Disclosure

UPDATED FOR CHANGES EFFECTIVE JANUARY 1, 2000

The first duty of every adviser is to provide disclosure about your background, business methods and contract terms to all potential and existing customers. The Division continues to follow the Act's requirements to provide customers with a copy of Part II of Form ADV ("Part II") or a brochure containing the same information (§ DFI-Sec 5.05(8), Wis. Adm. Code). Part II has several questions which ask about how you formulate your investment recommendations, the background and experience of your investment adviser representatives, your fee structure, and any conflicts of interest. The Code provides that all information which is disclosed in Part II can be reformatted and presented in a brochure format as long as all information on Part II also appears in the brochure. Failure to include all Part II information in the brochure creates a failure to make adequate disclosure.

The referenced section of the Act specifically requires that you give your disclosure document to a prospective client 48 hours in advance of entering into a contract or in any case, no later than at the time of signing the contract, if the customer can withdraw from the agreement within five days. You are also required to annually offer the disclosure document to all customers. This is normally accomplished on the anniversary date of the contract but could be accomplished through a bulk mailing. one or more times per year to satisfy the rule. You must maintain a record indicating when and to whom disclosure documents were offered and a record of any disclosure documents sent in response to a client's request. For bulk mailings, this can be a listing of all persons sent the offer and a copy of the offer notice.

You should also take care to keep your Form ADV updated so initial and annual offers include accurate information. Failure to update Form ADV also creates a disclosure violation.

Solicitors must not only provide the adviser's disclosure document but must also disclose to the prospective client whether they are receiving any compensation for referring customers to you. This includes any soft dollar arrangements (non-cash compensation such as research services, use of a vacation condo, etc.) or cash compensation. Commission business directed to broker-dealer agents in return for solicitations is a common compensation practice. The disclosure must address the existence of such arrangements as well as whether you receive any compensation from the agents as a result of that arrangement.

Advisers and broker-dealers who enter into wrap-fee accounts with clients must additionally provide a copy of Schedule H to Form ADV disclosing the terms of the wrap account, including the computation of the wrap fee and the division of that fee between the adviser, the broker-dealer and any other party. This disclosure may also be satisfied by including the Schedule H information in the brochure used in lieu of Part II.