Robert Nakamura Automates ADV Filing: Saves 80+ Hours Annually

Robert Nakamura Automates ADV Filing: Saves 80+ Hours Annually

Executive Summary

Pacific Ridge Wealth Management, a growing RIA managing over $350 million in assets, struggled with the burdensome and manual process of preparing and filing their Form ADV. The labor-intensive task consumed valuable time and resources, diverting attention from client service and business development. By implementing an automated ADV filing system that integrated their CRM (Orion Advisor Services) with their compliance platform (Itegrium Compliance), Robert Nakamura, Chief Compliance Officer, drastically reduced the time spent on ADV preparation by over 80 hours annually.

The Challenge

Pacific Ridge Wealth Management, serving high-net-worth individuals and families, faced a common challenge among RIAs: the time-consuming and often frustrating process of preparing and filing Form ADV. Prior to automation, the firm relied on a completely manual system. This involved gathering data from various sources, including their CRM (Orion Advisor Services), spreadsheets, and paper files.

Robert Nakamura estimated that each annual ADV update took approximately 100 hours to complete. This included:

• Data Gathering (40 hours): Locating, verifying, and consolidating information from disparate systems. Errors frequently occurred, requiring multiple rounds of review and correction.
• Form Completion (30 hours): Manually entering data into the Form ADV templates, ensuring accuracy and consistency across all sections.
• Compliance Review (20 hours): Thoroughly reviewing the completed form for errors, omissions, and inconsistencies to ensure compliance with SEC regulations.
• Filing and Submission (10 hours): Preparing the final document, submitting it to the SEC's Investment Adviser Registration Depository (IARD), and maintaining records.

This process not only consumed a significant amount of time but also carried inherent risks. Human error during data entry and review could lead to inaccuracies, potentially resulting in regulatory scrutiny and penalties. Furthermore, the manual process diverted Robert and his team from more strategic activities, such as client relationship management, financial planning, and business development. For a firm aiming to grow their AUM by 15% annually, every hour spent on manual tasks was an opportunity cost. Considering the average revenue generated per client hour was $250, the 100 hours spent on ADV filing represented a potential loss of $25,000 in billable hours.

The manual nature of the process also made it difficult to track changes and maintain an audit trail. This created challenges during regulatory audits and increased the risk of non-compliance.

The Approach

Robert recognized that automating the ADV filing process was crucial to improving efficiency, reducing risk, and freeing up resources for more strategic initiatives. His approach involved a three-pronged strategy:

1. Assessment and Planning: Robert began by thoroughly assessing the existing ADV filing process, identifying pain points, and defining specific goals for automation. He wanted to reduce the time spent on ADV filing by at least 75%, improve data accuracy, and enhance the firm's overall compliance posture.
2. Technology Evaluation: Robert researched and evaluated various software solutions that could automate ADV filing. He considered factors such as integration capabilities with their existing CRM (Orion Advisor Services) and compliance platform (Itegrium Compliance), ease of use, cost, and vendor reputation. He ultimately chose a solution that offered seamless integration with their existing technology infrastructure and provided comprehensive ADV report generation capabilities.
3. Implementation and Training: Robert worked closely with the software vendor to implement the chosen solution. This involved configuring the system to extract data from their CRM and compliance platform, customizing the ADV report templates, and training the team on how to use the new system. He also established a robust quality control process to ensure data accuracy and compliance. He scheduled weekly meetings with his team to address any concerns.

Robert adopted a phased approach to implementation. First, he tackled Schedule A and Schedule B, focusing on the firm details and ownership structure. Once comfortable with these sections, he moved on to other parts of the ADV form.

Technical Implementation

The successful automation of Pacific Ridge's ADV filing process hinged on the seamless integration of their existing technology infrastructure with the new ADV automation software. The key components of the technical implementation included:

• Integration with Orion Advisor Services: The system was configured to automatically extract relevant data from Orion Advisor Services, their CRM. This included client demographic information, asset allocations, and investment holdings. The integration utilized Orion's API to pull data directly into the ADV system, eliminating the need for manual data entry. A mapping table was created to ensure accurate translation of data fields between Orion and the ADV software.
• Integration with Itegrium Compliance: Itegrium Compliance provided essential information regarding the firm's compliance policies, procedures, and regulatory filings. The system integrated with Itegrium to automatically populate the ADV sections related to compliance matters, such as disciplinary history and conflicts of interest. This eliminated the need to manually compile and update compliance-related information.
• Automated ADV Report Generation: The software generated draft ADV reports based on the extracted data. The reports were fully customizable, allowing Robert to tailor them to the specific needs of Pacific Ridge Wealth Management. The system also provided built-in validation checks to ensure that the reports were accurate and compliant with SEC regulations.
• Data Validation and Verification: To ensure data accuracy, the system implemented automated data validation rules. These rules checked for inconsistencies, errors, and missing information. Robert also established a manual review process to verify the accuracy of the data and reports. This involved comparing the automated reports to source documents and making any necessary corrections.
• Secure Data Storage and Transmission: The system utilized encryption and access controls to protect sensitive data. The ADV reports were stored securely in the cloud, and access was restricted to authorized personnel only. The system also used secure protocols for transmitting data to the SEC's IARD system.
• Version Control and Audit Trail: The system automatically tracked all changes made to the ADV reports, providing a complete audit trail. This allowed Robert to easily identify who made which changes and when. The system also maintained multiple versions of the ADV reports, making it easy to revert to previous versions if necessary.
• Calculation of Regulatory Assets Under Management (RAUM): A crucial aspect of the ADV is the accurate calculation of RAUM. The system automatically pulled the relevant data from Orion and Itegrium, and performed the necessary calculations based on SEC guidelines. The system factored in managed accounts, assets for which the firm provides continuous and regular supervisory or management services, and any other assets that fall under the definition of RAUM. Discretionary and non-discretionary assets were clearly delineated.

Specifically, the RAUM was calculated according to the following SEC formula as applied within the system:

RAUM = (Total Value of Discretionary Accounts) + (Total Value of Non-Discretionary Accounts for Which the Firm Provides Continuous and Regular Supervisory or Management Services)

The automation of this calculation significantly reduced the risk of errors and ensured compliance with SEC regulations.

Results & ROI

The implementation of the automated ADV filing system yielded significant improvements in efficiency, accuracy, and compliance.

• Time Savings: The time spent on ADV filing was reduced from 100 hours to approximately 20 hours annually, representing an 80% reduction. This freed up 80 hours for Robert and his team to focus on client service, business development, and other strategic activities.
• Cost Savings: The time savings translated into significant cost savings for the firm. Considering the average hourly rate for compliance professionals, the firm saved an estimated $20,000 annually. (80 hours * $250/hour).
• Improved Accuracy: The automated system significantly reduced the risk of errors and omissions. The data validation rules and automated report generation ensured that the ADV reports were accurate and consistent. The number of errors identified during the compliance review process decreased by 90%.
• Enhanced Compliance: The system improved the firm's overall compliance posture. The automated audit trail and version control features made it easier to track changes and maintain records. The firm was also able to respond more quickly and efficiently to regulatory inquiries. During the last SEC audit, no deficiencies were found related to ADV filing.
• Increased Client Focus: By freeing up time from administrative tasks, Robert and his team were able to dedicate more time to client relationship management and financial planning. This resulted in improved client satisfaction and increased client retention. Client retention rates increased by 5% in the year following implementation.
• Business Development: With more time available, the team was able to pursue new business opportunities. The firm experienced a 10% increase in AUM in the year following implementation.

Key Takeaways

For other RIAs considering automating their ADV filing process, Robert offers the following key takeaways:

1. Assess your current process: Understand the pain points and inefficiencies in your existing ADV filing process before investing in automation.
2. Choose the right technology: Select a solution that integrates seamlessly with your existing technology infrastructure and meets your specific needs.
3. Invest in training: Ensure that your team is properly trained on how to use the new system.
4. Establish a quality control process: Implement a robust quality control process to ensure data accuracy and compliance.
5. Start small and iterate: Begin by automating one section of the ADV at a time, and gradually expand the automation to other sections.

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