Would you want to know if your financial advisor was a criminal? What about if they’d ripped off another client? Or if they’ve been incentivized to sell you products that aren’t in your best interest?
Of course you would. And that’s why financial advisor disclosures came into being — and why you should care about them.
Disclosures can also show you exactly how (and how much) you’re paying your advisor. Unfortunately, it’s not as straightforward as you might think. Here are the major financial advisor disclosures, what they cover, why they matter, and where you can find them.
[See: 7 of the Best Stocks to Buy for 2017.]
What do financial advisors disclose and how? Form ADV is one of the more revealing disclosures that advisors must file with either the Securities and Exchange Commission or their state, depending on their location. Both registered investment advisory firms and advisors themselves are required to file them.
Form ADV Part 2A pertains to the advisory company, and is required to be provided to clients in a brochure before they sign on.
“It contains information regarding the firm’s owners, the services offered, the fees the firm charges, legal and/or disciplinary issues the involving the firm, and all conflicts of interest,” says Mario Chilin, chief compliance officer of EP Wealth Advisors in California.
Form ADV Part 2B pertains to the financial advisors themselves, who must also provide it as a brochure to potential clients before they enter into an agreement. It describes the education, disciplinary history and business experience of the professional.
The other major disclosure form for financial advisors is Form U4, which is used by broker-dealers and investment advisors, and includes similar information.
However, the information here can be a little juicier.
Not only does it contain disciplinary and work history, it contains criminal and civil judicial records. Regulatory and customer disputes would also be on here, showing the allegations, dates, resolutions and penalties your advisor may have lurking in their past. Advisors have to submit their fingerprints to the Financial Industry Regulatory Authority, or FINRA (you can’t see those, sorry), for this form.
Other disclosures are generally more minor and commonplace.
Prospectuses, oral disclosures, and initial service agreements are all fairly routine. Before signing on with an advisor you should ask for an itemized list of all costs, fees, and commissions, direct or indirect, that you’ll be charged, says Benjamin M. Greenfeld, chief investment officer of Waldron Private Wealth in Bridgeville, Pennsylvania.
“This list of fees should be included in your agreement with the advisor so that there can be no misunderstandings down the road,” Greenfeld says.
As for Form ADV and Form U4, just knowing about them doesn’t do much good — you need to know how to access them!
[Read: 7 Times You Need to Talk to a Financial Advisor.]
How to find financial advisor disclosure documents. Both ADV Part 2A and Part 2B must be delivered as brochures to clients, but if you want to do some digging, or are afraid to ask your advisor or financial management firm for copies, you can find the filings online.
You can search by your advisor’s name, an identification number called the CRD#, or the management firm name on the Investment Adviser Public Disclosure (IAPD) website, found at www.adviserinfo.sec.gov, to find Form ADV.
That’s the good news.
The bad news? When it comes to big advisory firms like Raymond James or Merrill Lynch, these forms can run hundreds of pages long. Sadly, pages of fines and court cases are pretty common with the industry’s biggest firms. If you find a small-time advisor with a litany of conflicts and rulings against it, however, you’re far more justified in your concern.
“At a minimum, an investor should review the firm’s Form ADV Part 2A and the Part 2B of their advisor with whom they’ll work and research them on the IAPD website,” Chilin says. “A quick Google search is always a good final check.”
Form U4 can be found on a different website, run by FINRA. Since even your advisor’s fingerprints and Social Security Number shouldn’t be plastered all over the internet, you won’t find the original Form U4 in your search results, just a summary of the non-redacted information.
The website, called BrokerCheck, can be found at brokercheck.finra.org.
At the end of the day, if you can’t find the necessary financial advisor disclosures on either of the above websites, if you don’t have any brochures or emails, if Google (ticker: GOOG, GOOGL) searches have failed you, and if your advisor has rebuffed your requests for transparency, you need a new advisor.
[Read: 3 Things to Know About Finding a Financial Advisor.]
The bottom line. Frankly, most advisors and financial management companies should be open to and understanding of requests for transparency. It’s in their own interest to be trusted and forthcoming with their clients.
“We feel as though 90 percent of our job is educating the client so that they’re comfortable in working with us, and comfortable making decisions regarding their financial goals and the path to achieving those goals,” says Michael Zovistoski, managing director at UHY Advisors New York.
You should be able to know anything and everything (within reason!) you want to know about your financial advisor. From the basics like what you’re invested in and how they’re getting paid to the behind-the-scenes data regarding complaints and conflicts of interest, it’s all potentially germane to your own financial goals.
And now that you know where to find it, it’s all yours to scour.
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From Form ADV to the U4: Financial Advisor Disclosures to Know originally appeared on usnews.com
