Overview
Form ADV is the uniform form used by investment advisers to register with both the SEC and state securities authorities. For trading platforms, robo-advisers, and algorithmic trading firms, Form ADV is not just a bureaucratic requirement—it's a comprehensive disclosure document that forms the foundation of your compliance program.
This guide provides item-by-item instructions specifically tailored for trading platforms, including sample language, common pitfalls, and filing procedures through the Investment Adviser Registration Depository (IARD) system.
⚠ Critical Filing Deadlines
Form ADV must be filed within 90 days of fiscal year-end for annual updates. New advisers must file before conducting any advisory business. Missing deadlines can result in being "out of registration" status—a serious compliance violation.
Form ADV Part 1A: Item-by-Item Instructions
Part 1A is the regulatory filing that contains basic information about your firm, your business operations, and your disciplinary history. It's filed electronically through IARD and becomes public information.
Item 1: Identifying Information
Item 1 Checklist
- Legal name exactly as it appears on formation documents
- All DBAs (doing business as names) and trade names
- CRD number (assigned upon initial filing)
- SEC file number (801-xxxxx for SEC-registered firms)
- Principal office address (cannot be a P.O. Box)
- Website URL and social media handles
- Contact person name, title, and contact information
💡 Trading Platform Tip
If you operate under multiple brand names (e.g., a consumer-facing app name that differs from your corporate name), list all variations in Item 1.F. The SEC wants to know all names under which you conduct advisory business.
Item 2: SEC Registration
Item 2 establishes your eligibility for SEC registration. You must check the appropriate box:
- 2.A.(1): SEC-registered adviser with $100M+ AUM
- 2.A.(2): Mid-sized adviser ($25M-$100M) in state that doesn't require registration
- 2.A.(3)-(12): Various other registration bases (pension consultants, multi-state advisers, etc.)
| AUM Level | Registration Authority | Form ADV Filing |
|---|---|---|
| Under $25 million | State only | File with state(s), not SEC |
| $25M - $100M | Generally state | SEC if state doesn't register advisers |
| $100M - $110M | May choose SEC or state | Optional SEC registration |
| Over $110 million | SEC required | Must register with SEC |
Item 3: Form of Organization
Identify your legal structure. Common forms for trading platforms:
- Corporation - C-corp or S-corp (specify state of incorporation)
- Limited Liability Company - Specify state of organization
- Partnership - Limited Partnership or Limited Liability Partnership
Item 4: Successions
Only complete if you're succeeding to the business of another investment adviser (due to merger, acquisition, or reorganization). Most new registrants skip this item.
Item 5: Information About Your Advisory Business
This is one of the most important items for trading platforms. It requires detailed information about your advisory services.
Item 5 Key Requirements
- Number of employees (5.A)
- Firm locations and offices (5.B)
- Client count by category (5.D)
- Assets under management by category (5.F)
- Advisory activities checklist (5.G)
- Participation in wrap fee programs (5.I)
Item 5.D & 5.F: Client and AUM Reporting for Trading Platforms
Trading platforms must carefully categorize clients and calculate AUM:
| Client Category | Examples for Trading Platforms | AUM Calculation |
|---|---|---|
| Individuals | Retail users of robo-adviser or auto-trading platform | Market value of managed accounts |
| High Net Worth Individuals | Accredited investors using premium tier | Market value of managed accounts |
| Pooled Investment Vehicles | Proprietary funds you manage | Gross asset value |
| Pension/Profit Sharing Plans | 401(k) plans using your platform | Plan assets under management |
| Other Investment Advisers | Sub-advisory relationships | Market value of sub-advised assets |
⚠ What Counts as "Regulatory AUM"?
Only include assets where you have discretionary or continuous management authority. If you merely provide signals or recommendations that users implement themselves (non-discretionary), those assets typically don't count toward regulatory AUM, though you must still report the number of clients.
Item 5.G: Advisory Activities
Check all boxes that apply to your trading platform's activities:
- (1) Financial planning services - If you provide holistic planning alongside trading
- (2) Portfolio management for individuals - Core robo-adviser activity
- (3) Portfolio management for pooled investment vehicles - If you manage a fund
- (4) Portfolio management for businesses - Corporate treasury management, etc.
- (8) Selection of other advisers - If you allocate to third-party managers
- (21) Educational seminars/workshops - Webinars and client education
- (22) Other - Specify any unique services (e.g., "Algorithmic trading strategy execution")
Item 6: Other Business Activities
Disclose any other business activities you engage in. Common for trading platforms:
- Software licensing - If you license trading software separately from advisory services
- Data sales - Selling market data or analytics
- Educational products - Courses, books, or training materials
- Broker-dealer activities - If you're also registered as a BD (dual registration)
⚠ Conflicts of Interest Alert
Any other business activities create potential conflicts of interest that must be disclosed in Part 2A. For example, if you sell proprietary software, there's a conflict in recommending that software to advisory clients.
Item 7: Financial Industry Affiliations
Disclose relationships with broker-dealers, banks, insurance companies, or other financial services firms. This includes:
- Affiliated broker-dealers through which you execute trades
- Custodians where you have ownership interests
- Related investment companies or funds
- Common ownership with other financial services firms
Item 8: Participation or Interest in Client Transactions
Trading platforms must be particularly careful with Item 8:
| Item 8 Question | When to Check "Yes" | Disclosure Required |
|---|---|---|
| 8.A - Recommend securities you own | If your algorithms trade the same securities as client accounts | Principal trading disclosures in Part 2A |
| 8.B - Buy/sell from clients | If you act as principal in any transactions | Agency cross transaction disclosures |
| 8.E - Receive compensation from non-clients | Payment for order flow, referral fees, soft dollars | Full disclosure of compensation arrangements |
Item 9: Custody
Custody rules are complex for trading platforms. You have "custody" if you can access client funds or securities.
Common Custody Scenarios for Trading Platforms
- Direct debit of fees from client accounts (deemed custody)
- API access with withdrawal capabilities
- Holding client funds even temporarily
- Acting as general partner of a fund
- Having signatory authority over client accounts
💡 Surprise Examination Requirement
If you have custody, you generally must undergo an annual surprise examination by an independent accountant. Alternative: use a qualified custodian and meet specific conditions to avoid the surprise exam.
Item 10: Control Persons
Identify all control persons—anyone with 25%+ ownership or the power to direct management. For each control person, provide:
- Full legal name and CRD number (if applicable)
- Title or status
- Percentage of voting securities owned
Item 11: Disciplinary Information
This is where you disclose any regulatory or legal issues involving your firm or control persons. Must disclose:
- Criminal convictions (felonies or certain misdemeanors)
- SEC or CFTC sanctions
- Self-regulatory organization (SRO) sanctions
- Civil judicial actions involving investment-related conduct
⚠ Zero Tolerance for Non-Disclosure
Failing to disclose disciplinary history is itself a violation and grounds for denial of registration or enforcement action. When in doubt, disclose and explain.
Form ADV Part 2A: Brochure Requirements
Part 2A is your "firm brochure"—a narrative document written in plain English that tells clients about your services, fees, conflicts, and disciplinary history. Unlike Part 1A, Part 2A is designed to be client-facing.
Part 2A Structure and Requirements
Part 2A must be written in plain English, use the SEC's Item format, and avoid technical jargon. The required items are:
| Item | Title | Focus for Trading Platforms |
|---|---|---|
| 1 | Cover Page | Firm name, address, date, contact info |
| 2 | Material Changes | Changes since last annual update |
| 3 | Table of Contents | Required with page numbers |
| 4 | Advisory Business | Describe your trading platform and services |
| 5 | Fees and Compensation | Detailed fee schedules and billing |
| 6 | Performance-Based Fees | Disclose if you charge performance fees |
| 7 | Types of Clients | Who can use your platform |
| 8 | Methods of Analysis | Critical: Describe your algorithms and strategies |
| 9 | Disciplinary Information | Legal/regulatory history |
| 10 | Other Financial Activities | Other businesses and affiliations |
| 11 | Code of Ethics | Personal trading policies |
| 12 | Brokerage Practices | Execution, soft dollars, order routing |
| 13 | Review of Accounts | How you monitor client accounts |
| 14 | Client Referrals | Referral fee arrangements |
| 15 | Custody | Custody arrangements and safeguards |
| 16 | Investment Discretion | Discretionary vs. non-discretionary authority |
| 17 | Voting Client Securities | Proxy voting policies |
| 18 | Financial Information | Financial condition if you have custody |
Item 4: Advisory Business - Sample Language
Sample Disclosure for Algorithmic Trading Platform
[Firm Name] is a registered investment adviser founded in [Year]. We provide automated investment advisory services through our proprietary algorithmic trading platform.
Principal Owners: [Name] owns [XX]% of the firm. [Additional owners if applicable].
Types of Advisory Services: We offer discretionary portfolio management services using quantitative trading algorithms. Our platform executes trades in client accounts based on systematic models designed to [describe strategy - e.g., "capitalize on short-term market inefficiencies in equity markets"].
Tailoring Services: While our algorithms follow systematic rules, clients can customize their experience by selecting risk tolerance levels, asset class preferences, and investment restrictions. Clients cannot modify the underlying trading logic.
Assets Under Management: As of [Date], we manage approximately $[XXX] million in regulatory assets under management, all on a discretionary basis.
Item 5: Fees and Compensation - Critical for Trading Platforms
Fee disclosure must be clear, specific, and complete. Trading platforms typically use one or more of these fee structures:
| Fee Structure | Description | Disclosure Requirements |
|---|---|---|
| AUM-Based Fee | Percentage of assets (e.g., 1% annually) | Specify calculation method, billing frequency, gross vs. net |
| Subscription Fee | Fixed monthly/annual fee | State amount, billing cycle, refund policy |
| Performance Fee | Percentage of profits (20% of gains) | Must meet qualified client standard, disclose benchmarking |
| Per-Trade Fee | Commission per transaction | Conflicts with best execution obligation |
| Tiered Pricing | Lower rates at higher AUM levels | Disclose all tiers and breakpoints |
Sample Fee Disclosure
Management Fees: Our standard advisory fee is 1.0% per year of assets under management, billed quarterly in advance. Fees are calculated based on the market value of your account as of the last business day of the previous quarter.
Fee Billing: Fees are directly debited from your account held at [Custodian Name]. You will receive a statement from the custodian showing all fees deducted.
Additional Costs: In addition to our advisory fee, you will incur:
- Brokerage commissions and transaction fees charged by our executing broker
- Custodian fees charged by [Custodian Name]
- SEC fees and exchange fees on securities transactions
- Wire transfer and other account service fees
Refunds: If you terminate the advisory agreement mid-quarter, we will refund the prorated portion of unearned fees within 30 days.
Item 8: Methods of Analysis - Algorithm Disclosure
This is perhaps the most important item for trading platforms. You must explain your investment strategies and methods in sufficient detail for clients to understand what you do—but without revealing proprietary trade secrets.
Sample Algorithm Disclosure
Investment Strategy: We employ systematic, quantitative trading strategies based on proprietary algorithms. Our primary strategies include:
Momentum Strategy: Our algorithms identify securities exhibiting price momentum based on technical indicators and historical price patterns. The system automatically enters positions in trending securities and exits when momentum signals reverse.
Mean Reversion Strategy: We utilize statistical models to identify securities that have deviated significantly from historical price ranges, executing trades designed to profit from price normalization.
Data Sources: Our algorithms analyze market data including price, volume, volatility, and sentiment indicators from [list sources - e.g., "exchange feeds, financial data providers, and alternative data sources"].
Risk Factors: Algorithmic trading strategies involve material risks including:
- Model Risk: Our algorithms may fail to perform as expected due to flawed assumptions, data errors, or changing market conditions
- Technology Risk: System failures, data feed interruptions, or connectivity issues could result in missed trading opportunities or unintended positions
- Market Risk: Rapid market movements may cause losses before our systems can react
- Liquidity Risk: Some securities may lack sufficient liquidity for our algorithms to execute at favorable prices
- Capacity Constraints: Our strategies may become less effective as assets under management grow
⚠ Balance Transparency with Proprietary Protection
You must provide enough detail for clients to understand your strategy and evaluate risks, but you don't need to disclose specific parameters, mathematical formulas, or proprietary indicators that constitute trade secrets.
Item 12: Brokerage Practices
Trading platforms must carefully disclose execution arrangements, best execution procedures, and any conflicts related to order routing.
Sample Brokerage Practices Disclosure
Broker Selection: We execute client transactions through [Broker Name]. We selected this broker based on their execution quality, technology infrastructure compatible with our algorithmic systems, competitive pricing, and operational reliability.
Best Execution: We seek to obtain best execution for client orders by evaluating execution quality across multiple factors including price, speed, likelihood of execution, and total transaction costs. Our compliance team reviews execution quality quarterly through TCA (transaction cost analysis) reporting.
Trading Costs: Clients pay brokerage commissions and transaction fees to [Broker Name] in addition to our advisory fee. Current commission rates are approximately $[X] per trade or [X]¢ per share.
Order Aggregation: We may aggregate orders for multiple clients when executing the same trading signal. Aggregated orders are allocated among participating clients on a pro-rata basis. Partial fills are allocated fairly among all clients.
Form ADV Part 2B: Brochure Supplement
Part 2B is a supplement that provides information about individual supervised persons who provide investment advice to clients. You must prepare a Part 2B for each person who:
- Formulates investment advice for clients and has direct client contact, OR
- Has discretionary authority over client accounts
Part 2B Required Items
| Item | Content |
|---|---|
| 1 | Cover Page - Name, title, firm name, date |
| 2 | Educational Background and Business Experience |
| 3 | Disciplinary Information |
| 4 | Other Business Activities |
| 5 | Additional Compensation |
| 6 | Supervision |
💡 Who Needs a Part 2B?
For fully automated trading platforms, you may only need Part 2Bs for senior management who have discretionary authority. Junior programmers or data scientists who don't interact with clients or make final investment decisions typically don't need individual brochure supplements.
Trading Platform-Specific Disclosures
Beyond standard Form ADV items, trading platforms should address these additional topics in Part 2A:
Technology Risks and System Limitations
Sample Technology Risk Disclosure
Our advisory services rely entirely on technology systems. Technology risks include:
- System Outages: Hardware failures, software bugs, or network connectivity issues could prevent our algorithms from trading or monitoring positions
- Cybersecurity: Despite security measures, our systems could be subject to cyberattacks, data breaches, or unauthorized access
- Data Quality: Our algorithms depend on accurate market data; errors in data feeds could result in flawed trading decisions
- Latency: Delays in data transmission or order routing could impact execution quality
We maintain business continuity and disaster recovery plans, but cannot guarantee uninterrupted service. During system outages, you may be unable to access your account or we may be unable to execute trades.
Account Minimum and Capacity Constraints
Sample Capacity Disclosure
Account Minimum: We require a minimum account size of $[X] to participate in our algorithmic trading strategies. Smaller accounts may not receive the full diversification benefits of our strategy.
Strategy Capacity: Our trading strategies have finite capacity due to liquidity constraints in the markets we trade. If total assets under management reach levels where additional capacity would degrade returns, we may close the strategy to new investors or implement a waitlist.
Algorithm and AI Model Disclosures
With increasing SEC scrutiny of AI and machine learning in investment advice, trading platforms using advanced models should include robust disclosures.
Sample AI/Machine Learning Disclosure
Use of Artificial Intelligence: Our trading platform incorporates machine learning models that analyze large datasets to identify trading opportunities. These models are trained on historical market data and continuously adapt to new information.
Model Governance: Our AI models are subject to ongoing governance and oversight:
- Development Testing: Models undergo extensive backtesting and out-of-sample validation before deployment
- Monitoring: Live model performance is monitored daily against expected parameters
- Limitation Controls: Position limits and risk controls constrain model actions
- Human Oversight: Our investment committee reviews model performance and can override or disable models
AI-Specific Risks:
- Overfitting: Models may perform well on historical data but fail to generalize to future market conditions
- Black Box Risk: Some machine learning techniques produce complex models whose decision-making logic may be difficult to interpret
- Data Bias: Models trained on biased or non-representative data may exhibit unintended biases
- Regime Change: Models may fail during unprecedented market conditions not represented in training data
⚠ SEC Focus on AI Washing
The SEC has warned against "AI washing"—overstating or misrepresenting the role of AI in investment processes. Be accurate about what AI actually does in your platform and avoid marketing hype that can't be substantiated.
Performance Reporting Requirements
Performance advertising is governed by the Marketing Rule (Rule 206(4)-1). Form ADV should disclose how you calculate and present performance.
Model vs. Actual Performance
Sample Performance Disclosure
Performance Claims: We may advertise the performance of our trading strategies through backtested results and actual client account performance.
Backtested Performance: Backtested or hypothetical performance results are based on applying our current algorithms to historical market data. Backtested results:
- Do not reflect actual trading and are inherently limited
- Are calculated with the benefit of hindsight
- Do not account for actual market impact or liquidity constraints
- May reflect assumptions about costs that differ from actual trading
- Cannot fully account for the impact of financial risk in actual trading
Actual Performance: Live client performance reflects actual trading in client accounts, net of fees. Performance is calculated using time-weighted returns methodology in accordance with GIPS standards.
Composite Performance: Advertised performance represents a composite of all client accounts following the [Strategy Name] strategy. Not all clients will experience the same results. Individual account performance may vary based on account size, timing of contributions/withdrawals, and client-specific restrictions.
Cherry-Picking and Selection Bias
⚠ Common Performance Violations
The SEC frequently cites advisers for performance advertising violations including: (1) Showing only the best-performing accounts; (2) Using hypothetical performance without adequate disclosures; (3) Comparing to inappropriate benchmarks; (4) Failing to disclose fees; (5) Making misleading claims about past results predicting future performance.
Fee Schedule Disclosures
Your fee schedule disclosure in Part 2A Item 5 must be specific enough for clients to calculate their expected fees.
Sample Fee Schedule
💡 Fee Negotiability
If you negotiate fees with certain clients (e.g., high-value clients get discounts), you must disclose that "fees are negotiable" in your brochure. Lack of this disclosure while negotiating creates a false representation.
Annual Updating Amendment Timeline
Investment advisers must file an annual updating amendment to Form ADV within 90 days of fiscal year-end.
Annual Update Process Timeline
Begin internal review of Form ADV Part 1A and Part 2A for accuracy
Update AUM calculations, client counts, and any business changes
Draft Material Changes summary for Part 2A Item 2
File updated Form ADV through IARD system
Deliver updated Part 2A to all clients (or summary of material changes)
⚠ Delivery Requirements
You must deliver the updated Part 2A (or offer to deliver it with a summary of material changes) to all existing clients within 90 days of fiscal year-end. New clients must receive Part 2A before or at the time they become clients.
Other-Than-Annual Amendments
Beyond the annual update, you must file amendments promptly when certain information becomes materially inaccurate:
| Change Type | Amendment Timing | Client Delivery Required? |
|---|---|---|
| Disciplinary disclosure | Within 30 days | Yes, promptly |
| Fee increase | Before implementation | Yes, in advance |
| Address change | Within 30 days | No |
| AUM crossing registration threshold | Within 90 days of fiscal year-end | No |
| New material conflict of interest | Promptly | Yes, promptly |
| Control person change | Within 30 days | No (unless material to clients) |
IARD System Filing Process
Form ADV is filed electronically through the Investment Adviser Registration Depository (IARD), operated by FINRA on behalf of the SEC and state regulators.
Initial Registration Steps
IARD Registration Checklist
- Create IARD firm account at https://www.iard.com
- Obtain LEI (Legal Entity Identifier) from authorized provider
- Designate authorized filing contacts and ACO (Authorized Contact Officer)
- Pay IARD initial setup fee ($250)
- Complete Form ADV Part 1A online in IARD system
- Upload Form ADV Part 2A as PDF attachment
- Upload Part 2B supplements for supervised persons
- Pay SEC registration fee ($300) or state fees
- Submit for processing
- Monitor for deficiency comments from SEC/state
- Respond to any deficiency notices
- Receive approval and CRD/SEC file number
IARD System Navigation
Key sections of the IARD system for advisers:
- Filing & Application Menu: Create and submit new filings
- View Filings: Review past submissions and track status
- Individuals Menu: Manage supervised person registrations (Form U4)
- Payment Menu: Pay registration fees and view billing history
- Reports Menu: Generate regulatory reports and confirmations
💡 IARD Technical Tips
IARD has specific technical requirements: Use Internet Explorer or Chrome; Part 2A must be uploaded as PDF; Maximum file size is 10MB; System times out after 30 minutes of inactivity; Save drafts frequently while working.
Cost Breakdown: IARD Fees and State Fees
Registering as an investment adviser involves several fees paid through the IARD system.
SEC-Registered Adviser Costs
State Registration Fees
State-registered advisers pay fees to each state where they register. Fees vary widely by state:
| State Example | Initial Fee | Annual Renewal |
|---|---|---|
| California | $225 | $165 |
| New York | $400 | $400 |
| Texas | $320 | $300 |
| Florida | $400 | $250 |
| Illinois | $300 | $150 |
💡 Notice Filing vs. Registration
SEC-registered advisers don't "register" with states—they file notices in states where they have a place of business or meet state thresholds. Notice filing is simpler than state registration but still requires fees and compliance with state regulations.
Common Filing Errors and Red Flags
The SEC and state regulators frequently issue deficiency letters for these common Form ADV errors.
Top 10 Form ADV Mistakes
Avoid These Common Errors
- Inaccurate AUM: Miscalculating regulatory AUM or including non-discretionary assets
- Stale Information: Form ADV doesn't reflect current business operations
- Incomplete Disciplinary Disclosure: Failing to disclose reportable events in Item 11
- Vague Fee Disclosure: Part 2A doesn't clearly explain how fees are calculated
- Missing Conflicts: Not disclosing material conflicts of interest
- Inadequate Strategy Description: Item 8 doesn't sufficiently explain investment methods
- Inconsistent Information: Discrepancies between Part 1A and Part 2A
- Part 2B Gaps: Missing brochure supplements for required supervised persons
- Non-Plain English: Part 2A uses excessive jargon or legal terminology
- Missing Material Changes: Part 2A Item 2 doesn't summarize significant updates
Red Flags That Trigger Regulatory Scrutiny
Certain Form ADV disclosures may attract additional regulatory attention:
| Red Flag | Why It Matters | Regulatory Response |
|---|---|---|
| Custody without qualified custodian | Client asset protection concern | Surprise exam requirement, heightened scrutiny |
| Performance-based fees to non-qualified clients | Prohibited compensation structure | Potential registration denial or enforcement |
| Principal trading with clients | High conflict of interest | Review of disclosure and consent procedures |
| Affiliated broker-dealer | Conflict in execution arrangements | Best execution and disclosure review |
| Payment for order flow | Potential best execution conflict | Detailed disclosure requirements |
| Cryptocurrency trading | Emerging regulatory area | Enhanced examination likelihood |
| High client complaint rate | Indicator of operational issues | Cause examination possible |
⚠ Automatic Denial Issues
Certain issues will result in automatic denial of SEC registration: (1) Failing to meet minimum AUM requirements; (2) Being subject to a statutory disqualification; (3) Having undisclosed material inaccuracies in the application; (4) Not being organized or having a principal office in the U.S.
SEC Deficiency Letter Response
If you receive a deficiency letter during initial registration or an annual update:
- Respond Promptly: You typically have 30 days to address deficiencies
- Address Each Point: Respond to every item raised in the deficiency letter
- Amend the Form: File an amendment through IARD correcting the issues
- Provide Explanation: If the SEC misunderstood your disclosure, clarify in your response
- Seek Counsel if Needed: Complex deficiencies may require legal assistance
✓ Quality Control Before Filing
Best practice: Have someone other than the preparer review Form ADV before filing. Fresh eyes catch errors. Many firms use compliance consultants or securities counsel to review Form ADV annually.
Next Steps After Registration
Once your Form ADV is approved and you receive your SEC file number or state registration:
- Deliver Part 2A to Clients: Provide brochure before or at the time of engagement
- Implement Compliance Program: Establish policies and procedures required by Rule 206(4)-7
- Maintain Books and Records: Comply with recordkeeping requirements under Rule 204-2
- File Form U4s: Register supervised persons through IARD
- Set Up IARD Renewals: Mark calendar for annual renewal deadlines
- Prepare for Examination: Organize files for potential SEC or state examination
- Monitor for Changes: Establish process to identify when other-than-annual amendments are needed
💡 Ongoing Compliance Obligations
Form ADV registration is just the beginning. Investment advisers must maintain ongoing compliance with numerous SEC and state requirements including annual compliance reviews, books and records rules, marketing rule compliance, custody rule compliance (if applicable), and more.