BY STACEY GODWIN, CHIEF COMPLIANCE OFFICER
If you’re a MONTAG client, you recently received notification about our annual Form ADV update. If you’re not a client, you may be wondering what in the world an ADV is. The Form ADV is a document that is required for advisory firms registering with the Securities and Exchange Commission (SEC). Not only is this form a requirement for advisers to do business, it also serves an important informational role to investors.
The ADV is broken down into two separate components. Part 1 is a straightforward public disclosure of the adviser basics such as ownership structure, client and staff information, business practices and affiliations and any disciplinary actions involving the firm or its employees. It’s a set of basic check boxes which the adviser completes about various parts of its business. The ADV Part 2 is a much longer narrative piece which clients and potential investors should read carefully. It includes details about all facets of a firm including the types of services offered, how fees are charged, conflicts of interest that may exist, firm management information and many other things. Part 2 also includes key investment personnel biographical information so you’ll know more about the people making important financial decisions on your behalf. Firms are required to update the ADV annually with any pertinent changes and notify clients of these material changes accordingly. The ADV is also available in its entirety on the SEC’s website.
Prospective clients should always ask to see this important document when interviewing advisers. So, what should you look for when reviewing a firm’s ADV? First, any disciplinary actions against the firm or key personnel members should raise a red flag. Probably the second most important thing to look for are conflicts of interest. Some advisers have parent or subsidiary companies which sell ancillary services and receive compensation accordingly. The examination of a firm’s fee structure is equally important when reviewing the ADV Part 2. Details about the amount of fees charged and the various sources of these fees can be very helpful since all revenue source must be disclosed within this document. Finally, when reviewing the types of services offered, it’s important to evaluate whether your needs match what’s being offered and disclosed in the ADV.
When interviewing multiple advisers, it’s helpful to compare the ADV Part 2 for each firm you may be considering. This exercise will help you determine the best fit for your personal financial needs and identify key differences in the various offerings. Getting familiar with the information contained can also help you formulate a list of questions for the advisers you’re interviewing and considering. Going through this exercise can result in more productive meetings and a confident and informed decision about who to hire.
Choosing an investment adviser is not something to be taken lightly. The Form ADV should play an important role in making this decision. If you would like more general information about the Form ADV or are interested in learning more about MONTAG and would like a copy our ADV, please don’t hesitate to contact us.