the above Items. Each schedule is tailored to gather precise data relevant to the advisory firm’s structure and practices:

• Schedule A – Direct Owners and Executive Officers: This schedule requires detailed information about the firm's direct owners and key executive officers. It includes:
  • Names and titles of each person with a significant ownership interest or managerial control.
  • The percentage of ownership each person holds.
  • Detailed biographical information, including their background in the financial industry.
  • Any affiliations with other financial institutions.
• Schedule B – Indirect Owners: Schedule B is dedicated to gathering information about indirect owners of the firm, which includes:
  • Identification of entities or individuals who have indirect control or significant influence over the firm through ownership structures or arrangements.
  • The nature and extent of their ownership interest.
  • Information about the chain of ownership or control, if the ownership is through another entity.
• Schedule D – Additional Information for Part 1 Items: This schedule is an extensive appendix providing supplementary details for various items in Part 1A. It covers:
  • In-depth information about other business activities, affiliations, and financial industry engagements.
  • Details about private funds advised by the firm, including fund structure, number of employees, regulatory assets under management and investment strategies.
  • Additional disclosures about the advisory firm’s practices, conflicts of interest, and financials.
• Schedule R – Information on Relying Advisers: Focused on firms that rely on the advice of external or affiliated advisers, Schedule R includes:
  • Identification and background of each relying adviser.
  • The nature of the relationship between the primary adviser and the relying advisers.
  • Details on the services provided by these relying advisers and how they integrate with the primary firm’s offerings.
• Disclosure Reporting Pages (DRPs) – Disciplinary Events: These schedules are critical for reporting any disciplinary events involving the firm or its advisory affiliates. DRPs cover:
  • Detailed accounts of legal or regulatory actions taken against the firm or its personnel.
  • Descriptions of the events, including dates, nature of the infraction, and resolutions.
  • Ongoing or past investigations or proceedings that are relevant to the firm's conduct or integrity.

Leveraging an SEC Data API for Accessing Form ADV

With the wealth of quantitative data available in Form ADV Part 1, investment banks can harness the power of an SEC Data API to streamline the advisory selection process, rather than manually reading and filtering thousands of PDF files. This technological approach not only saves time but also ensures a more accurate alignment with the bank's specific needs and investment strategies.

Targeting Key Data Points

1. Identifying Information (Item 1): Banks can filter advisors based on basic yet essential information like office locations and formation dates. This initial screening helps in shortlisting advisors who are geographically and legally aligned with the bank's requirements.
2. Advisory Business Details (Item 5): One of the most valuable sections, Item 5 provides insights into the number of investment advisory employees, the number and types of clients an advisor manages, along with assets under management (AUM). Banks can utilize the API to filter advisors who manage a specific type or size of portfolio, aligning with the bank's client base and investment scale.
3. Other Business Activities (Item 6): This item sheds light on an advisor’s involvement in other business activities. Banks can leverage this data to identify potential conflicts of interest or complementary services that might benefit their clients.
4. Financial Industry Affiliations (Item 7): Through the API, banks can assess the advisor's affiliations with other financial industry firms. This is critical for understanding the advisor's network and potential collaborative opportunities or conflicts.
5. Private Fund Reporting (Schedule D): For banks interested in private funds, the detailed information provided in Schedule D is invaluable. The API can be used to filter advisors based on the size, type, and investor demographics of the private funds they manage.
6. Wrap Fee Program Reporting (Schedule R): Banks can use the API to understand the specifics of an advisor’s wrap fee programs, including fee structures and conflict of interest disclosures. This is particularly important for banks aiming to offer bundled service packages to their clients.

Conclusion

By leveraging an SEC Data API for accessing Form ADV Part 1 data, investment banks can embark on a path of strategic, data-informed decision-making. This approach not only streamlines the advisor selection process but also enhances the quality of partnerships, ensuring that the chosen advisors are perfectly aligned with the bank’s objectives and client needs.

Read more about the Fincoded Form ADV Data API, including example JSON data and a list of all queryable properties.