Form ADV: How to Check a Financial Advisor’s Record

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Updated on Tuesday, December 4, 2018

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If you’re ready to take your investments to the next level, a financial advisor can be a real asset. An advisor can help you choose the right investments and the right allocation strategy for your unique situation.

However, finding a good financial advisor is more difficult than just searching for one in your area. A useful tool you can use to find the right investment advisor is called Form ADV.

Below, find out more information about Form ADV, how to use it to evaluate financial advisors and where to find it.

What is Form ADV?

The Uniform Application for Investment Adviser Registration, more commonly known as Form ADV, is what investment advisors use to register with the Securities and Exchange Commission (SEC) and state securities authorities. Any investment advisor who manages $25 million or more in assets must submit Form ADV to the SEC. Investment firms must update Form ADV annually.

Form ADV is made up of two parts: Part 1 is a form with basic identifying information, while Part 2 describes the investment firm’s activities and services. However, if you aren’t sure what you’re looking for, Form ADV can be a bit overwhelming and intimidating.

What Form ADV Part 1 can tell you

Part 1 asks investment advisors to provide basic information. According to Jason Speciner, a certified financial planner and founder of Financial Planning Fort Collins, Part 1 is straightforward.

“It’s just a kind of fill-in-the-blank form investment advisors complete,” he said.

However, it can be a useful resource for individual investors because it lists information such as:

  • The amount of assets under management, also known as AUM
  • The total number of accounts the firm manages
  • The types of clients the advisor serves
  • The number of employees the firm has
  • The other business activities the firm engages in, such as real estate or accounting

One pivotal section to look for in Part 1 is Item 11: Disclosure Information. It details the firm’s disciplinary history. For example, it covers whether any investment advisor has been found guilty of a felony, been charged with a felony or been charged with a misdemeanor related to investments. This section can help you see how reliable and trustworthy an investment advisor is before you invest your money with them.

What Form ADV Part 2 can tell you

While Part 1 is useful, according to Speciner, Part 2 provides the bulk of information investors will find helpful in selecting an advisor.

“Form ADV Part 2 is basically a brochure investment advisors hand to clients when soliciting business,” Speciner said. “It’s the plain English version of what’s contained in Part 1.”

The “brochure” contains a lot of information, and there are a number of highlights you should look for when reviewing it, including:

  • Potential conflicts of interest
  • Management’s education and business background
  • The fees the firm charges
  • The types of services the firm offers

“So, really, the kind of big-ticket items that I feel like everyone should look at would be Item 4,” he said. “That describes the business that the advisor is in. Then Item 5 describes the investment advisor’s fees and compensation, such as if it’s a commission-based structure or if there’s a flat fee.”

Beyond fee structure, you should look for information about the advisor’s credentials; for example, a certified financial planner is a rigorous certification that speaks to the advisor’s ability to do their job.

In addition, you should see what kinds of clients the advisor typically serves. You want an advisor who works with clients in financial situations that are similar to yours. For example, if you’re a regular working middle-class person, working with an advisor who caters exclusively to the super rich or independently wealthy might be a bad idea, as their expertise likely differs from your needs. Instead, look for someone who specializes in clients with similar incomes.

How to find Form ADV

Most firms will proactively link to their Form ADV on their website or will provide it to prospective clients when asking for their business.

However, if that’s not the case, you can find it on your own by following these steps:

  1. Visit the Investment Adviser Public Disclosure (IAPD) website. The IAPD website is a database of investment and financial advisors in the United States.
  2. Perform a Form ADV search by the individual’s name or the firm’s name. You can search for an advisor by name, or you can search for an advisor in or near your zip code if you don’t have an advisor in mind.
  3. Click “Get Details.” The results will list advisors who match the name you entered or who live near you. After you reach the details page for an advisor, you can click on “View Detailed Report” for more information.

Why Form ADV is important

In theory, Form ADV should be all you need to get a full picture of the investment advisor you’re considering.

“That’s the point of it,” said Speciner. “You can sit down with different ADV Part 2s and read through them all and then know which advisor is best suited to you. It’ll lay out the work they’re going to do, how they’ll be compensated and what type of client they work with.”

It also will contain information that the advisor’s website may overlook, such as any disciplinary actions. That’s pivotal information you need to when choosing which advisor to trust.

However, Speciner recommends doing additional research beyond relying on Form ADV.

“The problem with using just the Form ADV is that there has to be a personal connection,” he said. “You should be able to use the tools and feel comfortable with the advisor to make sure it feels right for you.”

Bottom line

When it comes to investing your money, finding an investment advisor or financial planner you can trust can be challenging. Doing your homework is an essential part of discovering a good investment advisor who can handle your funds wisely. Form ADV can be a handy resource that helps streamline the process.

By carefully reviewing each advisor’s Form ADV prior to handing over your money, you can ensure you make an informed choice and get the best help for you.

If you’re an experienced investor looking for new strategies to maximize your money, here are five ways to take your investing skills to the next level.

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