The Brochure Rule: A Comprehensive Guide
General Requirements
Investment advisers registered under the Investment Advisers Act of 1940 must provide each client or prospective client with a brochure and one or more brochure supplements (17 CFR § 275.204-3). The brochure must contain all the information required by Part 2 of Form ADV, which includes details about the adviser’s business practices, fees, and conflicts of interest (https://www.law.cornell.edu/cfr/text/17/275.204-3).
Delivery Requirements
The current brochure must be delivered to a client before or at the time of entering into an investment advisory contract (17 CFR § 275.204-3(b)(1)). An updated brochure must be delivered annually within 120 days after the end of the adviser’s fiscal year if there are material changes since the last annual updating amendment (17 CFR § 275.204-3(b)(2)). A current brochure supplement must be delivered to each client before or at the time a supervised person begins to provide advisory services to the client (17 CFR § 275.204-3(b)(3)). Prompt delivery of amended brochures or brochure supplements is required if there are changes in disciplinary information (17 CFR § 275.204-3(b)(4)).
Exceptions to Delivery Requirement
Brochure delivery is not required for clients who are investment companies registered under the Investment Company Act of 1940 or receive only impersonal investment advice for which the adviser charges less than $500 per year (17 CFR § 275.204-3(c)(1)). Brochure supplements are not required for certain clients, including those who do not receive a firm brochure, receive only impersonal investment advice, or are officers, employees, or related persons of the adviser who would be considered “qualified clients” (17 CFR § 275.204-3(c)(2)).
Conclusion
The Brochure Rule is an important regulation that helps to ensure that clients of investment advisers have access to the information they need to make informed decisions about their investments. By providing clients with a brochure and brochure supplements, advisers can help to build trust and confidence in their relationships with clients.
Sources
- 17 CFR § 275.204-3 – Delivery of brochures and brochure supplements
- Brochure Delivery Requirements
- Brochure Rule – Definition Series 63
FAQs
What is the Brochure Rule?
The Brochure Rule is a regulation that requires investment advisers registered under the Investment Advisers Act of 1940 to provide each client or prospective client with a brochure and one or more brochure supplements.
What information must be included in the brochure?
The brochure must contain all the information required by Part 2 of Form ADV, which includes details about the adviser’s business practices, fees, and conflicts of interest.
When must the brochure be delivered to clients?
The current brochure must be delivered to a client before or at the time of entering into an investment advisory contract. An updated brochure must be delivered annually within 120 days after the end of the adviser’s fiscal year if there are material changes since the last annual updating amendment.
Who is exempt from the Brochure Rule?
Brochure delivery is not required for clients who are investment companies registered under the Investment Company Act of 1940 or receive only impersonal investment advice for which the adviser charges less than $500 per year.
What is a brochure supplement?
A brochure supplement is a document that provides additional information about a supervised person who provides advisory services to clients.
When must a brochure supplement be delivered to clients?
A current brochure supplement must be delivered to each client before or at the time a supervised person begins to provide advisory services to the client.
What are the penalties for violating the Brochure Rule?
The SEC may impose civil penalties on investment advisers who violate the Brochure Rule.
How can I get a copy of my investment adviser’s brochure?
You can request a copy of your investment adviser’s brochure by contacting the adviser directly.