{% set baseFontFamily = "Lato" %} /* Add the font family you wish to use. You may need to import it above. */

{% set headerFontFamily = "Lato" %} /* This affects only headers on the site. Add the font family you wish to use. You may need to import it above. */

{% set textColor = "#565656" %} /* This sets the universal color of dark text on the site */

{% set pageCenter = "1100px" %} /* This sets the width of the website */

{% set headerType = "fixed" %} /* To make this a fixed header, change the value to "fixed" - otherwise, set it to "static" */

{% set lightGreyColor = "#f7f7f7" %} /* This affects all grey background sections */

{% set baseFontWeight = "normal" %} /* More than likely, you will use one of these values (higher = bolder): 300, 400, 700, 900 */

{% set headerFontWeight = "normal" %} /* For Headers; More than likely, you will use one of these values (higher = bolder): 300, 400, 700, 900 */

{% set buttonRadius = '10px' %} /* "0" for square edges, "10px" for rounded edges, "40px" for pill shape; This will change all buttons */

After you have updated your stylesheet, make sure you turn this module off

Form ADV Part 2: How to Update ADV Part 2 Template

by InnReg

Form ADV Part 2 is a regulatory filing that investment advisers are required to submit to the Securities and Exchange Commission (SEC). ADV Part 2 forms are designed for investors to use when evaluating an investment adviser and making informed investment decisions.

Are you a registered investment adviser (RIA) seeking clarification on Form ADV Part 2?

Are you an investor wondering what you should expect to see on this form from your financial adviser?

As an outsourced fintech compliance service provider since 2013, we advise our clients on the current state of the fast-changing regulatory landscape.

Subject-matter experts with decades of experience wrote this analysis, not freelance copywriters, third-party agencies, or AI-based tools. If we do not cover all your questions here, email us at info@innreg.com, and we will gladly give you a free consultation.


What Is SEC Form ADV?

 Investment advisers registered with the SEC are required to file SEC Form ADV. It includes their business practices, fees, conflicts of interest, and disciplinary history, among others. SEC and state securities regulators use the form to monitor RIAs and to provide investors with crucial information to make informed investment decisions.

It includes three parts:

  1. Part 1,
  2. Part 2, and
  3. Part 3 (Now the Form CRS).

What is SEC Form ADV Part 2?

Form ADV Part 2 is a component of Form ADV, a uniform form used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities.

This form is a narrative brochure written in plain English that discloses crucial information about an investment adviser’s business practices, fee schedule, conflicts of interest, and disciplinary history. It assists in the oversight and regulation of all SEC-registered investment advisers.

This brochure is intended to provide clients and potential clients with meaningful insight into the adviser's business activities, aiding them in making an informed decision about whether to engage, or continue engaging with the adviser.


What is Form ADV 1 vs. Form ADV 2?

Form ADV Part 1 provides factual information about the adviser such as its ownership structure, affiliations, services offered, and any disciplinary events of the adviser in a fill-in-the-blank, check-the-box format.

Form ADV Part 2 delivers a qualitative, narrative disclosure, providing a more comprehensive view of the adviser's operations and potential risks, aiming to protect clients from dealing with unreliable firms. It also includes information about the adviser's educational background and qualifications.

In summary, Part 1 provides an overview of the investment adviser's business, while Part 2 provides more detailed information about the adviser's services and practices.


What is the purpose of ADV Part 2A and 2B?

Form ADV Part 2 is split into two sub-parts: 2A and 2B:

  1. Part 2A is often called the "Firm Brochure." It covers detailed information relevant to clients about the investment adviser’s business.
  2. Part 2B or the "Brochure Supplement," is a supplemental report detailing key advisory personnel who provide investment advice to clients.

SEC Form ADV Part 2

Apart from Part 2A and Part 2B, firms that sponsor a wrap fee program must submit Appendix 1, also known as the “Wrap Fee Program Brochure.”


Form ADV Part 2A Requirements: Firm Brochure

Part 2A of the Form ADV, also known as the firm brochure, contains narrative information divided into the following 19 sections.

Form ADV Part 2A Sections Section Description
Cover Page
This initial section features the investment adviser’s name, address, contact details, website URL, and the brochure’s publication date.
Material Changes
In this second part, the form undergoes an annual review to highlight any changes or modifications to the brochure's content.
Table of Contents
The table of contents presents a list of sections and pages with identical headings, helping clients easily locate the needed information.
Advisory Business
This section explains the services the advisory firm provides, any areas of specialization, and the total value of the client assets under management.
Fees and Compensation
This details how the adviser is compensated including their fee schedule, negotiability, fee determination process, and additional fees that clients may incur.
Performance-Based Fees and Side-By-Side Management
Discloses fees linked to a client's capital gains or appreciation. It also requires advisers to reveal if they manage multiple accounts simultaneously and whether conflicts of interest could arise from this arrangement.
Types of Clients
Advisers must describe the categories of clients they serve and offer details about account creation and maintenance.
Methods of Analysis, Investment Strategies, and Risk of Loss
Details investment analysis methods, strategies used, and the risk of loss associated with investing.
Disciplinary Information
Discloses any material legal (federal or state) disciplinary events impacting the adviser within the last 10 years.
Other Financial Industry Activities and Affiliations
Covers advisers participation in other financial activities and relationships with affiliates.
Code of Ethics, Participation or Interest in Client Transactions and Personal Trading
Outlines the adviser's code of ethics and addresses any conflicts of interest that may arise from participating in advisory clients' securities transactions or trading.
Brokerage Practices
Describes broker-dealer selection factors, compensation reasonableness, and various practices like soft dollars, client referrals, directed brokerage, and trade aggregation.
Review of Accounts
The advisory firm must clarify how often and in what way they'll review and oversee client accounts, including any internal control or monitoring systems.
Client Referrals and Other Compensation
Advisers must reveal any referral fees or external compensation tied to client referrals and soft dollar arrangements, as these can impact their advice.
Custody
If advisers have custody of assets, they need to detail the types and sizes of accounts held, along with the measures to protect client funds or securities. They should also outline any involvement of third parties.
Investment Discretion
Advisers should disclose the scope of discretion they have over client accounts and note any associated limitations or restrictions.
Voting Client Securities
Outlines how advisory firms handle proxy voting for clients and clarifies instructions for clients to provide specific voting choices.
Financial Information
Advisers must report any financial information affecting their capacity to provide client services, such as bankruptcies or significant business-related events.
Requirements for State-Registered Advisers
Advisers registered in a specific state must comply with state-specific regulations. This includes mandated disclosures regarding ownership, control, disciplinary actions, and any other state-required information.

Overview_Form_ADV_Part_2A_Firm_Brochure

Form ADV Part 2A Appendix 1 Requirements: Wrap Fee Program Brochure

Appendix 1 of Form ADV Part 2A, also called as a “wrap fee program brochure,” provides information on the firm’s portfolio management services and qualifications.

Like the firm brochure, this document includes a cover page section detailing adviser information, a material changes section for updates, and a table of contents to navigate the document.

Following the introduction, ADV Part 2A Appendix 1 comprises various sections that expands on the firm’s services:

Part 2A Appendix 1 Sections Section Description
Services, Fees, and Compensation
This section outlines clients the services clients will receive under the program, the associated fees, and any compensation or incentives the firm might receive.
Account Requirements and Types of Clients
Details the accounts and client eligibility for the wrap fee program, including criteria and any required minimum or maximum account sizes.
Portfolio Manager Selection and Evaluation
Defines how the firm chooses and assesses a designated portfolio manager. It also covers whether the manager is related to other individuals in the firm and potential conflicts of interest stemming from that arrangement.
Client Information Provided to Portfolio Managers
This section details client information portfolio managers can access and the frequency or conditions for updated client information.
Clients Contact with Portfolio Managers
Describes any restrictions placed on the client’s ability to communicate and consult with their portfolio managers.
Additional Information
This section includes any vital details not covered elsewhere in the brochure.
Requirements for State-Registered Advisers
If the advisers are registered with one or more state securities authorities, this section requires specific state-related disclosures.

Overview_Form_ADV_Part_2A_Appendix_1_Wrap_Fee_Program_Brochure

Form ADV Part 2B Requirements: Brochure Supplement

Form ADV 2B is the Brochure Supplement where firms share details about each individual providing direct investment advice to clients or handling discretionary investment decisions for client assets.

This supplement can be a separate document or part of the Firm Brochure. Advisers must provide the supplement before or when the employee gives investment advice. Any updates on disciplinary events should be promptly shared with clients when the supplement is updated.

Brochure Supplements are not filed with the SEC. However, the public can access advisory personnel details, including disciplinary information, through the Investment Adviser Public Disclosure (IAPD) at www.adviserinfo.sec.gov or the Financial Industry Regulatory Authority’s (FINRA) Broker Check at www.finra.org/brokercheck.

Starting with a cover page, the Brochure Supplement includes the following details about the advisers:

Form ADV Part 2B Sections Section Description
Educational Background and Business Experience
The Brochure Supplement must list the supervised individual's education beyond high school and work experience over the last five years.
Disciplinary Information
This section must reveal relevant legal or disciplinary events, highlighting those presumed significant within the past 10 years.
Other Business Activities
This section covers the supervised individual's other business engagements, highlighting any conflicts of interest that may arise. It also includes details about the compensation they receive from sales of securities or investment products.
Additional Compensation
Any scenarios where someone other than the client provides the supervised individual with economic benefits like sales awards, are explained to illustrate how this can impact advisory services.
Supervision
Explains how the investment adviser oversees the supervised individuals, including monitoring their client advice. It includes the supervisor's name, title, and contact information.
Requirements for State-Registered Advisers
State-registered advisers should include extra state-mandated details, potentially requiring specialized disclosures.

Overview_Form_ADV_Part_2B_Brochure_Supplement

How to Find Form ADV 2?

The submitted SEC Form ADV 2 is accessible on the IAPD website, which is open to the public for reviewing an adviser's background and services before investing.

Prospective clients can search an investment company’s or adviser’s form by entering their name, location, Central Registration Depository number, or SEC license number on the site.

If your firm has multiple listings, identify the ones with  "Investment Adviser (IA)" on their profile to learn more about them and their latest filing.


When Must Form ADV Part 2 be Delivered?

Form ADV Part 2 must be delivered to clients and prospective clients before or at the time of entering into an advisory contract. It is important to provide this document promptly to ensure that clients have all the necessary information about your firm's services, fees, and any potential conflicts of interest before deciding to engage your services.


Ready to Ensure Form ADV 2 Compliance and Transparency?

Ensure your firm's seamless alignment with the crucial regulatory mandates of ADV Part 2. Get in touch with us at info@innreg.com to initiate a tailored discussion about fulfilling your company's unique compliance program requirements.


Key Takeaways About Form ADV Part 2

Form ADV Part 2 is a critical regulatory filing that investment advisers must submit to the SEC, providing comprehensive information to investors. It plays a vital role in helping clients make informed investment decisions. While Form ADV Part 1 offers an overview, Part 2 delves into detailed aspects of an adviser's services and practices. These details assure clients that their advisers are legitimate and ethical.

Part 2A, the Firm Brochure, contains a wealth of information about the advisory firm, from services to fees and disciplinary history. Meanwhile, Part 2B, the Brochure Supplement, provides insights on key personnel.

Additionally, firms sponsoring wrap fee programs must submit Appendix 1, offering details about portfolio management services. State-registered advisers must adhere to state-specific regulations, ensuring compliance and transparency.


About The Author

InnReg LLC is a team of over 30 Regulatory Compliance and Innovation Consulting experts helping fintechs succeed in highly regulated markets since 2013. InnReg specializes in mitigating regulatory risk while helping clients launch and grow innovative fintech products and services.

 

Topics: RIA Compliance


Interested in becoming more proficient in RIA compliance topics? Check out our insights and practical advice:

Stay on Top of Changing Fintech Compliance & Innovation Strategies