Under rule 17a-14 under the Securities Exchange Act of 1934 and rule 204-5 under the Investment Advisers Act of 1940, broker-dealers registered under section 15 of the Exchange Act and investment advisers registered under section 203 of the Advisers Act are required to deliver to retail investors a relationship summary, Form ADV Part 3, disclosing certain information about the firm. Read all the General Instructions as well as the particular item requirements before preparing or updating the relationship summary.

Introduction

The first item of Form ADV Part 3 is the introduction. Include the date prominently at the beginning of the relationship summary (e.g., in the header or footer of the first page or in a similar location for a relationship summary provided electronically).  Briefly discuss the following information in an introduction:

  • Name
  • Registering as a BD, RIA, or both
  • indicate that brokerage and investment advisory services and fees differ and that it is important for the retail investor to understand the differences.
  • State that free and simple tools are available to research firms and financial professionals at  Investor.gov/CRS

Relationships and Services

Use the heading: “What investment services and advice can you provide me?”

Description of Services: State that you offer brokerage services, investment advisory services, or both, to retail investors, and summarize the principal services, accounts, or investments you make available to retail investors, and any material limitations on such services.  For broker-dealers, state the particular types of principal brokerage services you offer to retail investors, including buying and selling securities,  and whether or not you offer recommendations to retail investors.  For investment advisers, state the particular types of principal investment advisory services you offer to retail investors, including, for example, financial planning and wrap fee programs

Fees, Costs, Conflicts, and Standard of Conduct

Use the heading: “What fees will I pay?”

If you are a broker-dealer, use the heading: “What are your legal obligations to me when providing recommendations?  How else does your firm make money and what conflicts of interest do you have?”

Use the heading: “How do your financial professionals make money?”

Disciplinary History

Use the heading: “Do you or your financial professionals have legal or disciplinary history?”

State “Yes” if you or any of your financial professionals currently disclose, or are required to disclose, the following information:

  • Disciplinary information in your Form ADV
  • Legal or disciplinary history in your Form BD
  • Disclosures for any of your financial professionals in Items 14 A–M on Form U4 or on Form U6

State “No”   if neither you nor any of your financial professionals currently discloses, or is required to disclose, the information listed in Item 4.B.

Regardless of your response to Item 4.B, you must:

  • Search Tool: Direct the retail investor to visit Investor.gov/CRS for a free and simple search tool to research you and your financial professionals.
  • Conversation Starter: Include the following questions for a retail investor to ask a financial professional and start a conversation about the financial professional’s disciplinary history: “As a financial professional, do you have any disciplinary history?  For what type of conduct?”

Additional Information

State where the retail investor can find additional information about your brokerage or investment advisory services and request a copy of the relationship summary.  This information should be disclosed prominently at the end of the relationship summary.

Include a telephone number where retail investors can request up-to-date information and request a copy of the relationship summary.

Conversation Starter:  Include the following questions for a retail investor to ask a financial professional and start a conversation about the contacts and complaints: “Who is my primary contact person?  I s he or she a representative of an investment adviser or a broker-dealer?  Who can I talk to if I have concerns about how this person is treating me?”

For more information on Form ADV, check out some of other blogs:

If you need assistance with your firm’s Form ADV Part 3, please contact us. MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.