Form ADV Part 2B: Disclosures for Supervised Persons

Form ADV Part 2B is a brochure supplement that must contain certain information about specific individuals, acting on behalf of the investment adviser, who actually provide the investment advice and interact with the client. The brochure supplement is also a narrative format in plain English and includes six required disclosure categories, with a seventh for advisers registered or are registering with one or more state securities authorities:

Cover Page

The first disclosure item is a cover page, which must include for each supervised person covered by the supplement:

  • The supervised person’s name, business address and telephone number.
  • Your firm’s name, business address and telephone number. If your firm brochure uses a business name for your firm, use the same business name for the firm in the supplement.
  • The date of the supplement.

The cover page must also display statements containing the following or other clear and concise language conveying the same information, and identifying the document as a “brochure supplement:”

This brochure supplement provides information about [name of supervised person] that supplements the (name of advisory firm) brochure. You should have received a copy of that brochure. Please contact [service center or name and/or title of your contact person) if you did not receive [name of advisory firm)’s brochure or if you have any questions about the contents of this supplement.

Additional information about [name of supervised person) is available on the SEC’s website at www.adviserinfo.sec.gov.

Educational Background and Business Experience

The second category requires the adviser to disclose the educational background and business experience of each supervised person covered by the supplement, including disclosing if the supervised person has no high school education, no formal education after high school, or no business background.

Disciplinary Information

The third disclosure category in Form ADV Part 2B is for detailing any disciplinary information about material events within the past 10 years, although the SEC says that even if more than 10 years have passed since the date of the event, you must disclose the event if it is so serious that it remains currently material to client’s or prospective client’s evaluation.

Other Business Activities

The fourth category requires advisers to disclose the other business activities of each supervised person covered by the supplement, including disclosing if the supervised person receives commissions, bonuses, or other compensation based on the sale of securities or other investment products, including as a broker-dealer or registered representative, and including distribution or service fees from the sale of mutual funds.

Additional Compensation

The fifth disclosure category in Form ADV Part 2B is for listing additional compensation earned by the supervised persons covered by the supplement paid by someone who is not a client for providing advisory services. This includes sales awards and other prizes, and any bonus that is based, at least in part, on the number or amount of sales, client referrals, or new accounts. Other regular bonuses and regular salaries do not count.

Supervision

The sixth disclosure category is for explaining how you supervise the supervised persons, including how you monitor the advice the supervised person provides to clients. The adviser needs to provide the name, title, a phone number of the individual responsible for supervising the supervise person’s advisory activities on behalf of the firm.

Requirements for State-Registered Advisers

Advisers registered or are registering with one or more state securities authorities must respond to the seventh disclosure category. This last category has two main parts. For the first part, advisers must disclose if a supervised person has been involved in an arbitration claim or a civil, self-regulatory organization, or administrative proceeding. For the second part, advisers must disclose if the supervised person has been the subject of a bankruptcy petition.

Personnel Included

Investment advisers must prepare a brochure supplement for the following supervised persons:

  • Any supervised person who formulates investment advice for a client and has direct client contact.
  • Any supervised person who has discretionary authority over a client’s assets, even if the supervised person has no direct client contact.

For instructions on Part 2 of Form ADV, check out the SEC’s General Instructions for Part 2 of Form ADV.

For more information on Form ADV, check out some of our other bogs on the topic:

If you or your Firm needs assistance understanding or filing your Form ADV, please contact us. MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.