Assuming you wouldn’t hand over your house key to a stranger on the street, why turn over critical financial decisions to someone you don’t know very well? If you decide to hire a financial adviser based solely on “feel,” rather than their experience, expertise, and disciplinary background, you might as well have handed over the key to the next passerby. While personality, style and overall “fit” should play a role in choosing a financial adviser, make sure and do your research using a few key documents to fully understand the adviser’s business practices and avoid the regret that comes with making the wrong decision.
Every year at this time, advisers across the country are reviewing and revising their Firm Brochure Part 2A Form ADV, Firm Brochure Supplement Part 2B Form ADV, Privacy, Confidentiality and Proxy Voting Disclosures. These documents describe the firm’s business practices, its key employees and their credentials. They also serve as annual updates to the various regulatory agencies that oversee the financial services industry. For individuals seeking an adviser or considering a change to a current relationship, this information is a valuable resource. Regardless of where someone may fall in this spectrum, annual adviser disclosures serve a critical role in helping consumers know more about the firm and the persons they are working with and whether they meet certain standards.
The Firm Brochure – The Consumer’s “Go-To” for Firm Information
If you are looking for a comprehensive summary that describes an advisory firm and their business practices, the place to begin is the Firm Brochure Part 2A Form ADV (Brochure). This summary explains every important aspect of an investment advisory firm. While the document can be reflective of the firm’s style, the Brochure must be written in a way that is easy to understand and must cover specific areas of the firm’s business model.
In this summary, you will find an overview of the firm and the amount of assets managed. Fees and compensation are covered, as are the types of clients served. Explanations are given that allow the reader to get an understanding of how a firm goes about getting to know their clients and the services they will receive. Disciplinary and legal actions, industry affiliations and other business activities are disclosed. These can serve as a starting point for further research on the Securities and Exchange website for researching firms and individual advisers.
Operationally, the Brochure tackles topics such as what type of statements the client can expect to receive and how frequently. Clients interested in holding the companies they invest in to certain social or environmental standards, can learn how advisory firms vote proxies on behalf of their clients. Specifics on securities’ trading, custodians the firm uses and whether the firm pays for research are also found here, and used to be better informed prior to meeting with the adviser or to validate whether the firm is a good fit.
Adviser Credentials and Disciplinary Actions
Acting as a complement to the Brochure is the Brochure Supplement Part 2B Form ADV (Supplement). The Supplement provides the reader with background information on employees serving in client and investment management roles. The Supplement helps the reader understand what certain financial credentials mean and the requirements of those that hold them. Most readers will focus on the biographical aspect of this summary and may even learn they share similar education or employment backgrounds.
Similar to the Brochure, the Supplement provides important information about employees who have been disciplined or are currently involved in disciplinary actions, if they are engaged in other business activities that might cause conflicts of interest and whether they receive compensation from other sources. While being engaged in other business activities or receiving compensation from other sources isn’t always bad, it is important to understand the specifics and how it may affect the services they provide for you. If the adviser is engaged in other business activities, it could potentially take attention away from you and your needs, or it might mean you end up working with another associate with less experience. If compensation is received from other sources, ask where it comes from and what prompts the compensation. Is it due to certain investments being selected for your portfolio or the result of a referral fee the adviser may be obligated to pay? Either way, if an inherent conflict of interest exists, it is important to know that it could potentially influence an adviser’s recommendation away from what is in your best interest.
Wondering where to find these crucial details? Refer to the resources below.
The first and easiest place to look for information about a firm and its key employees is their website. While typically designed to make their services appeal to the reader, websites often include the Brochure and the Supplement. It isn’t always easy to find but interested individuals can search key words or tabs such as disclosures, compliance, governance, or ADV. Clearview Wealth Management’s Brochure and Supplement can be found by following the link below and opening the PDF file at the bottom of the page:
Several years ago, the U.S. Securities and Exchange Commission (SEC) and state regulatory agencies took steps to make more information available online. Another place to find the Brochure, Supplement and adviser information is on a website sponsored by the SEC in partnership with the Financial Industry Regulatory Authority (FINRA). This site provides individuals interested in researching a firm or an adviser with multiple options including credential definitions and where to find your respective state securities regulator. The North American Securities Administrators Association is another source that offers information on how to contact state securities regulators at www.nasaa.org. Residents of North and South Carolina can also go directly to the respective state websites. For North Carolina residents, the web address is www.secretary.state.nc.us/Sec/. South Carolina residents can find information at www.scag.gov/scsecurities.
Making the Right Choice
Picking an investment adviser that is right for you can be a difficult task but it can be made easier with the right tools and resources. More information is available than ever before and it is crafted in ways that are easier to read and understand. Take the time to fully vet this important decision. Be persistent and methodical with due diligence. Don’t rely solely on a firm’s website to gain insight and perspective. Ask the firm under consideration for their Brochure and Supplement in advance and review both thoroughly before making a final decision. If more comfortable doing research online, take advantage of these important documents and information that is readily available online at the government resources listed above. Doing so will help make sure you don’t turn the keys to your financial future over to a stranger, but rather someone with a business practice and compensation structure that has your best interests in mind.