What Is Form ADV, and What Does Each Part Ask of a New RIA?

The short answer: Form ADV is the form an investment adviser uses to register with the SEC or its state, and once filed it is the firm's public record. Part 1 answers regulators' questions about the business, its owners and its disciplinary history; Part 2A is the plain-English brochure clients receive; Part 2B is a supplement on each advisor who serves them; and SEC-registered firms with retail investors add Part 3, the relationship summary called Form CRS. It is filed electronically through the IARD system and amended at least once a year, within 90 days of the fiscal year end.

For an advisor starting a firm, Form ADV is where the business plan becomes a disclosure document. Every application for registration must include the Part 2A brochure, and an SEC applicant with retail investors must include Form CRS, so these documents are written before the first client signs. The order of the whole launch is in how to build your own RIA from scratch.

The parts of Form ADV at a glance

What does Part 1 ask?

Part 1A asks about the firm, its business practices, the people who own and control it, and the people who give advice on its behalf. Schedules A and B list the direct and indirect owners and executive officers, and Disclosure Reporting Pages set out the details of any disciplinary events. Item 1.J names the chief compliance officer and asks whether that person is paid by someone other than the firm to provide the service. Part 1B adds questions the states require; a firm applying for SEC registration, or registered only with the SEC, does not complete it. An SEC-registered firm's filings are also sent through IARD as notice filings to the states it checks in Item 2.C. Whether a firm registers with the SEC or its state turns on assets under management, and how to register an RIA explains that line.

What goes in the Part 2A brochure?

The brochure is a narrative, answered item by item in the order the form sets out and written in plain English. Its eighteen items run from the advisory business and fees through disciplinary information, the code of ethics and personal trading, brokerage practices, custody, discretion, proxy voting and financial information. State-registered firms answer a nineteenth item on their principal executives' education and background and any other business they conduct. Because the adviser is a fiduciary, the brochure has to disclose material conflicts of interest specifically enough for the client to understand them. Item 15 covers custody, and how custody actually works explains where client assets sit.

Who needs a Part 2B supplement?

A supplement is prepared for each supervised person who formulates investment advice and has direct client contact, and for anyone with discretionary authority over client assets, even without contact. When a team of more than five gives the advice, supplements are needed only for the five with the most significant day-to-day responsibility. The supplement covers the person's education and business experience, disciplinary information, other business activities, additional compensation and supervision. A sole proprietor can put this information in the firm brochure instead. SEC-registered firms keep supplements on file without filing them; state-registered firms file one through IARD for each supervised person doing business in that state.

Does every RIA file Form CRS?

Form CRS applies to advisers registered with the SEC that have retail investors, defined as natural persons who seek services primarily for personal, family or household purposes. SEC staff have said its delivery requirements apply only to SEC-registered advisers. On paper it may run two pages, or four for a dual registrant that combines its brokerage and advisory services in one summary, and it covers five items: an introduction, relationships and services, fees, costs, conflicts and standard of conduct, disciplinary history, and additional information. The firm posts it prominently on its website, delivers it to each retail investor before or at signing, and delivers it again to an existing retail client who opens a new account that differs from the existing ones, receives a rollover recommendation or is offered a new advisory service. What a dually registered advisor is covers the advisors who hold both registrations.

When does a client receive each document?

For SEC-registered firms, Rule 204-3 sets the timing, and state rules are similar. The brochure is delivered before or at the time the client enters into the advisory contract, and each supplement before or at the time that advisor begins providing advice to the client. When the brochure has changed materially since the last annual amendment, each client receives the current brochure, or a summary of material changes with an offer of the brochure, within 120 days of the fiscal year end. An amendment that adds or materially revises disciplinary information goes to clients promptly.

How often is Form ADV amended?

Every year, through an annual updating amendment filed within 90 days after the end of the fiscal year, updating Parts 1A, 1B, 2A and 2B as they apply. Between annual filings, the firm amends promptly when its identifying information, form of organization, custody information or disciplinary disclosures become inaccurate in any way, when certain other items become materially inaccurate, and when brochure or supplement information becomes materially inaccurate. An SEC-registered firm amends Form CRS within 30 days of it becoming materially inaccurate and tells existing retail clients of the changes within 60 days after the amendment is due. Failure to keep Form ADV updated can lead to revocation of registration.

Who can see it?

Anyone. The SEC's Investment Adviser Public Disclosure site lets the public search for a firm or an individual representative, check registration status and read the firm's current Form ADV, including the Part 2 brochure and the Form CRS. Information on firms no longer registered stays available for ten years.

Form ADV is public, but the decisions it records, from custody and fees to who owns the firm, are made earlier in the launch. Winthrop's RIA Search & Launch works through those decisions in order, and the RIA Launch Checklist lays them out on paper. Request an introduction.