Form ADV
Form ADV is the uniform registration document that investment advisers registered with the SEC or state securities authorities must file, providing detailed disclosure of the adviser's business practices, fees, potential conflicts of interest, disciplinary history, and investment strategies. It consists of two parts: Part 1 (machine-readable regulatory data) and Part 2 (the client-facing brochure, written in plain English), and must be updated annually and upon material changes.
Key takeaways
- All investment advisers managing $100 million or more in assets under management (AUM) must register with the SEC using Form ADV; smaller advisers generally register with state securities regulators, with thresholds varying by state.
- Part 2A of Form ADV (the 'brochure') must be delivered to prospective and existing clients in plain-English narrative form, disclosing fees, investment strategies, risks, conflicts of interest, and disciplinary history—and updated annually with material changes highlighted.
- Part 1A contains detailed information about the adviser's business, ownership, clients, employees, financial industry affiliations, participation in client transactions, and custody arrangements, and is filed electronically through the SEC's IARD (Investment Adviser Registration Depository) system.
- Hedge fund managers advising private funds are subject to Form ADV filing requirements if they are registered investment advisers; the Dodd-Frank Act of 2010 eliminated the 15-client exemption that had previously allowed large hedge fund managers to avoid SEC registration.
- Investors and the public can access Form ADV filings through the SEC's EDGAR database or the IAPD (Investment Adviser Public Disclosure) system, providing transparency into adviser business practices and conflicts of interest.
Explanation
Form ADV is the cornerstone of the investment adviser regulatory framework in the United States, serving simultaneously as the registration application for new advisers, the annual report for existing registrants, and the mandated disclosure document to clients. Its design reflects the fundamental disclosure-based philosophy of U.S. securities regulation: rather than prescribing specific investment strategies or business models, the regulatory framework requires transparency about what advisers do, how they are compensated, and where their interests may diverge from those of their clients, empowering investors to make informed decisions.
The two-part structure of Form ADV reflects its dual purpose. Part 1, filed electronically through the Investment Adviser Registration Depository (IARD), is primarily a regulatory and supervisory tool. It collects standardized, machine-readable data about the adviser's business that enables the SEC's Office of Compliance Inspections and Examinations (OCIE, now the Division of Examinations) to select examination targets, identify risk concentrations, and monitor industry trends. Part 1 includes information about the adviser's organizational structure, ownership, disciplinary history, types of clients and services, fee arrangements, custody practices, and any affiliations with broker-dealers, banks, or other financial entities. This section is filed in a checkboxes-and-tables format that facilitates automated analysis.
Part 2—specifically Part 2A (the Brochure) and Part 2B (the Brochure Supplement for supervised persons)—is the client-facing disclosure document written in clear, concise, plain English. The SEC's regulations specify the required topics to be covered in the brochure, including the adviser's services and fees, types of clients served, investment strategies and their associated risks, disciplinary information, conflicts of interest, brokerage practices (including any soft dollar arrangements), review procedures, client referrals, custody arrangements, and financial industry activities. The brochure must be updated at least annually within 90 days of the fiscal year end, and material changes must be communicated to clients either through an updated brochure or a summary of material changes.
For hedge fund managers, the regulatory landscape around Form ADV changed dramatically following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Prior to Dodd-Frank, many large hedge fund managers exploited a private adviser exemption that permitted advisers with fewer than 15 clients (counting each fund as a single client) to avoid SEC registration. Dodd-Frank eliminated this exemption and required most hedge fund managers with at least $150 million in AUM to register with the SEC. This brought thousands of previously unregistered hedge fund advisers into the regulatory fold, significantly expanding the SEC's visibility into the hedge fund sector.
Form ADV Part 1 contains a dedicated section (Schedule D) for private fund advisers, requiring disclosure of each private fund's name, AUM, gross/net performance, fund type, dominant strategy, leverage, related persons, fund service providers (administrator, auditor, prime broker, custodian, and marketers), and investor composition. This section provides the SEC with comprehensive structural data about the private fund industry, informing systemic risk monitoring and policy development. The granularity of this disclosure has increased markedly over time, with recent updates requiring advisers to disclose social media accounts, assets under management by client type, and the use of model portfolios.
Example
A newly registered SEC-registered investment adviser managing a $500 million long/short equity hedge fund must file Form ADV within 45 days of exceeding the $150 million registration threshold. In Part 1A, the adviser discloses its two managing members as principal owners, its single private fund (the hedge fund), $500 million in regulatory AUM, and its affiliated broker-dealer. In Part 2A, the adviser writes a plain-English brochure covering: its long/short equity strategy targeting undervalued mid-cap stocks; management fees of 1.5% annually on committed capital; performance fees of 20% of net profits above a 5% hurdle rate; the risk factors specific to long/short equity strategies (short squeeze risk, leverage risk, market volatility); the conflict of interest arising from the affiliated broker-dealer that executes some of the fund's trades; and the adviser's disciplinary history (none). The brochure must be delivered to each prospective investor before or at the time of entering into an advisory contract.
Related terms
Auditor Broker Dealer Cap Committed Capital Core Principle Custodian Emir Equity Hedge Exemption Hedge Fund Hurdle Rate Leverage