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When researching investment advisors, one of the best tools at your disposal is Form ADV, paperwork that registered investment advisors must file with the Securities and Exchange Commission (SEC). The filing, which contains two parts, includes a vast amount of information about an advisory firm, including its services, client base, fee schedule and any disciplinary actions on its record.
Let’s take a look at Form ADV and how it can help you decide if an investment advisor is right for you.
The Form ADV is officially called the Uniform Application for Investment Advisor Registration. The SEC requires this registration document from investment advisory firms (including robo-advisors) that manage at least $25 million in assets. Not only is filing Form ADV required to register with the SEC, but advisors must update their filing each year.
Advisors with less than $25 million under management are exempt from filing Form ADV. Instead, these firms can register with other regulatory authorities; however, if they want to be registered with the SEC, filing Form ADV is required.
In general, Form ADV filings can help investors gain information about who owns the company, the services the firm provides, what fees clients may pay and if there are any disciplinary actions against the firm, its affiliates or its employees. In other words, viewing a firm’s Form ADV is a way for you to evaluate a financial advisor to see if they are a good fit.
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Information in Form ADV is presented in two sections. Part 1 is a standardized fill-in-the blank form that contains information about the investment advisory business and how it operates, while Part 2 is basically a brochure that provides in plain language descriptions of the types of services offered, how much those services cost, the investing strategies used and the details of any disciplinary actions you need to be aware of.
Form ADV Part 1 offers information about the advisor in more of a list or check-box style format. You can easily see basic identifying items for the investment advisor, including:
All of this information can help you figure out the basics of an investment advisor. One of the most important sections of ADV Part 1 is the disclosures, which is always Item 11 in the document. This section provides information on whether an investment advisor, its affiliates or any of its employees has faced civil, regulatory or criminal charges over the last 10 years.
While the information in Part 1 is useful for an overview, what you find in the Form ADV brochure can be even more helpful as you seek to answer questions about a financial advisor. Rather than just providing information, the brochure provides context. The two major parts of Form ADV Part 2 are divided into “a” and “b” designations.
This is the main Form ADV brochure. When you read this portion of the ADV, you’ll find information that includes:
In addition to Part 2a, there is also a Form ADV Part 2b, which is known as the “brochure supplement.” Clients can get an idea of who is managing their investments and providing advice for their portfolios.
Some of the information you find in Form ADV Part 2b includes:
Most firms include a link to their Form ADV on their websites. However, if you don’t see it there, you can find it using the SEC ADV search. Follow these steps to access a firm’s filing:
In addition to the SEC search tool, it’s also possible to get more information on a firm or advisor by visiting the FINRA BrokerCheck website, which also provides details about disciplinary disclosures.
If you have questions about how a financial advisor or investment firm operates, Form ADV can be a big help. The paperwork collects important information about the firm or advisor in one place, assisting with your research and comparison-shopping process as you look for an advisor who is right for you.
For example, you can see which kinds of clients the advisory firm focuses on serving, and whether you might meet minimum investment requirements. Additionally, the ADV fees section can help you get a feel for how an advisor charges for their services, such as if they are fee-only or fee-based. This way, you’ll know before you start working with an advisor if they have any potential conflicts of interest or may be financially incentivized to recommend certain products. Having this information on hand can help you to act as a more discerning investor.
It’s also important to know whether the firm or advisor has any disciplinary disclosures and what the nature of those disclosures is. If you notice flagrant issues or repeat problems, that might be a sign that you don’t want to work with a firm. Many firm websites won’t go into details about that information in a highly visible place, so it’s important to look at the ADV form.
Of course, Form ADV should only be one way in which you evaluate an advisor. Also make sure to ask plenty of questions and gauge if you think the advisor is someone you could see yourself working with.
Investment advisors who want to register with the SEC and state authorities can file the Form ADV to share important information. Those that manage at least $25 million in assets are required to file the ADV.
Firms must update Form ADV each year. They are required to file an amendment to update within 90 days from the close of their fiscal year.
The CRD maintained by FINRA and the number associated with it can be used to find various records about a registered investment advisor. You can look up an advisor’s CRD number on the FINRA website, using BrokerCheck. Then, it’s possible to use the CRD number to search on the IADP website to find the relevant Form ADV.
This is the rule under the Advisers Act that requires an advisor registered with the SEC to produce a brochure that describes the business and its practices, as well as disclose conflicts of interest and disciplinary issues. For the most part, clients are supposed to receive the disclosure at least once, and then annually if there have been major changes. You can find an advisor’s brochure in ADV Part 2.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.