How do I read a Form ADV Part 2A?
A Form ADV Part 2A is the brochure every Registered Investment Adviser must give its clients. The SEC requires it. It must be written in plain English. It covers services, fees, conflicts of interest, and how the firm runs your money. The whole brochure runs 20 to 60 pages. You do not need to read all of it. The two items that matter most for a typical investor are Item 5 (Fees and Compensation) and Item 12 (Brokerage Practices). Together they tell you whether the firm is fee-only, how the fee is calculated, and whether the firm earns side income from custodians or fund sponsors. After that, skim Item 4 for the services you are buying, Item 8 for the firm's investment approach, Item 10 for any other industry activities, and Item 14 for any referral fees. The rest is fine print written by lawyers under SEC review. You can come back to it if questions come up.
Item 5 — Fees and Compensation
This is the most-read section. Look for:
- The fee schedule. Numbers, not phrases. "1.00% on the first $1M" is a fee schedule. "Negotiable" is not.
- The phrase "fee-only" or its absence. A fee-only firm will say so plainly. A fee-based firm will use "in addition to," "may earn commissions," or "other compensation."
- How fees are billed. Quarterly in advance is the norm. Watch for any reference to surrender or termination penalties.
Item 12 — Brokerage Practices
Item 12 is where firms disclose payments from custodians, "soft dollar" arrangements, and any directed brokerage. A fee-only firm should disclose any custodian payments and confirm they do not affect fund selection. If the section is long and dense, ask the advisor to walk you through it.
Item 14 — Client Referrals and Other Compensation
This is where firms disclose referral fees paid to or received from other parties. A clean fee-only firm will have a short Item 14, often noting only that the firm pays no third-party referral fees and accepts no incoming ones.
How to find the form
Search the firm at adviserinfo.sec.gov. Click the firm name, then click "Part 2 Brochures." Download the PDF and read it on your screen.
A 10-minute reading order
Read these in this order: Item 5 first, then Item 12, then Item 4, then Item 14. That covers the four questions that matter for a typical client — how is the firm paid, where does it trade, what does it actually do, and does it pay or take referral fees. If anything in that list looks off, ask the advisor to explain it in writing before you sign.