What Is the Brochure Rule?
The brochure rule is a requirement under the Investment Advisers Act of 1940 that requires investment advisors to give a written disclosure statement to their clients. The rule, formally known as rule 204-3, applies to all federally registered investment advisors and determines times during the advisory cycle to give the materials.
How the Brochure Rule Works
The U.S Securities and Exchange Commission determines two manners by which an advisor can fulfill the brochure rule:
The advisor can give such disclosure by giving the client Form ADV Part 2A (brochure) and Part 2B (brochure supplement).
The advisor can give an actual brochure containing a similar information found in Form ADV Part 2A and 2B.
What Is Included in the Brochure
The document must incorporate the accompanying information:
- Foundation information of the advisor
- Services accessible and the fees for those services, including accessible limits
- Disclosure of any compensation received from outsiders, (for example, commissions or reference fees)
- Whether the advisor practices carefulness over client reserves
- Types of clients for whom advisory services are given, including any base dollar amount of assets to be made due
- Disclosure of any connection with a representative vendor
- Any material legal or disciplinary action that has happened inside the past 10 years
- Any financial condition of the advisor (like bankruptcy) that could impede its ability to meet client commitments must likewise be unveiled if the advisor:
- Has prudence over client accounts
- Has custody of client money or securities
- Requires prepayment of more than $500 in fees, over six months in advance
Your financial advisor ought to give you a brochure document consistently on the off chance that they meet the requirements for giving one.
Who Should Receive a Brochure
The brochure rule states that the required information must be given to new clients something like 48 hours before going into an advisory contract. Advisors must give existing clients another brochure consistently. Inability to give the brochure is viewed as fraudulent behavior.
SEC-registered advisors are not required to deliver a brochure to possibly (I) clients that are SEC-registered investment companies or business development companies; or (ii) clients who receive just unoriginal investment advice from the advisor and who will pay the advisor under $500 each year.
A SEC-registered advisor isn't required to deliver a brochure supplement to a client (I) to whom it isn't required to deliver a brochure, (ii) who receives just generic investment advice, or to (iii) certain officers and employees of the advisor itself.
- New clients must receive the brochure document in something like 48 hours of signing an advisory contract.
- Foundation information, disclosure of compensation, fees, and different things must be listed in the brochure document.
- The Investment Advisers Act of 1940 requires investment advisors to give a written disclosure statement to their clients.
- The U.S. Securities and Exchange Commission determines two different ways an advisor can meet the brochure rule.
- Advisors offering unoriginal investment advice and are paid under $500 each year don't need with comply to the brochure rule with a client.