United States
Hong KongWhat an investment adviser brochure must tell clients
Form ADV Part 2A is the investment adviser's narrative brochure.
More key points
- It describes the adviser's services, fees, investment methods, disciplinary information, conflicts and other material business practices so clients can evaluate the relationship.
- Advisers generally deliver it to clients before or when entering an advisory contract and annually provide either an updated brochure with a summary of material changes or the summary with an offer to provide the current brochure.
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An adviser's registration form is not only a filing for regulators. Part 2 of Form ADV turns important information about the advisory business into a client-facing disclosure document. A client should be able to understand what the adviser does, how it is paid, where conflicts arise and what disciplinary history must be disclosed.
Part 2A is the firm's brochure
The Part 2A brochure describes the advisory firm's business and practices in plain narrative form. Topics include services and account requirements, fee schedules, methods of analysis and investment risks, disciplinary information, other financial activities, personal trading conflicts, brokerage practices, account reviews, custody and referral compensation when applicable. The brochure supplements for supervised persons describe relevant qualifications, disciplinary history and services for which each person is responsible.
Delivery happens at the start of the relationship
Under Advisers Act Rule 204-3, advisers generally deliver the brochure to a client or prospective client before or at the time an advisory contract is entered into. The rule has limited exceptions, including certain clients such as registered investment companies and business development companies. Apply the text of the rule to the specific client type and arrangement rather than assuming every investor in a private fund is individually the adviser's client.
Annual delivery keeps material changes visible
An SEC-registered adviser generally makes its annual brochure delivery no later than 120 days after fiscal year-end. It can deliver the current brochure with a summary of material changes, or deliver the summary with an offer to provide the current brochure. The adviser must file its annual updating amendment to Form ADV on a separate 90-day schedule; the client delivery deadline and regulatory filing deadline are not the same.
A brochure is disclosure, not approval
A filed Form ADV is not an SEC endorsement or a guarantee that an investment strategy is suitable. The document gives the client information to consider and compare. Advisers must keep it accurate and address material changes; clients should read the actual fee and conflict disclosures rather than relying on a registration label or a short summary.
Exam memory aid
- Part 2A: the firm's narrative brochure.
- Part 2B: a supervised-person brochure supplement when required.
- Initial delivery: generally before or at contract formation, subject to rule exceptions.
- Annual client delivery: current brochure with changes summary, or summary plus offer, generally within 120 days after fiscal year-end.
- Annual Form ADV amendment: generally filed within 90 days after fiscal year-end.
Key takeaway
The brochure makes an adviser's services, fees and conflicts understandable to clients. Keep the client delivery requirement separate from the Form ADV filing deadline.
Common questions
What does Form ADV Part 2A disclose?
It is the firm's narrative brochure covering services, fees, investment approach and risks, disciplinary information, conflicts and other material practices.
When is the advisory brochure delivered?
Generally before or at the time the adviser enters into an advisory contract with a client, subject to specific exceptions in Rule 204-3.
Is the client brochure deadline the same as the Form ADV annual filing deadline?
No. The annual client delivery is generally due within 120 days after fiscal year-end; the annual updating amendment is generally filed within 90 days.