What a Form ADV actually tells you (and how to read one)
TL;DR. Form ADV is the disclosure document every SEC- or state-registered Investment Adviser must file and deliver to every client. Part 1 is a tick-box filing about the firm. Part 2A is the plain-language brochure covering fees, conflicts, services, and compensation. Part 2B is a supplement for each individual advisor. Form CRS is the 4-page customer summary. If you read only one thing, read Part 2A Item 5 (Fees and Compensation) — it tells you everything about how the advisor's money aligns with yours.
What Form ADV is, and who has to file it
Form ADV is the SEC's (and state regulators') disclosure form for Investment Advisers. It is governed by Rule 204-3 of the Investment Advisers Act of 1940. Every firm registered as an Investment Adviser must:
- File Form ADV with the SEC or state regulator.
- Update it annually within 90 days of the firm's fiscal year-end, and promptly between updates when material changes occur.
- Deliver Parts 2A and 2B to every client — free — before or at the time the advisory agreement is signed.
- Make Parts 1 and 2 available to the public on IAPD.
You can read any advisor's Form ADV for free. No login. No fee.
The structure of Form ADV
Form ADV has four components:
- Part 1 — machine-readable filing with the SEC. Structured data: firm ownership, AUM, client base, regulatory history.
- Part 2A — the "firm brochure." A plain-language document covering services, fees, conflicts, and disciplinary history. Written for clients.
- Part 2B — the "brochure supplement." One for each supervised person who provides advice to clients. Covers the individual's background, credentials, and disclosures.
- Form CRS (Customer Relationship Summary) — a separate, short (4 pages max) document added in 2020. Written in plain English, for retail consumers.
Part 1: the tick-box filing
Part 1 is the firm's regulatory fingerprint. Most of it is structured data. The useful sections for consumers:
- Item 5 (Information About Your Advisory Business) — number of clients, assets under management, types of advisory services offered.
- Item 5.E — how the firm is compensated (this repeats more thoroughly in Part 2A Item 5 but Part 1 has the checklist version).
- Item 11 (Disclosure Information) — regulatory actions, civil proceedings, criminal matters. A firm with "Yes" answers here has something in its history worth asking about.
Part 2A: the firm brochure (this is the one to read)
Part 2A has 18 standardized items. The ones that matter most for consumers:
Item 4 — Advisory Business
Describes what the firm does: financial planning, investment management, retirement plan advisory, etc. Also discloses ownership and any material changes to the business in the past year.
Item 5 — Fees and Compensation
The single most important section. Describes:
- How clients are charged — percentage of assets, flat fee, hourly, or project.
- Whether the firm earns any other compensation — commissions, 12b-1 fees, markups, referral fees.
- Whether fees are negotiable.
- Whether fees are paid in advance and how refunds work.
A fee-only firm's Item 5 is short and clean. Phrases like "we are compensated solely by fees paid directly by our clients" mean no commissions or product kickbacks.
A fee-based firm's Item 5 is long. Phrases like "in addition to our advisory fee," "may earn commissions," and "other sources of compensation" signal product-sales revenue in addition to client fees.
Item 6 — Performance-Based Fees and Side-By-Side Management
Mostly relevant for institutional and hedge-fund-style firms. For retail clients, skim — if there's a performance fee or side-by-side management arrangement, ask about it.
Item 7 — Types of Clients
Who the firm serves. Look for "individuals," "high-net-worth individuals," "retirement plans," "trusts." This tells you whether you're their typical client.
Item 8 — Methods of Analysis, Investment Strategies, and Risk of Loss
How the firm invests. You'll see "fundamental analysis," "modern portfolio theory," "asset allocation." Mostly standard language — watch for unusual language that suggests speculative or narrow strategies you don't want.
Item 9 — Disciplinary Information
Material disciplinary events involving the firm or its management in the past 10 years. If "No" — good. If "Yes" — read carefully.
Item 10 — Other Financial Industry Activities and Affiliations
Huge for fiduciary evaluation. Watch for:
- "Also registered as a broker-dealer" → commissions are on the table.
- "Also a licensed insurance agency" → insurance commissions.
- "Affiliated with [fund family]" → proprietary product conflicts.
A fee-only firm's Item 10 is short. A fee-based firm's Item 10 is long.
Item 11 — Code of Ethics, Participation or Interest in Client Transactions and Personal Trading
Describes the firm's code of ethics and how it handles employee personal trading. All firms have this; the question is whether they describe meaningful safeguards (pre-clearance of trades, restricted lists, etc.).
Item 12 — Brokerage Practices
How the firm selects custodians and broker-dealers for your trades. Look for:
- "Soft dollar" arrangements — where the firm receives research or other benefits in exchange for directing trades to specific brokers. Worth asking about.
- "Trade aggregation" — the firm combines client trades. Generally a good practice for pricing.
Item 13 — Review of Accounts
How often your account is reviewed. "Quarterly" is standard for RIA relationships.
Item 14 — Client Referrals and Other Compensation
Does the firm pay referral fees, or receive them? Does any third party pay the firm for access to clients? This is where some fee-based conflicts hide that aren't in Item 5.
Item 15 — Custody
Who holds your assets. A legitimate RIA typically custodies at an independent broker-dealer (Schwab, Fidelity, Altruist). If the firm itself has "custody" — meaning it can access client funds — there are additional audit requirements and you should ask what safeguards are in place.
Item 16 — Investment Discretion
Whether the firm has authority to trade your account without prior approval on each trade. Standard for most RIAs.
Item 17 — Voting Client Securities
Whether the firm votes proxies on your behalf. Usually yes at the firm's discretion, with an option for you to opt out.
Item 18 — Financial Information
Whether the firm is in financial distress. A small firm with a negative balance sheet is worth asking about.
Part 2B: the individual supplement
A shorter document for each advisor you'll work with personally. Covers:
- Educational background and professional experience.
- Designations held (CFP®, CFA®, CPA, etc.).
- Disciplinary information specific to the individual.
- Other business activities of the individual.
- Additional compensation received by the individual (outside of the advisory fee).
If the firm is fee-only but the individual advisor has "additional compensation" listed in 2B from, say, selling insurance products on the side — that's a conflict the firm-level brochure didn't catch.
Form CRS: the consumer summary
Added in 2020 as part of Reg BI, Form CRS is a 4-page maximum plain-English summary. Required of every firm — RIA, broker-dealer, or dual. Covers:
- The relationship and services offered.
- Fees, costs, conflicts, and standard of conduct.
- Disciplinary history.
- Key conversation starters (the SEC requires specific "suggested questions" be included).
Short. Readable. Start here if Part 2A feels dense.
Red flags across Form ADV
- Item 5 mentions "commissions," "12b-1 fees," "additional compensation," or "insurance products" → fee-based.
- Item 10 discloses broker-dealer or insurance affiliation → product conflicts.
- Item 11 (Disclosures on Part 1) has "Yes" answers → investigate.
- Item 14 mentions referral fees → read carefully.
- Item 15 says the firm itself has custody (not a third party) → ask about audits.
- Item 18 notes financial distress → very rare; ask about it.
How to actually get Form ADV
Three ways:
- IAPD — adviserinfo.sec.gov. Search the firm; Part 2 Brochures are linked on the firm's page.
- The firm's own website — SEC rule requires the current Form ADV Part 2A to be available to prospective clients; many firms post it in their footer under "Disclosures" or "Legal."
- Direct request — email the advisor. If they won't send it, they are violating their brochure delivery obligation under 17 CFR §275.204-3.
Key takeaways
- Form ADV has four components: Part 1, Part 2A, Part 2B, Form CRS.
- Part 2A Item 5 (Fees and Compensation) is the single most important section.
- Part 2A Item 10 tells you about product conflicts.
- Part 2B covers your specific advisor's background and potential side compensation.
- Form CRS is the readable 4-page summary. Read it first if Part 2A is dense.
- All Form ADV documents are free and public on IAPD.
Sources
- SEC Form ADV — sec.gov/foia/docs/form-adv.
- 17 CFR §275.204-3 — Investment Adviser brochure delivery — eCFR.
- SEC Form CRS — sec.gov/form-crs.
- Investment Advisers Act of 1940 — PDF.
- SEC IAPD — adviserinfo.sec.gov.
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