Form ADV is your financial advisor's report card - and they're legally required to file it with the SEC annually. This document contains everything from fee structures to disciplinary actions. Think of it as a background check that's already been done for you. Most advisors won't hand this over unless you ask, but it's freely available online.
The SEC created Form ADV to protect investors like you. Before making any investment decisions, you need to know who you're dealing with. Has your advisor been sued? Do they have conflicts of interest? Are their fees reasonable? Form ADV answers these questions in black and white. No sales pitch. No sugar-coating. Just facts.
Part 1A is the regulatory filing with basic business info and disciplinary history. Part 2A is the client brochure with fees, services, and investment strategies. Both parts update annually, so you're seeing current information.
For example, if an advisor was fined for misleading clients in 2023, it'll show up in Part 1A. If they charge 2% annually on assets, you'll find that breakdown in Part 2A. Many investors skip this step and rely on smooth sales presentations. Don't be one of them. A quality financial advisor should welcome your due diligence, not discourage it.
1. Access Form ADV Through IAPD
Finding your advisor's Form ADV is easier than checking your Instagram feed. The SEC's Investment Adviser Public Disclosure (IAPD) website is your one-stop shop for advisor background checks. Head to adviserinfo.sec.gov and you're ready to start digging.
Type your advisor's name in the search bar. You can also search by firm name or CRD number if you have it. The system will pull up matching results faster than you can say "fiduciary duty."
Pro tip: Search both the individual advisor AND their firm. You'll get different information from each record.
You'll see two types of records:
- Individual advisor records - Shows personal background, qualifications, and disciplinary history
- Firm records - Reveals business practices, fee structures, and company-wide issues
Both matter. A clean individual record doesn't mean much if the firm has a history of violations.
Advisors managing over $110 million register with the SEC. Smaller advisors register with their state. If your advisor isn't in the IAPD database, they're probably state-registered. Check your state's securities regulator website instead. Most states use similar disclosure systems.
Red flag alert: If you can't find your advisor anywhere, run. Licensed advisors must be registered somewhere.
2. Download Both Parts of Form ADV
Once you find your advisor, download their complete Form ADV. You want both Part 1A (the regulatory filing) and Part 2A (the client brochure).
Part 1A has the juicy stuff - disciplinary actions, business conflicts, and regulatory history. Part 2A explains their services and fees in plain English.
Don't just skim the summary page. The real insights hide in the full documents. Think of it like reading the fine print on a contract - boring but essential.
Quick hack: Use Ctrl+F to search for keywords like "disciplinary," "violation," "complaint," or "settlement." This saves time and highlights potential issues immediately.
3. Check Part 1A Section 11 for Criminal and Regulatory Actions
The disciplinary section of Form ADV is where you'll find the most damaging information about a financial advisor. This is your first stop when vetting any advisor - and where most people should walk away if they find serious violations.
Start with Item 11 in Part 1A, which covers criminal charges, civil proceedings, and regulatory violations. Look for any "Yes" answers to questions about felony charges, investment-related misdemeanors, or SEC violations. Even old violations matter - financial crimes show a pattern of behavior that rarely changes.
Pay special attention to fraud, theft, or securities violations. These aren't parking tickets - they're serious breaches of trust with money. If you see multiple violations or anything involving client funds, move on to the next advisor immediately.
4. Review Customer Complaints and Arbitrations
Customer complaints tell a story that goes beyond simple numbers. Look for patterns rather than isolated incidents - one complaint over a 20-year career might be normal, but five complaints in two years raises red flags.
Pay attention to the nature of complaints. Issues involving unauthorized trading, excessive fees, or unsuitable investment recommendations signal serious problems. Complaints about communication or minor administrative issues are less concerning. The dollar amounts matter too - settlements over $10,000 suggest the advisor's firm took the complaint seriously enough to pay significant money to make it disappear.
Key warning signs to watch for:
- Three or more customer complaints in recent years
- Complaints involving unauthorized trading or churning
- Large arbitration settlements paid by the advisor
- Patterns of similar complaint types
5. Analyze Fee Structure in Part 2A
Your advisor's fee structure tells you everything about how they make money - and how much it'll cost you. Form ADV Part 2A breaks down exactly what you'll pay and why.
Most advisors charge asset-based fees between 0.5% and 1.5% annually. That means on a $100,000 portfolio, you're paying $500 to $1,500 per year. Some advisors also charge hourly rates ($150-$500 per hour) or flat fees for financial planning services.
Look for hidden costs like custodial fees, transaction charges, or minimum account requirements. If an advisor requires a $500,000 minimum but you only have $50,000 to invest, they're not the right fit. Compare what you're seeing to investment platforms with the lowest fees to understand if you're getting fair pricing.
6. Identify Conflicts of Interest
This section reveals how your advisor really makes money - and it's often more than just your fees. Third-party compensation arrangements mean your advisor gets paid by investment companies when they recommend certain products.
Commission structures create obvious conflicts. If your advisor earns 5% for selling you an annuity but nothing for recommending a low-cost index fund, guess what they'll suggest? Product sales incentives work the same way - your advisor might push their firm's proprietary investments because they get bigger payouts.
Key red flags to watch for:
- High commissions on recommended products
- Pressure to use the advisor's affiliated services
- Recommendations that seem to benefit the advisor more than you
- Lack of transparency about how they're compensated
7. Verify Professional Credentials and Experience
Your advisor's credentials tell the real story about their expertise. Form ADV Part 2A reveals education, professional designations, and years of experience in detail.
Look for relevant degrees in finance, economics, or business. Professional designations like CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) show serious commitment to the field. These certifications require ongoing education and ethical standards.
Check their employment history for red flags. Frequent job changes might signal performance issues. Look for experience that matches your needs - retirement planning, investment management, or tax strategies.
Key credentials to verify:
- Relevant education and degrees
- Professional certifications (CFP, CFA, ChFC)
- Years of experience in financial services
- Specialization areas that match your goals
8. Evaluate Investment Philosophy and Approach
Form ADV reveals how your advisor actually invests client money. This section shows their investment strategy, risk tolerance, and decision-making process.
Some advisors focus on low-cost index funds, while others prefer active stock picking. Neither approach is wrong, but it should match your goals. If you want simple, low-cost investing, avoid advisors who push complex products.
Look for red flags like:
- Heavy emphasis on proprietary products
- Promises of guaranteed returns
- Vague descriptions of investment strategy
- Focus on "beating the market" consistently
9. Check Custody and Asset Protection Arrangements
Form ADV reveals who holds your money. This matters enormously for your protection.
Reputable advisors use third-party custodians like Schwab, Fidelity, or TD Ameritrade. You receive statements directly from these firms, not just from your advisor.
Avoid advisors who custody assets themselves unless they're large, established firms with proper insurance and oversight. Bernie Madoff controlled client custody - that's how he ran his Ponzi scheme for decades.
Look for SIPC insurance coverage through the custodian. This protects up to $500,000 per account if the custodian fails. Some firms carry additional private insurance for larger accounts.
10. Make Your Final Decision Based on the Evidence
After reviewing Form ADV, you'll have a clearer picture of your potential advisor's track record and business practices. Start by listing any red flags you found. One minor complaint from years ago isn't a dealbreaker. But multiple violations, recent disciplinary actions, or patterns of customer complaints should make you think twice.
Walk away immediately if you find:
- Recent fraud or theft convictions
- Multiple customer complaints about similar issues
- Refusal to discuss items found in Form ADV
- Fee structures that seem excessive for your account size
Consider digging deeper if:
- Minor violations happened years ago with no pattern
- The advisor openly discusses past issues and lessons learned
- Their specialization aligns perfectly with your needs
- References from current clients are overwhelmingly positive
Don't stop at Form ADV. Check their credentials through FINRA BrokerCheck for additional background information. Look up their firm's rating with the Better Business Bureau.
If everything checks out, schedule a follow-up meeting to discuss your specific financial goals. During this meeting, pay attention to whether they ask detailed questions about your situation or immediately start pitching products.
Remember that choosing a financial advisor is like hiring any professional service. You want someone qualified, trustworthy, and aligned with your goals. Form ADV gives you the tools to make that assessment quickly and confidently.
For those looking to build their financial foundation before working with an advisor, consider exploring investment platforms with the lowest fees or learning how your credit score actually works to strengthen your overall financial position.
Take your time with this decision. A good advisor will respect your due diligence process and welcome your questions about their Form ADV. If they don't, you've learned everything you need to know.
Questions? Answers.
Common questions about Form ADV and financial advisor research
Financial advisors must update their Form ADV annually within 90 days of their fiscal year end. They're also required to update it promptly if any material information changes, such as new disciplinary actions, significant changes in business practices, or updates to fee structures. This ensures you're always seeing relatively current information when researching an advisor.
Past violations aren't automatically disqualifying, but they require careful evaluation. Consider the severity, frequency, and recency of violations. Minor administrative issues from years ago are less concerning than recent fraud charges. Ask your advisor directly about any violations - a good advisor will explain what happened and what they learned. If they're evasive or defensive, that's a red flag. Focus on patterns rather than isolated incidents.
Form ADV is a legal document filed with the SEC, and providing false information carries serious penalties including fines and criminal charges. However, advisors might present information in the most favorable light possible. That's why you should also check FINRA BrokerCheck, state regulatory websites, and search for any news articles about the advisor or their firm. Cross-referencing multiple sources gives you a more complete picture.
Most fee-only financial advisors charge between 0.5% to 1.5% annually on assets under management. For a $100,000 portfolio, that's $500-$1,500 per year. Fees often decrease as account size increases. Hourly planners typically charge $150-$500 per hour. Compare these costs with low-cost alternatives like robo-advisors or platforms like Monefy to ensure you're getting value for what you pay.
Commission-based compensation creates potential conflicts of interest, as advisors may be incentivized to recommend products that pay them higher commissions rather than what's best for you. However, some commission-based advisors still provide good service. The key is transparency - they should clearly disclose how they're compensated and explain why they're recommending specific products. Fee-only advisors eliminate this conflict entirely since they only earn money from your fees, not product sales.