Investment Adviser Guide
A primary duty of every adviser is to provide disclosure about its background, business methods and contract terms to all potential and existing clients. All advisers are required to provide clients with a copy of Part 2 of Form ADV, the brochure, containing information 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 brochure must be written in plain English and follow a fixed format as outlined in the instructions. There are 19 items that must be covered in the Part 2A, which is information on the investment advisory firm.
The SEC's Regulation Best Interest Customer Relationship Summary, or Form CRS, is not currently required to be filed by state-registered investment advisers in our state. However, if your state-registered firm prefers to file a Form CRS, it can be filed as an attachment to Form ADV Part 2 electronically through the Investment Adviser Registration Depository ("IARD"). Dually-registered firms can file a separate Form ADV Part 3 on IARD.
For each individual who will act as an investment adviser representative, who formulates investment advice for a client and has direct client contact or who has discretionary authority over a client’s assets, even if the person has no direct client contact, a Part 2B brochure supplement must be completed and uploaded to IARD. The Part 2B brochure supplement for each advisory person who will deal with a client’s account must be given to that client.
No supplement is required for a 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. You don't need to provide each client with supplements on all investment adviser representatives of the firm unless each of them meets the above criteria for each client.
Blank templates for the new Form ADV Part 2 are available on the NASAA website for free download and use by investment advisers on the NASAA Form ADV webpage.
Section DFI-Sec 5.05(8)(a), Wis. Adm. Code, 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 client can withdraw from the agreement within five business days without incurring any fees. (If you are using the 5 businessday refusal provision, you cannot charge fees of any kind, regardless of how much work you have done during those 5 days. The client must be allowed to terminate the contract free and clear.)
Item 2 of the Instructions to Part 2A of Form ADV "Preparing Your Firm Brochure" provides that each year a registered investment adviser must (a) deliver, within 120 days of the end of the investment adviser's fiscal year, to each client a free updated brochure that either includes a summary of material changes or is accompanied by a summary of material changes, or (b) deliver to each client a summary of material changes that includes an offer to provide a copy of the updated brochure and information on how a client may obtain the brochure. You must maintain a record indicating when and to whom disclosure documents were sent 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 brochure.
If you have no accounts for whom you provide personal advisory services, you do not need to deliver a brochure.
You should also take care to keep your Form ADV updated so initial and annual offers include accurate information. Section DFI-Sec 5.04(3)(b), Wis. Adm. Code, also requires each investment adviser to file an annual update to its ADV Part 1 on IARD within 90 days of the end of its fiscal year. At a minimum, this update must reflect the current amount of assets under management for those advisers having discretionary authority over client accounts. 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 clients to you. This includes any soft dollar arrangements (non-cash compensation such as research services, use of a vacation condo, etc.) or cash compensation.
Advisers and broker-dealers who enter into wrap-fee accounts with clients must additionally provide a copy of the Part 2A Appendix 1 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.