What is the Brochure Rule?
The most important rule regarding disclosure is the Brochure Rule, which requires an IA to provide a written disclosure document to each investment advisory client or potential client. The IA can simply provide a copy of the Form ADV Part II or create a brochure with substantially the same content. The document must include all of the following information:
- Background information of the IA and any IARs
- Services available and the fees for those services, including available discounts
- Disclosure of any compensation received from third parties (such as commissions or referral fees)
- Whether the IA exercises discretion over client funds
- Types of clients for whom advisory services are provided, including any minimum dollar amount of assets to be managed
- Disclosure of any affiliation with a broker-dealer
- Any material legal or disciplinary action that occurred within the last 10 years
- Any financial condition of the IA (such as bankruptcy) that might impair its ability to meet client commitments must also be disclosed if the IA:
- Has discretion over client accounts
- Has custody of client money or securities
- Requires prepayment of more than $500 in fees, more than six months in advance
When must documentation be provided?
- New Clients: The brochure must be provided at least 48 hours before entering into an advisory contract, OR at the time of entering into a contract, if the client has the right to terminate the contract without penalty within five business days.
- Existing Clients: Each year, the IA must deliver (or offer to deliver) its disclosure document to existing clients. Failure to meet disclosure requirements is considered fraudulent behavior.
Exam Tips and Tricks
It is crucial for you to know when the brochure must be given; the timing of this disclosure is frequently tested on the exam.
Special Disclosure Requirements
Financial AdvisorGrowing your client book takes more effort than simply running a radio or newspaper ad.
Managing WealthInvestment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
Financial AdvisorYou can't control how they react to the market, but you can help them understand the reality of the situation.
Financial AdvisorLosing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
Personal FinanceFiring the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
Financial AdvisorThese corrective steps will go a long way toward allowing financial advisors to stand out as being deserving of a referral.
Financial AdvisorFinancial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
Financial AdvisorOne of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
Financial AdvisorFinancial advisors have to carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
InvestingLook at how Facebook's Instant Articles feature works, and how it differs from the new Accelerated Mobile Pages feature from Google and Twitter.