Questions and Answers Regarding Form ADV Part 2

1. What is Form ADV used for, and how has it changed?

Massachusetts-registered investment advisers use Form ADV to register with the Massachusetts Securities Division, and to subsequently amend those registrations as necessary. Investment advisers registered with the United States Securities and Exchange Commission (the "SEC") also use the same form. Most of the recent changes enacted by the SEC relate to the "new" Part 2 of the Form. There are also changes to certain instructions and the definitions of terms found in the General Instructions to Form ADV (the "General Instructions").

2. How has the Form ADV Part 2 changed?

In the past, Form ADV Part II ("Part II") required advisers to respond to a series of multiplechoice and fill-in-the-blank questions organized in a "check-the-box" format, supplemented in some cases with brief narrative responses on Schedule F. "Part II" will now be called "Part 2". Part 2 is being changed so that, rather than a check-the-box format, each adviser will be required to provide clients with a narrative that describes the adviser"s business, identifies conflicts of interest, discloses disciplinary history, provides information on certain supervised persons, and other information. These changes will affect all Massachusetts-registered investment advisers. Massachusetts-registered investment advisers should consult the General Instructions for Part 2 to Form ADV for details on how to respond to the questions.

3. What Glossary Terms Found in the General Instructions have changed?

Although several defined terms have been added to account for new terms used in the new Form ADV Part 2, the only existing definition that has changed is the definition of "custody". This definition change is of particular importance to Massachusetts-registered advisers as it is incorporated by reference into the minimum financial requirements found in the Code of Massachusetts Regulations at 950 C.M.R. 12.205(5). Please consult the definition to determine whether an investment adviser would be deemed to have custody and therefore potentially be required to comply with the minimum financial requirements found at 950 C.M.R. 12.205(5).

4. How is the "new" Part 2 organized?

Form ADV Part 2 contains two parts:

  • Part 2A is called the "Brochure". The Brochure requires advisers to create narrative statements containing information about the advisory practice. The information contained in the Brochure relates to a registrant"s investment advisory business, the fees and compensation it receives, a description of the type of clients it generally services, and other information. All Massachusetts-registered investment advisers will be required to complete Part 2A and update it at least annually.
  • Part 2B is called the "Brochure Supplement". The Brochure Supplement requires advisers to create narrative statements containing information about certain "supervised persons". These supervised persons are generally those investment adviser representatives ("IARs") that provide investment advice and interact with clients, or have discretion over client accounts. Because the Brochure Supplement is specific to a firm"s IARs, a firm may have more than one supplement. All Massachusetts-registered investment advisers will be required to complete Part 2B and update it at least annually.

5. I wish to register as an investment adviser. Which form do I use?

All investment advisers applying for registration in Massachusetts will be required to use the "new" Form ADV (including the new Part 2) as of January 1, 2011. All filings will continue to be made electronically using the Investment Adviser Registration Depository ("IARD") system.

6. I am a Massachusetts-registered investment adviser. Must I use the "new" Form ADV (including the new Part 2)?

Yes. Each Massachusetts-registered investment adviser will be required to file their next annual updating amendment using the "new" Form ADV (including the new Part 2) as of their fiscal year ending on or after December 31, 2010. Annual updating amendments will continue to be required within ninety (90) days of the end of the registrant"s fiscal year. See 950 CMR 12.205(6)(a).

For example, if an adviser"s fiscal year end is December 31, 2010, that adviser will be required to update its Form ADV (including the new Part 2) by March 31, 2011. When an adviser submits its annual updating amendment, it must update its responses to all items. All updates will continue to be made electronically using the IARD system.

Until an adviser is required to file its annual updating amendment, it may make amendments to the "old" Part II to disclose any material changes to its business. All amendments will continue to be made electronically using the IARD system (see below).

7. To whom must I deliver Part 2A (Brochure) and 2B (Brochure Supplements)?

After updating to the "new" Part 2, an adviser will begin to deliver Form ADV Part 2 in the same manner as the "old" Part II. Similarly, an adviser will begin to offer in writing to deliver the "new" Part 2 annually to existing clients in the same manner as was done with the "old" Part II. See 950 CMR 12.205(8)(a). Investment advisers with more than one Brochure Supplement should consult the "Instructions for Part 2B of Form ADV: Preparing a Brochure Supplement," to determine which Brochure Supplement(s) that it should provide to its clients.

8. How do I file my Form ADV?

Massachusetts-registered investment advisers will continue to complete and update Form ADV electronically using the Investment Adviser Registration Depository (IARD). See 950 CMR 12.205(2)(a)(1). Questions regarding this process may be directed to the FINRA Helpdesk at 240-386-4848.

9. Where can I get more information on completing Form ADV, electronic filing, and the IARD?

NASAA has information on the "new" Form ADV (including the new Part 2) including modifiable forms and guidance on how to complete them. Visit the NASAA website at http://www.nasaa.org/industry___regulatory_resources/investment_advisers/758.cfmfor more information.

The SEC provides information about its rules and the Investment Advisers Act of 1940 on its website at: http://www.sec.gov/iard. Information on completing Form ADV can be found in the General Instructions to Form ADV. A copy of the Form ADV and the General Instructions can be found on the SEC website at http://www.sec.gov/about/forms/formadv.pdf.

FINRA provides information about the IARD and the electronic filing process on the IARD website at http://www.iard.com or by calling 240-386-4848.

If you have any questions regarding the new Form ADV and its applicability to Massachusetts-registered investment advisers, contact the Massachusetts Securities Division at 617-727-3548.