Each year, investment advisers are required to submit a standard form to the Securities and Exchange Commission (SEC), detailing information regarding the business operations of the member firm, including specifics on ownership, assets under management, compensation structure, number of employees, number and type of clients, disciplinary actions, as well as details into the investment strategy and methods of analysis from the adviser.
This information is made available to the public by the SEC’s Investment Adviser Public Disclosure (IAPD) website. While these filings are made for regulatory purposes, brochures within the submission may provide crucial information to potential investors looking to participant as a client to an investment advisor or member firm. As such Form ADV brochures are often presented to prospective clients
Origins of the Form ADV
In 1935, Congress passed the Public Utility Holding Company Act (PUHCA), giving regulatory powers to the SEC over electricity utility holding companies. At the time, there had been a fierce, multi-year battle between public and private development of electricity. As a consequence to the passage of the PUHCA, the SEC also held power to study general investment trusts. This then lead to the passage of the Investment Advisers Act of 1940, giving the SEC authority to monitor and regulate investment advisers and their business activities.
Under this act, investment advisers were required to register with the SEC through Form ADV, which must be updated annually with the most recent information. The specific details of the act can be found in the actual document on the SEC website.
What is included in Form ADV reporting?
There are two parts to an Form ADV submssion. Part 1 is a fill in the blank form that requires information regarding the investment adviser's business, ownership, client type and size, the number of employees (and how many of them make investment decisions), business practices, affiliations, and any possible disciplinary records.
Part 2 requires the investment adviser to create "brochures" containing information on the background and education of the adviser, the investment style and types of analysis done as part of the adviser's due diligence, as well as any conflicts of interest in the course of doing business. Any new updates to the brochure must be recognized and delivered to the clients at least annually.