What Form ADV is
Form ADV is the SEC filing every Registered Investment Adviser is required to make, and to update annually. It comes in two parts. Part 1 is structured and machine-readable; Part 2A is the firm's narrative brochure, written in plain English by regulatory requirement.
Both are public. Both are available without an account, without a paywall, and without contact with the adviser, on adviserinfo.sec.gov. The fact that these documents are public is one of the most useful features of the U.S. regulatory regime, and it is underused by prospective clients.
What to read first
There is a section called "Disciplinary Information" in Part 2A. That is the first thing to read. If the firm or any of its management have been the subject of regulatory action, civil action, or criminal charges, it must be described there. The absence of disclosure in this section is meaningful information.
After that, read "Fees and Compensation." This section describes how the adviser is paid, by whom, and how those payments may create conflicts. Pay attention not just to the headline fee but to all the other forms of compensation: trail commissions, soft dollars, referral arrangements, performance fees, and any compensation received from product issuers.
Then read "Other Financial Industry Activities and Affiliations." If the principals have outside business activities or affiliations with broker-dealers, custodians, or product sponsors, it is disclosed here. Outside affiliations are not disqualifying. They are a normal feature of the industry. But they create potential conflicts that the client should know about.
What is harder to read
The "Methods of Analysis" section often reads like marketing language. It is. Adviser brochures are written to be acceptable to regulators and intelligible to clients, but they are also a place to describe the firm's approach in favorable terms.
The most useful read is to compare the firm's stated methods of analysis to the way the firm actually transacts in practice, once an engagement is under way. Discrepancies between the brochure and the behavior are worth raising. Most are minor. Some are not.
