Compliance Solutions for Investment Advisers

FAQs — ADV 2B

 

What is Part 2B of Form ADV?

Part 2B of Form ADV or “brochure supplement” provides information about the advisory personnel on whom the particular client receiving the brochure relies for investment advice. Among other things, a brochure supplement contains information about the educational background, business experience and disciplinary history (if any) of the supervised persons who provide advisory services to the client. The brochure supplement thus includes information that would not necessary be included in the firm brochure about supervised persons of the adviser who actually provide the investment advice and interact with clients.

What must be disclosed in Part 2B?

Part 2B requires advisers to address the following substantive areas:

  • Educational Background and Business Experience
  • Disciplinary Information
  • Other Business Activities
  • Additional Compensation
  • Supervision

For which supervised persons must we prepare a brochure supplement?

You 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; and
  • Any supervised person who has discretionary authority over a client’s assets, even if the supervised person has no direct client contact.

No supplement is required for a supervised person who has no direct client contact and has discretionary authority over a client’s assets only as part of a team. In addition, if discretionary advice is provided by a team comprised of more than five supervised persons, brochure supplements need only be provided for the five supervised persons with the most significant responsibility for the day-to-day discretionary advice provided to the client.

To whom must we deliver brochure supplements?

You must deliver to a client the brochure supplements for each supervised person who provides advisory services to that client. However, there are three categories of clients to whom you are not required to deliver supplements. First, you are not required to deliver supplements to clients to whom you are not required to deliver a firm brochure (or a wrap fee program brochure). Second, you are not required to deliver supplements to clients who receive only impersonal investment advice, even if they receive a firm brochure.

Are there any exceptions to the delivery requirements?

Yes. You are not required to deliver supplements to clients who are individuals who would be “qualified clients” of your firm under SEC rule 205-3(d)(1)(iii). Those persons are:

  1. Any executive officers, directors, trustees, general partners, or persons serving in a similar capacity, of your firm; or
  2. Any employees of your firm (other than employees performing solely clerical, secretarial or administrative functions) who, in connection with their regular functions or duties, participate in the investment activities of your firm and have been performing such functions or duties for at  least 12 months.

When must we deliver a brochure supplement to a client?

You must deliver the supplement for a supervised person before or at the time that supervised person begins to provide advisory services to a client.

What are the delivery requirements for updates to the brochure supplement?

You must deliver to clients any update to the supplement that amends information in response to Item 3 of Part 2B (disciplinary information). Such an amendment can be in the form of a “sticker” that identifies the information that has become inaccurate and provides the new information and the date of the sticker. As a fiduciary, you have a continuing obligation to inform your clients of any material information that could affect the advisory relationship. As a result, between annual updating amendments you must disclose material changes to clients even if those changes do not trigger delivery of an updated supplement.

May a supervised person deliver brochure supplements?

You may have a supervised person deliver supplements (including his own) on your behalf.

Are we required to file brochure supplements?

If you are an SEC-registered adviser, you are not required to file brochure supplements or updates, but you must maintain copies of them.

When must we update brochure supplements?

You must update brochure supplements promptly whenever any information in them becomes materially inaccurate.

May we deliver the brochure supplement electronically?

Yes. An investment adviser may deliver the brochure supplement electronically provided the client gives informed consent to receiving the information electronically and the client can effectively access the electronically delivered information.

Must brochure supplements be separate documents?

No. If your firm brochure includes all the information required in a brochure supplement, you do not need a separate supplement. Smaller firms with just a few supervised persons may find it easier to include all supplement information in their firm brochure, while larger firms may prefer to use a firm brochure and separate supplements. If supplement information is included in the firm brochure, however, the supplements must be included at the end of the brochure. In addition, each supplement must follow the same order as the supplement items listed in Part 2B, and contain the same headings.

May we prepare supplements for groups of supervised persons?

Yes.  A group supplement, or a firm brochure presenting supplement information about supervised persons, must present information in a separate section for each supervised person.

Must an adviser who is a sole proprietor provide his own brochure supplement to clients?

Not if that information is included in the firm brochure.

May we include information not required by an item in a brochure supplement?

Yes. If you include information not required by an item, however, you may not include so much additional information that the required information is obscured.

Are we required to file the brochure supplements?

If you are registered or are registering with the SEC, you are not required to file your brochure supplements, but you are required to maintain copies of all supplements and amendments to supplements in your files. If you are registered or are registering with one or more state securities authorities, you must file through IARD a copy of the brochure supplement for each supervised person doing business in that state.

 

Important Information

The information contained in this Frequently Asked Questions is only a summary and is not intended to be a comprehensive analysis of the rules and regulations applicable to registered investment advisers. It is not intended to constitute legal or compliance consulting advice or apply to any one investment adviser’s particular situation. For more information, please see our Terms of Use.

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