Form ADV is the form used to register an investment adviser, and a tested topic on the NASAA Series 63, 65, and 66 exams. In this video, we break down Form ADV Part 1 and also go through a Series 63, 65, and 66 practice question on the topic to show how it’ll show up on the exam.
If you’re looking for a comprehensive course to pass your FINRA or NASAA exam the first time, try Achievable’s FINRA and NASAA courses. We offer courses with industry leading pass rates for the FINRA SIE, Series 6, Series 7, Series 63, Series 65, and Series 66 exams.
00:00:00 Form ADV is an investment advisors registration form. Of course ADV stands for Advisor and there are multiple parts of Form ADV that you'll need to be aware of for the exam. The first part that you might see some questions on is part one and we'll cover that in this video. The entire purpose of Form Adv Part One. 00:00:20 Is to notify the regulator, whether that's the SEC for federal covered advisor or the state administrator for a state registry advisor. It's to notify the regulators who it is they're regulating. So a lot of this is just identification. Hey, here's who the advisor is, here's what we do, here's where you can find us, here's our primary contact person, etc. Let's go ahead and list out the important components of part one of form Adv. Investment advisors must disclose the basics of their business in this. 00:00:50 Truly is just telling the regulators, hey, here's who we are. Advisors will have to list out their name of their business, their tax reporting number, oftentimes referred to as the EIN, their address and the contact person. Some of these advisors are huge and if we have an advisor that say, has 20,000 employees, might be pretty important for the regulators to know who they should call if they have questions or they have any kind of problems with what they're doing. That's why we need a contact person. The next part would be other jurisdictions. 00:01:20 Regulators want to know where else the advisor may be registered. For example, if we have an advisor applying for registration in South Dakota, the South Dakota state administrator would probably need to know, hey, where else do you do business? If I see something sketchy happening in this state, are there other state administrators that I can call or get in touch with to see if they're seeing the same thing? Third would be the business structure. Is the advisor set up as a corporation? That could be an S Corp or C corporation. Is it a limited partnership? Is a general partnership? 00:01:50 Is it a type of sole proprietorship or is it an LLC? Those are the primary ways that you can form a business, and it's important for the regulators to know what type of business structure they're dealing with. Next would be business dynamics, and there's a lot that can fit under here, the first being firm executives. 00:02:08 These are typically the officers and directors or partners of the firms that are being registered. What type of products or services will this firm offer The amount of assets under management? That's pretty important too. Knowing the scope of the businesses they're regulating may help them efficiently regulate the advisors in a better way if the advisor maintains custody. Custody, in plain terms, is when a person has direct access to or actually manages or holds their customers assets and. 00:02:38 Their possession. Now, a lot of times this is a service offered by broker, dealers and banks. Investment advisors oftentimes try to avoid maintaining custody because it comes with a lot of rules and regulations that you'll learn about later in the achievable materials. But for right now, all you need to know is that if an advisor plans on maintaining custody, they will list this in Form Adv. Part One. There are also some other parts of Form Adv. It is disclosed in that you'll learn about later. The last big component of Form Adv. Part One would be the businesses. 00:03:08 History. The regulators are looking to identify things like what are your qualifications in terms of like financial qualifications, legal qualifications. Later in this material you learn in order to be registered as a firm in the securities business, you have to meet certain financial requirements. Those would be listed here and legal requirements would be things like are you set up legally as a business, have the people running your organization, passed the right licensing exams, etc. Second would be any kind of legal actions ruled against the firm or its advisory. 00:03:38 Affiliates. An advisory affiliate is any current employee except for those in clerical roles. All officers, directors and or partners and any other person controlling the firm in some way, shape or form. So basically an advisory affiliate is anyone either working for the company in some kind of securities business capacity or anyone making decisions at a high level like your officers, directors, partners, etc. Back to what has to be disclosed in part one. Any legal actions ruled against the. 00:04:08 Firm or its advisory affiliates. A legal action would be something like A client sues their advisor because they believe that they were given improper investment advice, and the court ruled for the suing client, meaning that the firm lost that lawsuit. We're looking for something like that, or the third one being any criminal events related to the firm or its advisory affiliates. Of course, when you're registering with a new regulator, they want to know your history. They want to know if you have any skeletons in your closet. Firms have to be very transparent with. 00:04:38 With any type of criminal history related to the firm or its employees, that is not only disclosed to the regulators, but that's also disclosed to clients on other parts of form ADV. The firm also must disclose any type of regulatory events related to its business. An example this would be something like the firm had its license revoked by another state administrator 15 years ago. Anytime there's a revocation or suspension or any other type of regulatory event, that's meant as a punishment against that. 00:05:08 Firm that's something that will also be disclosed on Form ADV Part one. Now that we've gone through all the important components of Form ADV Part One, let's take a look at a practice question to see how this topic might be picked apart on the actual exam OK. Questions on the board. All of the following disclosures are made by investment advisors on Form ADV Part one, except go ahead and pause the video if you want to try to answer the question and then we'll reconvene and pick it apart together, OK. 00:05:38 Hopefully you know the answer. Let's go back up to the question and be 100% crystal clear on what we need to be looking for in the answers. So all the following disclosures are made by investment advisors in Form Adv part one except. So with the accept there we have 3 disclosures at the bottom that are made and one that is not. Basically we could retool this to be what is the one thing down in the answers that is not required to be disclosed on form ADV part one for these questions that have accept. 00:06:08 Or have double negatives in them. I really recommend that you're 100 clear on what you're looking for before you get to the answers. That way you know exactly what you're looking for. When you get to the answers, 1st answer at the bottom. 00:06:20 The firm's EIN, the EIN stands for Employer Identification Number. This is basically the Social Security number for businesses in the United States. Tax reporting numbers have to be disclosed on form Adv Part One. So we can go ahead and eliminate this as one of our wrong answers. We'll go to the right, the primary contact person. Yes, of course. It's really important that firms disclose who the regulators should call should they have an issue or just need to get in touch with someone at the firm. This is one of the biggest things. 00:06:50 That's disclosed on Form ADV part one, so we'll eliminate that as one of our wrong answers. Let's go to the bottom left now outside business activities of investment advisor representatives exercising discretion, we talked about some instances where any type of criminal history related to an advisory affiliate or any type of legal history where there was a ruling against an advisory affiliate that had to be disclosed on Form ADV part one, but an outside business activity would be any type of employment. 00:07:20 Payment or compensation a registered person received outside of the firm they work for. For example, I'm an investment advisor representative and I happen to drive Uber on the weekend. The compensation received from Uber would be considered an outside business activity. This is not something that would be disclosed on Form ADV Part one, although it would be disclosed in another part of form ADV, in particular Form ADV Part 2B, which we have not yet discussed up to this point in the material That is what we call the brochure supplement. 00:07:50 You will learn more about that later in our material, but that is likely our right answer because this is not something that is in form ADV part one, just to double check, let's go to the last answer, make sure we can eliminate it and then feel good about the answer from there. The last answer, the amount of assets under management, yes, this is something that advisors must disclose on form ADV part one. The main purpose again is to tell the regulator what the scope of their business is. Regulators will approach smaller advisors in a different manner. 00:08:20 That they would. Larger advisors have more resources and funds. It's important they know how big the businesses are that they regulate. And that is another thing that is disclosed on Form ADV Part one, and that should put it all together. The whole point of Form Adv Part One is to notify the regulators who they are regulating. Who is this advisory firm you're regulating? What's their history? How do I find them? Who should I contact if I have questions, etc. In the one thing up here that didn't relate to any of that? 00:08:47 Is our right answer. The outside business activities of investment advisor representatives exercising discretion goes in a different part of form ADV. And doesn't relate specifically to the firm notifying the regulators who they are.