SEC Estimates Preparation Costs of $3,000 to $5,000 for SEC Registered Advisers
We have been reviewing the SEC release related to the amendments to Form ADV Part 2. Specifically we were interested, like many managers, in the amount of time it will likely take to complete the new Part 2. Unlike the old Part 2, which was mostly check the box answers along with a Schedule F which required some prose, the new Part 2 will be in full “plain English” prose. While most SEC registered firms have not yet begun the process to switch to the new Part 2, such advisers will likely begin the process soon and will want to know how much it will cost to complete new Part 2.
According to the SEC, most small and mid-sized SEC registered investment advisers will likely pay anywhere from $3,000 to $5,000 to have a law firm or compliance group complete the new Part 2 on their behalf. Additionally, many states will be requiring new Part 2 so this means that state registered investment advisers will likely need to budget for these expected compliance costs. Below we have reprinted the discussion from the release which specifically discusses the costs involved.
Please note that Mallon P.C. can help registered investment advisers complete new Form ADV Part 2.
Release No. IA-3060; File No. S7-10-00
Amendments to Form ADV
Starting at page 84
We estimate that some advisers may incur a one-time initial cost for outside legal and compliance consulting fees in connection with preparation of Part 2 of Form ADV. While we received no specific comments on our estimate regarding outside legal costs in the Proposing Release, one commenter did state that compliance consultants assist a significant percentage of advisers in preparing their Form ADV. As a result, we are changing our estimate to reflect a quarter of small advisers using compliance consulting services and a quarter of small advisers using outside legal services and to reflect half of medium advisers using compliance consulting services in lieu of outside legal services and a quarter of medium advisers still using outside legal services. We estimate that the initial per adviser cost for legal services related to preparation of Part 2 of Form ADV would be $3,200 for small advisers, $4,400 for medium-sized advisers, and $10,400 for larger advisers. 
 Outside legal fees are in addition to the projected hourly per adviser burden discussed above. $400 per hour for legal services x 8 hours per small adviser = $3,200. $400 per hour for legal services x 11 hours per medium-sized adviser = $4,400. $400 per hour for legal services x 26 hours per large adviser = $10,400. The hourly cost estimate of $400 on average is based on our consultation with advisers and law firms who regularly assist them in compliance matters.
We estimate that the initial per adviser cost for compliance consulting services related to initial preparation of the amended Form ADV will range from $3,000 for smaller advisers to $5,000 for medium-sized advisers.
 Outside compliance consulting fees are in addition to the projected hourly per adviser burden discussed above. Based on consultation with compliance consulting firms who regularly assist investment advisers in Form ADV preparation, we estimate that small advisers will incur expenses of $3000 per year for the initial preparation of the new Form ADV and medium advisers will incur expenses of $5000 per year for the initial preparation of the new Form ADV.
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Cole-Frieman & Mallon LLP provides legal support and hedge fund compliance services to all types of investment managers. Bart Mallon, Esq. can be reached directly at 415-868-5345.