Determining if delivery of Form ADV is required for each client or prospective client that contains all information required by Part 2 of Form ADV and what must be included in the Firm’s ADV is a complex topic. An RIA should consult an attorney or compliance consultant to ensure their brochure contains the necessary information.
Documenting Delivery
Once you’ve determined that delivery of Form ADV is required, registered investment advisers should document the initial delivery of the brochure to each client. In practice, many firms will create a record of the brochure’s delivery by having the client acknowledge receipt when they sign the advisory contract. Firms that are going to rely on this technique should ensure that all of their advisory contracts contain language that the client acknowledges receipt of the brochure.
Firms that do not have their clients acknowledge receipt of the brochure when they enter into the advisory agreement should have a log to record the delivery of the brochure to each client. Regardless of the method employed to evidence delivery of the brochure, firms should periodically review their process and controls to verify that they remain compliant with their obligation to deliver the brochure (including brochure supplements) to new clients. Firms that sponsor one or more programs should verify that they are delivering the appropriate wrap fee program brochures to new clients. The brochure supplement for the investment adviser representative accompanies the firm’s brochure during delivery.
SEC Rule 204-3
The SEC has revised the requirements for delivery of Form ADV pursuant to SEC Rule 204-3 to require that brochures be delivered at or before the time a firm enters into an advisory contract with the client. In revising SEC Rule 204-3, the SEC abandoned the prior requirement that if such delivery occurred less than forty-eight hours before entering into an advisory client had to have the right to terminate the agreement without penalty within five business days thereafter.
Although the right to terminate the agreement is no longer a regulatory requirement, many firms continue to allow a client to terminate the agreement without penalty if the client did not receive the brochure at least forty-eight hours prior to entering into an agreement. Firms that have advisory contracts or disclosure documents still stating that clients have the right to terminate their agreements will remain required to honor a client’s right to terminate without penalty in accordance with the advisory contractor disclosure document.
For more information on Form ADV, check out our other blogs on the topic:
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