What Is Form ADV Part 2A and Who Needs to File It?

Investment advisers registered with the Securities and Exchange Commission (SEC) or state regulators must disclose their business practices, fees, conflicts of interest, and disciplinary history. Form ADV Part 2A ensures transparency, helping clients evaluate an adviser’s services and potential risks.

Firms Required to File

Investment advisers managing over $110 million in assets must register with the SEC. Those with $25 million to $110 million typically register at the state level unless exempt. Firms with less than $25 million generally fall under state jurisdiction unless they operate in a state without investment adviser registration, in which case SEC registration may be required.

Private fund advisers, including hedge funds and private equity firms, must file if they meet SEC registration criteria. Exempt reporting advisers—such as those managing venture capital funds or private funds under $150 million—must submit portions of Form ADV but may not need to complete Part 2A unless required by state regulators.

Certain exemptions apply. Advisers managing only insurance company assets or those qualifying as foreign private advisers do not need to register with the SEC but may still be subject to state regulations. Family offices meeting the SEC’s definition under the Dodd-Frank Act are also exempt.

Key Sections of Part 2A

Form ADV Part 2A, or the firm brochure, outlines an investment adviser’s operations, compensation, and potential conflicts, helping clients assess risks and business practices.

Advisory Business

This section details the services an adviser provides, such as portfolio management, financial planning, or consulting. Advisers must specify whether they offer continuous account monitoring or only periodic recommendations and identify their client base, whether individuals, pension plans, or private funds.

Firms must disclose whether they tailor advice to individual clients or use a standardized approach. If they offer wrap fee programs—where a single fee covers advisory and brokerage services—this must be disclosed along with associated costs. Advisers must also report total assets under management (AUM) as of their most recent fiscal year-end, distinguishing between discretionary and non-discretionary assets.

Fees and Compensation

Advisers must clearly explain how they charge clients, whether through asset-based fees, hourly rates, fixed fees, or commissions. Compensation from third parties, such as mutual fund companies or insurance providers, must be disclosed to highlight potential conflicts of interest.

For asset-based fees, firms typically charge a percentage of AUM, often between 0.50% and 2.00% annually. Hourly fees can range from $100 to $500 per hour, while fixed fees for financial planning services may range from $1,000 to $10,000. If advisers charge performance-based fees—where they earn a percentage of investment gains—this must be disclosed, along with any risks, such as incentivizing higher-risk strategies.

Advisers must also explain whether clients pay additional costs, such as brokerage commissions, custodial fees, or fund expenses. If fees are deducted directly from client accounts, the process must be described, including how often charges occur and whether clients receive advance notice.

Conflicts of Interest

Advisers must disclose any situations where their interests may not align with clients’. Common conflicts include receiving third-party compensation for recommending specific investments, financial relationships with affiliated firms, or trading securities for personal accounts that are also recommended to clients.

Advisers must explain how they manage these conflicts, such as implementing policies to prevent biased recommendations or disclosing revenue-sharing agreements. If an adviser or its employees invest in the same securities as clients, they must describe how they prevent unfair advantages, such as front-running—trading ahead of client orders to benefit from price changes.

Firms must also disclose whether they receive soft-dollar benefits from brokerage firms, such as free research or technology, in exchange for directing client trades to specific brokers. While legal under SEC rules, these arrangements can create an incentive to prioritize broker relationships over securing the best trade execution for clients.

Disciplinary Information

Investment advisers must disclose any legal or regulatory actions against them or key personnel, including SEC or state enforcement actions, criminal convictions, and civil lawsuits related to financial misconduct. Even minor infractions must be reported if they resulted in fines or sanctions.

For each disclosed event, advisers must provide details on the violation, outcome, and any penalties imposed. If an adviser has no disciplinary history, they must explicitly state this.

This section helps investors assess an adviser’s integrity and regulatory compliance. A history of repeated violations or serious infractions, such as fraud or misrepresentation, may indicate higher risks for clients. Conversely, a clean record can enhance credibility.

Filing Steps

Submitting Form ADV Part 2A requires accuracy, as incomplete or misleading filings can lead to compliance issues. Advisers must file through the Investment Adviser Registration Depository (IARD) and ensure consistency between Part 2A and Part 1 of Form ADV. Since Part 2A is a narrative brochure rather than a standardized form, advisers must draft responses in plain English, avoiding technical jargon.

After drafting the document, advisers should conduct a thorough internal review to identify any discrepancies or missing details. Many firms engage compliance consultants or legal professionals to ensure regulatory compliance. Filings must be updated annually within 90 days of the firm’s fiscal year-end, and amendments must be made promptly if any material changes occur.

Public Access to Form ADV Part 2A

Investors can access Form ADV Part 2A through the SEC’s Investment Adviser Public Disclosure (IAPD) website or FINRA’s BrokerCheck system. These platforms allow users to search for a firm by name or registration number and review the most recent filings. Since updates must be submitted annually and whenever material changes occur, clients can track changes over time.

Advisers must provide a copy of their brochure to all prospective and existing clients. Many firms also publish their brochures on their websites, making it easier for potential clients to compare services, fees, and conflicts of interest. While not required, this practice enhances transparency and trust.

Penalties for Inaccurate Disclosures

Failing to provide accurate information in Form ADV Part 2A can lead to regulatory consequences. The SEC and state regulators scrutinize these filings, and misstatements or omissions can result in enforcement actions. Advisers submitting false or incomplete information may face fines, suspension, or even registration revocation, depending on the severity of the violation.

Regulatory penalties vary. The SEC has imposed fines exceeding $100,000 on firms that failed to disclose conflicts of interest or misrepresented their fee structures. In cases involving intentional fraud or repeated violations, firms may be barred from operating as investment advisers. Additionally, clients who suffer financial harm due to misleading disclosures may pursue legal action, leading to costly settlements or reputational damage. Ensuring compliance through regular internal audits and legal reviews helps firms avoid these risks.