Quick Answer
Investment advisers register and disclose using Form ADV. Part 1 goes to regulators; Part 2A (the firm brochure) and Part 2B (the brochure supplement) go to clients. Federal-covered advisers must deliver the brochure before or at the time of contracting; state-registered advisers must deliver it 48 hours in advance, or at signing with a 5-day free-cancellation right.
The prior units in this course introduced Form ADV as the registration application. This lesson covers the other half of Form ADV's job: the narrative disclosure document that clients actually read, and the strict rules governing when it must reach them.
What Is Form ADV, and Who Sees Each Part?
Form ADV is the uniform registration form investment advisers file, electronically, through the Investment Adviser Registration Depository (IARD).
| Part | Name | Audience |
|---|---|---|
| Part 1 | Firm Information | Checkbox/fill-in-the-blank registration data filed with regulators; not delivered to clients |
| Part 2A | Firm Brochure | Narrative disclosure document; delivered to clients |
| Part 2B | Brochure Supplement | Disclosure about the specific supervised persons who advise the client; delivered to clients |
Exam Tip: Gotchas
Part 1 is for the Administrator's and the SEC's use. If a question asks what a client actually receives, the answer is Part 2A (and Part 2B, where applicable), never Part 1.
What Must the Firm Brochure (Part 2A) Contain?
Part 2A must be written in plain English, in narrative form, and advisers must answer the items in order using the form's own headings. SEC-registered advisers answer 18 items; state-registered advisers answer a 19th.
| Item | Topic | Key Disclosures |
|---|---|---|
| 1 | Cover Page | Firm name, address, phone, website, brochure date, required SEC disclaimer |
| 2 | Material Changes | Summary of material changes since the last annual update |
| 3 | Table of Contents | Navigational aid using standard headings |
| 4 | Advisory Business | Services offered, specializations, discretionary and non-discretionary AUM |
| 5 | Fees and Compensation | Fee schedule, billing method, negotiability, other costs (custody, fund expenses) |
| 6 | Performance-Based Fees | Disclosure of performance fees and conflicts from side-by-side management |
| 7 | Types of Clients | Client types served, minimum account size/AUM requirements |
| 8 | Methods of Analysis, Strategies, Risk of Loss | Analysis methods, strategies, material risks |
| 9 | Disciplinary Information | Criminal, civil, SEC, and SRO proceedings involving the firm or management |
| 10 | Other Financial Industry Activities and Affiliations | BD registration, material relationships creating conflicts |
| 11 | Code of Ethics and Personal Trading | The adviser's required code of ethics, and interest in client transactions |
| 12 | Brokerage Practices | Broker-dealer selection, soft dollars, directed brokerage, referral arrangements |
| 13 | Review of Accounts | Frequency of reviews, triggers, client reporting |
| 14 | Client Referrals and Other Compensation | Third-party economic benefits and conflict disclosure |
| 15 | Custody | Custody procedures, account statement delivery |
| 16 | Investment Discretion | Discretionary authority, procedures for granting or limiting it |
| 17 | Voting Client Securities | Proxy voting policies, client opt-out procedures |
| 18 | Financial Information | Balance sheet required only if the adviser collects more than $1,200 in prepaid fees, 6+ months in advance |
| 19 | State-Registered Advisers | Principal officers, outside business activities, additional fees, disciplinary info (state-registered only) |
Exam Tip: Gotchas
Item 18's balance sheet requirement is conditional, not automatic: it triggers only when an adviser collects more than $1,200 per client, 6 or more months in advance. An adviser billing quarterly in arrears never triggers Item 18.
What Is the Brochure Supplement (Part 2B), and Who Needs One?
Part 2B discloses the specific supervised persons who provide advice to the client, in 7 items.
| Item | Topic |
|---|---|
| 1 | Cover Page: supervised person's name, firm name, contact info, date |
| 2 | Educational Background and Business Experience: post-secondary education, 5-year business history, professional designations |
| 3 | Disciplinary Information: material disciplinary events (10-year lookback) |
| 4 | Other Business Activities: outside business activities and conflicts |
| 5 | Additional Compensation: economic benefits from non-clients (bonuses, prizes, awards) |
| 6 | Supervision: how the supervised person is monitored; supervisor name and contact |
| 7 | State-Registered Advisers: bankruptcy filings and additional disciplinary items |
A supplement is required for any supervised person who either:
- formulates investment advice for the client and has direct client contact, or
- has discretionary authority over the client's assets, even without direct contact.
Exam Tip: Gotchas
Team exception: if more than 5 supervised persons advise one client, the adviser only has to deliver supplements for the 5 with the most significant day-to-day responsibility for that client's advice.
When Must the Brochure Be Delivered? Federal and State Rules Diverge
This is the highest-value timing rule in the unit, and the federal and state answers are different. The 2010 federal amendment that simplified the timing rule applies only to SEC-registered (federal covered) advisers; NASAA's own model brochure rule for state-registered advisers was amended a year later, in 2011, and kept the older structure.
| Obligation | Federal Standard (federal covered advisers) | State Standard (state-registered advisers) |
|---|---|---|
| Initial delivery | Before or at the time of entering the advisory contract | At least 48 hours before entering the contract, OR at the time of signing if the client can terminate without penalty within 5 business days |
| Brochure supplement | Before or at the time a supervised person begins providing advice | Same substantive standard |
| Annual update/offer | Within 120 days of fiscal year-end, only if there are material changes: deliver an updated brochure, or a summary of material changes with an offer of the full brochure | Same 120-day period, same no-material-changes exception |
| Interim amendment (disciplinary events) | Promptly after amending Item 9 (Part 2A) or Item 3 (Part 2B) to add or materially revise disciplinary information | General disclosure obligations still apply |
Exam Tip: Gotchas
Do not assume the 2010 federal change retired the "48-hour rule" everywhere. It only applies to SEC-registered advisers. A state-registered adviser is still bound by the 48-hour-advance (or same-time-with-5-day-cancellation) delivery rule under the state's own brochure rule. Read the fact pattern for whether the adviser is state-registered or SEC-registered before picking a timing answer.
Separately, an adviser must amend Form ADV with the SEC or state within 90 days of fiscal year-end. That 90-day filing deadline is distinct from the 120-day client-delivery deadline above; they run from the same fiscal year-end but are two different clocks with two different audiences.
| Deadline | Action |
|---|---|
| 90 days after fiscal year-end | File the amended Form ADV with the SEC/state |
| 120 days after fiscal year-end | If there are material changes, deliver the updated brochure, or a summary with an offer, to clients |
Amendments are also required promptly, outside the annual cycle, whenever information in Form ADV becomes materially inaccurate.
An adviser may deliver different brochures to different clients when it provides substantially different advisory services; each version need only include what is relevant to that client's services and fees.
When Is Wrap-Fee Program Disclosure Different?
A wrap fee program bundles advisory services, brokerage execution, and custody into a single fee. A sponsoring adviser delivers a wrap fee program brochure (Part 2A, Appendix 1) instead of the standard Part 2A. It repeats the standard disclosures and adds:
- how the wrap fee is calculated;
- the services included in the fee;
- whether the arrangement could cost more or less than buying the services separately;
- conflicts of interest created by the arrangement (for example, an incentive to minimize trading).
When Is Brochure Delivery Excused?
- Clients who receive only impersonal investment advice (not tailored to the client's individual circumstances, such as a newsletter or published report) and pay less than $500 per year for it. Both conditions must be true together; impersonal content alone does not excuse delivery if the client pays $500 or more.
- A registered investment company, and a business development company whose advisory contract satisfies the relevant Investment Company Act investment-advisory-contract requirements.
- No brochure supplement is required for any client who is excused from receiving the brochure itself.
Exam Tip: Gotchas
Watch for a fact pattern that describes impersonal advice but a fee of $500 or more. That client still gets the brochure. The exception requires the low-fee condition, not just the impersonal-content condition.
What Should You Check on Exam Day?
- Sort the fact pattern by registrant type first: SEC-registered advisers follow the "before or at the time" rule; state-registered advisers follow the 48-hour/5-day rule.
- Keep the two Form ADV clocks separate: 90 days to file the amendment with regulators, 120 days to deliver the update to clients.
- Confirm the Item 18 balance sheet trigger: more than $1,200 in prepaid fees, 6 or more months in advance.
- Remember the team exception caps brochure-supplement delivery at the 5 supervised persons most responsible for a client's day-to-day advice.
- The impersonal-advice exception needs both the impersonal content and the under-$500 fee; either alone is not enough.