As part of their new obligations under the Advisers Act, newly registered advisers must file with the SEC Form ADV Part 2A (the “brochure”) at the time of registration and also deliver the brochure to clients. This written disclosure document must be delivered to prospective clients before or at the time of entering into an advisory contract with them.
ADV Part 2A contains 18 disclosure items about your firm that must be included in your brochure. Part 2B, referred to as the “brochure supplement,” must provide information about your personnel on whom the clients rely for investment advice.
Every year, registered advisers are also required to deliver a new Part 2 or a summary of material changes to last year’s Part 2 to each client, without charge. As part of your record keeping obligations, you are required to maintain a copy of each disclosure document—including the Part 2—and any amendment to it, along with a record of when the disclosure was provided to clients.
The Format of Form ADV Part 2
The instructions for Form ADV Part 2 specify how your brochure/brochure supplement should be written. Rather than simply checking a box, the SEC now requires advisers to provide detailed narrative responses to each item.
As noted by the SEC, Form ADV Part 2 is “designed to promote effective communication between you and your clients.” It must be written in plain English, taking into consideration your clients’ level of financial sophistication.
The SEC considers it “plain English” if you:
- Use short sentences;
- Use definite, concrete, everyday words;
- Use active voice;
- Use tables or bullet lists for complex material, whenever possible;
- Avoid legal jargon or highly technical business terms unless you explain them or you believe that your clients will understand them; and
- Avoid multiple negatives.
Detailed instructions for completing Part 2 of Form ADV are available here.
How We Can Help Ensure Compliance
Of course, this post provides only a brief overview of the compliance issues facing advisers in the coming months. Therefore, you should consult with experienced counsel to meet the new rules.
Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.
If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.