For investment advisers, the Form ADV captures the most important attributes of their services, and it is important to spend time ensuring that investors have enough to make an informed decision about selecting a wealth manager. Thus, we highly recommend that you pay extra attention to disclosures, and in this case, more is more. When it comes to 2024 ADV filings, our mantra is, “Err on the side of caution, and when in doubt – DISCLOSE.”
Regulatory bodies are focusing on firms’ adherence to proper disclosure practices and any processes and procedures, or lack thereof, that threaten their fiduciary duty of care to their clients. For this year’s annual amendment, we recommend focusing on the following:
Form ADV Part 1
Carefully review Part 1 of the SEC Form ADV, which requires material information about the investment adviser, such as:
- Number of clients and employees
- Types of clients and accounts
- Compensation agreements
- Prior bad acts, such as bankruptcies or civil or criminal proceedings
Form ADV Part 2A
Part 2A of Form ADV is the client narrative brochure and should contain vital aspects of the business, such as:
- Detailed information on any Material Changes that have occurred since the last update
- Thorough description of the Advisory Business including services offered, AUM, and investment risks and practices
- Key information on Fees and Compensation, including a detailed breakdown of compensation structures for advisory services and additional costs such as administrative, custodial, or brokerage fees
- Disclosures on Financial Conditions that can impact the adviser’s ability to perform contractual obligations to clients
Other disclosures that should be included in Part 2A include comprehensive information on products and strategies, investment discretion, brokerage practices, code of ethics, custody, the firm’s proxy voting policy, and more.
Form ADV Part 2B
Part 2B of Form ADV serves as a supplement to Part 2A and discloses information on key members of the firm, including those who:
- Interact with the clients
- Strategize, implement, or analyze investment advice
- Manage or have discretionary authority over clients’ portfolios
Form ADV Part 3 (Form CRS) The Client Relationship Summary
Part 3 of Form ADV is a brochure summary provided to retail investors with information on the nature of relationships and services provided by the investment adviser. It is a 2-page narrative (and up to 4 pages for dual registrants) that should be written in “plain English” for your clients to understand. Disclosures should include, among other things:
- Relationships and services
- Fees
- Conflicts of interest and standards of conduct
- Disciplinary history
The SEC is putting extra emphasis on disclosures this year, and we encourage thorough review to ensure they meet requirements.
Here are some quick tips to help you gather the necessary disclosures for your Form ADV Part 1 and 2:
- Complete a conflict inventory worksheet
- Review Form U4s
- Review product lines, fee billing, and compensation arrangements to consider disclosures
- Gather information related to outside business activities for disclosing conflicts
- Form questionnaire to advisory personnel
- Review personnel resumes and background checks
- Interview those who require a brochure supplement
As you prepare and review your disclosures, keep one question in mind: “Can a client provide ‘informed consent’ after going through your Form ADV?” If the answer is anything but a resounding ‘YES’, your work is not done. Pay close attention to your disclosures, use SEC guidelines to ensure you have not missed any new requirements, and remember, with disclosures – more is more.
If you need help with your Form ADV, feel free to give us a call at 619.298.2880 or email info@jackolg.com to schedule a call with one of our securities attorneys. We’ll be happy to assist you with updating your Forms ADV!