Form ADV Part 3 is part of the Form ADV filing system. It reports information about the investment adviser’s business activities, including types of services, fees and prices, conflicts of interest, the standard of behavior, and legal and disciplinary history. Other essential information on the investment adviser is reported as well. This regulatory document filed by investment advisers to the U.S. Securities and Exchange Commission (SEC) is also known as the Relationship Summary. It highlights the relationship and responsibilities between investment advisers and their customers. The relationship summary is intended to help retail investors decide whether to establish an investment advisory or brokerage connection, employ a specific business or financial expert, or cancel or switch a relationship or specialized service. Form ADV Part 3 is an essential tool for investors looking for a brief yet complete information about their potential advisers. It can also help protect investors from inappropriate recommendations. The Form ADV Part 3 is a two-page document with five mandatory sections, detailed further below. In summary, it emphasizes the SEC’s preference for tiered reporting, which relies significantly on the increased use of hyperlinks and other cross-references than a more detailed disclosure. Firms and investment advisers must include a descriptive portion of their basic information, including their name, SEC registration number, date, and the importance of understanding the fee difference between investment advisory and brokerage services. The introduction section should also clearly indicate free tools available for investors to learn about broker-dealers, investment advisers, and investing on the government’s investor website. This section states that brokerage, investment advising, or both services are available. The primary services, accounts, investments, and any significant restrictions must be listed. Some questions that should be answered in this section are: Details on monitoring, mainly the frequency, material constraints, and typical services, should be clear. The authority regarding investment decisions must also be specified. An additional information portion should direct investors to references to Form ADV Part 2A with more detailed information about the firm’s or adviser’s services. The adviser or firm should disclose the principal fees and costs, asset-based fees, fixed fees, and all other fees or compensations related to the services. Readers should find the answers to the following questions: Potential conflicts of interest, such as proprietary products managed by the firm or adviser, third-party payments and revenue sharing, and affiliated transactions, should be presented. On a related note, investors should know the answer to the following: The firm or adviser must declare the standards of professional conduct relating to their services, like the duty to place clients’ interests before their own and other legal duties. Potential investors should have answers to questions like: This section highlights any legal, regulatory, or other disciplinary histories of the investment adviser or firm that may have occurred in the past ten years. This includes any criminal convictions, civil judicial proceedings, and other relevant information from an investigation by a governmental agency or self-regulatory organization. It should also clearly state whether there is any pending litigation involving the firm or adviser of which investors should be aware. Most readers will be interested in the question: The final section includes additional information, such as up-to-date contact details and a reference where investors can find further details about the advisers. This should also include where investors can request a copy of the relationship summary. Relevant questions for this part include: There are filing and delivery requirements that investment advisers and broker-dealers must comply with to provide investors with a complete Form ADV Part 3: Part 3 of Form ADV must be submitted by investment advisers online through Investment Adviser Registration Depository (IARD). The relationship summary will be made public via the Investment Adviser Public Disclosure (IAPD). Investment advisers must provide a relationship summary to each retail investor before or upon entering into an investment advising contract with the retail investor. Broker-dealers must electronically submit the form using the Web Central Registration Depository (CRD) system maintained by the Financial Industry Regulatory Authority (FINRA). The submission will be made available to the public via BrokerCheck. The timing of filing must be before or at the earliest of the following: recommendation of the type of account, a security-related transaction, or an investment plan involving securities, making a retail purchase order, or establishing a brokerage account for the retail investor. Dual registrants must file a PDF containing the broker-dealer and investment adviser relationship summary and all other requirements through IARD. This filing method is designed to ensure consistent reporting that will appear in both Web CRD and IARD. This will be publicly available through both BrokerCheck and IAPD. Advisers must revise and file the relationship summary by filing and delivery instructions within 30 days if any information needs to be corrected. Investors who are existing clients or customers must be notified of any changes in the revised relationship summary within 60 days of the update. The retail investor might get the updated relationship summary or alternative disclosure. Each amended relationship summary should be given to an existing client or customer. There must be an emphasis on the latest changes by marking the revised language or including a summary of significant changes. Form ADV Part 3 is a critical component of the SEC’s regulatory framework and provides investors with an important source of information that plays a role in helping investors make informed decisions while protecting them from fraud. It summarizes the information about the registered firm and its investment advisers, including their background information, disclosures concerning fees and standards of conduct, disciplinary history, and other necessary details. Firms and advisers must update their relationship summary regularly to reflect any changes or new information that could be material to an investor’s decision-making process. Firms should also consider providing additional supplemental disclosure when relevant. Before choosing an investment advisor, investors should compare their Form ADVs, including the Part 3 relationship summary. In this manner, investors can be confident that they have hired a trustworthy financial advisor.What Is the Form ADV Part 3 Relationship Summary?
Overview of Form ADV Part 3 Relationship Summary
Introduction
Relationships and Services
Fees, Costs, Conflicts, and Standard of Conduct
Disciplinary History
Additional Information
Relationship Summary Filing & Delivery Requirements
Investment Advisers
Broker-Dealers
Dual Registrants
Updating & Amendments to the Relationship Summary
Final Thoughts
Form ADV Part 3 Relationship Summary FAQs
The relationship summary can be found via the IAPD for advisers or BrokerCheck for broker-dealers. Additionally, the relationship summary of firms can be found using the simple search engine available on the website Investor.gov.
Every firm or investment adviser that offers services to a retail investor must file a relationship summary.
Yes, but only within the Form CRS Instructions and the appropriate item. Investment advisers must provide a clear and concise explanation of the duties owed by an adviser and any other disclosure necessary for a retail investor’s understanding of the relationship.
Yes. You can send your relationship summary to new or current retail investors before the compliance date. Suppose a firm wants to deliver a relationship summary to retail investors before the compliance date. In that case, it should post the relationship summary on its public website, comply with the updating and related delivery requirements and file its relationship summary with the SEC.
Amendments to a relationship summary must be made within 30 days of any significantly erroneous information becoming available. Additionally, existing clients or customers must be notified of changes in the amended relationship summary within 60 days of the update.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
