Form ADV

Form ADV is the primary regulatory filing that investment advisers must complete to legally operate their businesses. Think of it as a comprehensive background check and disclosure document rolled into one. Investment advisers use this form both to register with regulators and to provide ongoing updates about their operations.

Investment advisers must file Form ADV electronically through a system called the Investment Adviser Registration DepositoryElectronic filing system operated by FINRA that investment advisers use to register with the SEC and state securities authorities and file Form ADV updates. (IARD) when they apply for registration with the Securities and Exchange Commission (SEC). The Investment Advisers Act of 1940 Investment Advisers Act of 1940 The Investment Advisers Act of 1940 is the primary U.S. legislation regulating investment advisers, including hedge fund managers, establishing registration requirements, fiduciary duties, disclosure obligations, and compliance standards for advisers meeting certain thresholds. makes it illegal for advisers to provide false information or leave out important facts in their Form ADV filings. Violations can result in significant penalties under Section 207 of the Act.

Form ADV is divided into multiple parts, each serving a different purpose and audience. This structure ensures that regulators get the information they need while clients receive appropriate disclosures about their investment adviser.

Part 1 regulatory information: Part 1 provides the SEC with essential details about the investment adviser and its staff. SEC examination teams use this information to evaluate how risky each adviser might be, which helps them decide which firms to examine first. Part 1 has two sections: Part 1A is required for all advisers registering with either the SEC or state authorities, while Part 1B is only needed for state registration. Although clients don't receive Part 1 directly, this information becomes publicly available through SEC databases.

Part 2 client disclosure: Part 2 serves as a detailed disclosure document that informs current and prospective clients about the adviser's business practices, fee structures, and potential conflicts of interest. Under Section 204-3Provision of the Investment Advisers Act requiring investment advisers to provide written disclosure documents (brochures) to clients at specific times. of the Investment Advisers Act, investment advisers must provide written disclosures at specific times. These disclosures are commonly called "brochures." Advisers can use Part 2 itself as the brochure, or they can create separate documents that contain equivalent information.

Investment advisers must disclose business activities beyond their advisory services across multiple sections of Form ADV. The SEC requires reporting of financial industry activities in Parts 1A and 2A. Additionally, supervised personsIndividuals who provide investment advice on behalf of an investment adviser and are subject to the adviser's supervision and control. completing Part 2B must disclose investment-related outside activities or those that provide substantial income or require significant time commitments.

These activities can create actual or perceived conflicts between individual interests and client welfare. They require careful disclosure and management through comprehensive Form ADV reporting. The SEC has emphasized the importance of robust policies addressing outside business activities, particularly when they involve relationships with companies connected to the adviser's investment activities.

Starting June 30, 2020, the SEC began requiring registered investment adviser Registered investment adviser (RIA) A registered investment adviser (RIA) is a hedge fund manager or other investment adviser that has registered with the SEC or state securities regulators. These advisers must follow comprehensive rules including fiduciary duties, compliance requirements, and regular examinations. s who serve retail investors to complete and deliver Form CRSClient Relationship Summary form that registered investment advisers serving retail investors must provide, containing standardized disclosures about services, fees, and conflicts in plain language. as Part 3 of Form ADV. CRS stands for "Client Relationship Summary," and it provides standardized disclosures about services, fees, conflicts of interest, and disciplinary history written in plain language.

The SEC defines retail investors as individual people (not institutions) who are seeking investment services primarily for personal, family, or household purposes. Form CRS represents a significant improvement in investor protection because it requires advisers to deliver this summary before opening an account and whenever important information changes.

The SEC made major changes to Part 2 in 2010, creating new requirements that significantly improved transparency. The revised format requires electronic filing and makes the information publicly available online. The SEC also mandated that advisers write these disclosures in plain English, making them more accessible to average investors.

These 2010 amendments also introduced Part 2B, known as the "Brochure Supplement." This section provides specific information about individual investment professionals who have discretionary authorityThe power granted to an investment adviser to make trading decisions on behalf of clients without obtaining prior approval for each transaction. over client assets—meaning they can make investment decisions without getting approval for each transaction.

The SEC allows related companies of registered advisers to register together through something called "umbrella registration." This approach promotes operational efficiency for complex fund management structures where multiple related entities work together as an integrated business.

Under this framework, one "filing adviser" can register multiple related entities as "relying advisers" on a single Form ADV, provided they operate as an integrated advisory business. This arrangement can simplify regulatory compliance and reduce administrative burden.

Beginning in October 2017, affiliated advisers that are controlled by or under common control with the filing adviser can use this registration approach when they meet specific integration criteria. The entities must focus exclusively on private funds and qualified separate accountsSegregated investment accounts that meet specific regulatory criteria and can be managed by relying advisers under umbrella registration arrangements. with related investment strategies. They must also maintain unified supervision and control structures, operate from a U.S. principal office, remain subject to SEC examination authority, and function under shared compliance leadership and ethical standards.

Filing advisers must complete a document called Schedule RDocument that filing advisers must complete for each relying adviser under umbrella registration, providing essential information about affiliated entities. for each relying adviser. This schedule documents essential information about these affiliated entities. The current structure requires certain sections of Form ADV to address only the filing adviser, while other sections must encompass both filing and relying advisers. This umbrella registration framework extends to all Investment Advisers Act filings and reports, including Form PF Form PF Form PF (Private Fund) is a required SEC filing for investment advisers who manage private funds with at least $150 million in assets. The form collects detailed information about how these funds operate, including their use of borrowed money, investor makeup, and investment holdings. This data helps regulators monitor risks that could affect the broader financial system. submissions.

Related entities qualify for umbrella registration when they can demonstrate genuine business integration through several key factors. They must limit their advisory services to private funds and qualified separate accounts that pursue substantially similar investment approaches. The relying advisers and their personnel must operate under the filing adviser's direct supervision and control as associated persons.

The filing adviser must maintain its principal operations within the United States while ensuring all relying adviser activities remain subject to SEC oversight. Finally, all entities must operate under unified compliance leadership and shared ethical frameworks administered by a single chief compliance officerThe person responsible for overseeing a firm's compliance with applicable laws and regulations..

Investment advisers who manage less than $25 million in regulatory assets under managementThe total value of client assets managed by an investment adviser for SEC registration threshold purposes. cannot register with the SEC. Instead, they must comply with state regulation. Those managing between $25 million and $100 million must register in their principal state of business and may face examination by state regulators.

State requirements vary significantly from one state to another, creating complex compliance obligations that managers must carefully analyze on a state-by-state basis. This variation can make compliance challenging for advisers operating in multiple states.

States may require notice filings even from managers who are exempt from registration in those states. However, many states provide exemptions for advisers who serve exclusively institutional or qualified investors. The Form ADV system allows for notice filing selections, though states charge separate fees from SEC registration costs.

Current regulations establish three main delivery requirements that advisers must follow. First, advisers must provide Part 2 to prospective clients before they establish an advisory relationship. Second, they must deliver either Part 2 or a summary of any material changes to existing clients once per year. Third, they must supply current Part 2B information about relevant investment professionals to both prospective and existing clients.

Many hedge fund managers also provide these disclosures to their private fund investors, even though the legal requirements technically only apply at the fund level rather than to individual investors.

Form ADV must be filed electronically through IARD. Paper filing is available only under limited hardship exemptions granted by the Financial Industry Regulatory Authority (FINRA). Consistency across all related documents remains critical—information in Form ADV must align with compliance manuals, fund offering documents, marketing materials, and related person filings.

Advisers should carefully review Form ADV instructions and glossary, noting that defined terms typically appear in italics throughout the document. Understanding these definitions is crucial for accurate completion of the form.

The regulatory framework continues evolving, with the SEC maintaining focus on transparency, conflict disclosure, and investor protection across all Form ADV components. Investment advisers must remain vigilant about regulatory updates and ensure their filings accurately reflect their current business operations and compliance practices.

Recent SEC examination priorities emphasize consistency between Form ADV disclosures and actual business practices. Regulators pay particular attention to conflict management, fee transparency, and cybersecurity preparedness. The SEC increasingly scrutinizes alternative revenue sources, risks related to artificial intelligence, and whether conflict disclosures are adequate across all client-facing documents.

Investment advisers should ensure their Form ADV accurately reflects their current operations and remains aligned with fund documents and marketing materials. Inconsistencies between these documents can lead to regulatory issues during examinations.