Do not read Form ADV from page one and mistake volume for diligence. Trace the proposed relationship through the disclosures that govern money, conflicts, and control. Delay signing until the filing and account documents tell the same story.
- First, confirm the firm, individual adviser, registration details, and filing dates.
- Focus on fees, discipline, conflicts, referral payments, custody, brokerage, and discretion.
- Turn firm-wide disclosures into questions about your proposed account.
- Compare the brochure with the agreement, fee schedule, supplements, and custodian forms.
Which Form ADV documents should a prospective client pull first?
Start with the firm’s current Part 2A brochure. Then pull Part 1A, the individual adviser’s applicable Part 2B supplement, and Form CRS when the firm serves retail investors and must provide it. Retrieve dated copies through SEC IAPD and confirm that the legal entity and individual match the proposed engagement.
How do you confirm that you found the correct adviser filing?
- Search IAPD separately for the firm and the individual who will advise you.
- Match the legal name, CRD number, principal office, and registration status against the proposal.
- Check the filing date and amendment type.
- Match the individual’s name and CRD number to the person presented to you.
If the proposal uses a brand rather than a registered legal name, request the related entity and CRD number in writing. State-registered advisers may also have Part 1B. The NASAA Form ADV materials identify Part 1B as state-adviser specific and list Part 2 instructions and brochure materials.
What is the fastest defensible reading order?
- Read Part 2A Items 4 and 5 for services and fees.
- Read Items 9, 10, 11, and 14 for discipline, affiliations, conflicts, and referral compensation.
- Read Items 12, 15, and 16 for brokerage, custody, and discretion.
- Check Part 1A, its schedules, and applicable Disclosure Reporting Pages against the brochure.
- Review the rest of the filing, Part 2B, Form CRS, and proposed contract before signing.
Start with the financial question: what will this particular relationship cost?
Form ADV Items 4, 5, and 6 show what the adviser does and how the adviser gets paid
Part 2A Items 4, 5, and 6 describe services, fee methods, billing practices, additional expenses, and performance-based compensation. Compare those firm-wide disclosures with the quote and agreement for your proposed account.
What is the total fee for the proposed service and account size?
- Calculate the dollar cost: Apply the quoted asset-based, hourly, fixed, or subscription fee to the account or service scope.
- Check the conditions: Ask about minimums, breakpoints, household aggregation, cash treatment, and billing timing.
- Identify separate expenses: Determine whether fund expenses, trading or custody charges, and planning fees apply.
A clear answer gives the assumptions, estimated advisory fee, separate costs, and controlling document. A maximum rate is not an account-specific quote.
Does the adviser receive performance-based or other account-dependent compensation?
Ask whether Item 6 merely permits performance fees for eligible clients or whether your account will pay one. If it will, request the calculation method, applicable conditions, conflict description, and controls contained in the filing and agreement.
Price is only half the review. Next, examine the events and incentives behind it.
Form ADV Items 9, 10, 11, and 14 expose discipline, affiliations, conflicts, and referral payments
Review these items early. They address disciplinary events, industry affiliations, client transactions, personal trading, and compensation involving referrals or other parties. A disclosed conflict is not self-explanatory. Ask how it affects the proposed relationship.
What disciplinary disclosure should trigger additional verification?
Any material event merits verification, although disclosures do not carry equal weight. Record the date, regulator or court, parties, allegation, disposition, sanctions, and current status. Determine whether the event concerns the firm, an affiliate, management, or the individual who would serve you.
Compare the brochure summary with the relevant official disposition. NASAA’s Form ADV resources identify Part 1A as including Schedules A, B, C, and D and Disclosure Reporting Pages. Compare applicable records with the individual’s IAPD entry and FINRA BrokerCheck record when the person has brokerage history. No reported event proves neither competence nor quality.
Who pays the adviser or another party for referrals?
Item 14 should identify who pays, who receives compensation, each party’s role, and whether the arrangement changes your fee or choices. Ask whether the recipient is a promoter, solicitor, affiliate, or referring professional and whether payment uses cash, fee sharing, discounted services, or another economic benefit.
Request the written disclosure for any compensated endorsement or referral that applies to you. A recommendation funded by the adviser is not independent merely because the client receives no separate invoice.
What does a clear conflict answer look like?
A clear answer identifies the conflict’s source, the recommendation it can affect, the compensation path, the decision-maker, the monitoring responsibility, and the client’s alternatives. “We disclose all conflicts” does not answer the question. Once incentives are clear, examine operational control.
Form ADV Items 12, 15, and 16 explain brokerage, custody, and investment discretion
These items explain broker selection, regulatory custody, and authority to trade without transaction-by-transaction approval. Compare them with the account forms and advisory agreement.
Who holds the assets and who can move money?
Item 15 addresses custody, but custody is not the same as asset location. Identify the qualified custodian, confirm who sends statements, and compare Item 15 with the firm’s Part 1A custody answers and applicable Schedule D details.
Account documents should specify whether the adviser may deduct fees, transfer assets, send funds to third parties, or change account details. Ask for any standing authorization and its controls.
Form ADV Items 12, 15, and 16 explain brokerage, custody, and investment discretion shown as an editorial planning reference.
Can the adviser choose brokers or receive brokerage-related benefits?
Item 12 should explain applicable broker-selection factors, research benefits, soft-dollar practices, directed brokerage, trade aggregation, and affiliated-broker relationships. Ask which provisions govern your account and whether directing a broker could affect execution or costs.
What authority does discretionary management give the adviser?
Item 16 describes whether the adviser accepts discretionary authority. The agreement should state whether the adviser may choose securities, amounts, and timing without separate approval. Record investment restrictions, tax constraints, concentration limits, and the process for revoking authority.
The Form ADV brochure must match the proposed agreement and the individual adviser’s record
Form ADV is a starting point, not the engagement itself. Compare Part 2A with the agreement, fee schedule, custodian forms, applicable supplements, Form CRS, and the representative’s Part 2B.
Which disclosures concern the firm and which concern the individual adviser?
Part 2A describes the advisory firm; Part 2B covers the individual providing advice. Check IAPD for the representative’s registration and disclosures. Review FINRA BrokerCheck as well when the representative is currently or was formerly registered as a broker.
What should you do when the brochure and contract differ?
Reconcile the legal entity, representative, services, fees, termination terms, discretion, custody-related authority, referral compensation, and disciplinary history. Request corrected or supplemental documents rather than relying on an oral explanation. Seek legal or compliance review if contractual language remains unclear.
Five Form ADV questions can structure the final hiring conversation
Ask every candidate the same account-specific questions and record each answer beside the controlling document.
- What is my total cost? Require amounts, assumptions, and separate expenses.
- Which conflicts affect me? Require the source, effect, compensation path, and controls.
- What discipline concerns the firm or representative? Require the event, disposition, and current status.
- Who holds assets and has authority? Require the custodian’s identity and written limits.
- Who else pays whom? Require the payer, recipient, reason, and compensation method.
What does a clean answer from an investment adviser look like?
A clean answer matches the filing, brochure, explanation, and contract while acknowledging conflicts and limits. Clean paperwork cannot establish honesty, competence, or future performance. Save dated copies, obtain written clarification, compare candidates on identical fields, and do not sign while a material discrepancy remains.
Five Form ADV questions can structure the final hiring conversation shown as an editorial planning reference.
Frequently asked questions
What is Form ADV, and which parts should a prospective client read?
Form ADV is the investment adviser registration and disclosure filing. Start with Part 2A, verify it against Part 1A, and review the applicable Part 2B, Form CRS, schedules, and Disclosure Reporting Pages.
What are the top five questions to ask a financial advisor after reading Form ADV?
Ask about total cost, account-specific conflicts, disciplinary history, custody and authority, and compensation paid by third parties. Require answers tied to your proposed account and written documents.
What is a typical financial advisor fee, and can Form ADV show what I will actually pay?
Advisers use asset-based, hourly, fixed, subscription, performance-based, and other permitted fee methods. Form ADV describes the firm’s methods and ranges, but the agreement and fee schedule should state what your relationship will cost.
Should I check both SEC IAPD and FINRA BrokerCheck before hiring an advisor?
Check IAPD for the advisory firm and representative. Check FINRA BrokerCheck when the firm or individual has current or former brokerage registration because the systems cover different records.