Disclosures

In addition to making disclosures to the state administrator and/or the Securities and Exchange Commission (SEC) during the registration process, broker-dealers and investment advisers must also make ongoing disclosures to their clients. This chapter covers three categories of ongoing disclosures:

• Broker-dealer disclosures
• Investment adviser disclosures
• General disclosures

Broker-dealer disclosures

In a future chapter, we’ll discuss various fees broker-dealers may charge outside of commissions, markups, and markdowns. These fees are disclosed in fee schedules that must be made available to customers. The North American Securities Administrators Association (NASAA) provides a model fee disclosure template that many broker-dealers use. Firms commonly provide this information in account applications and on their websites.

Agents representing broker-dealers must create an order ticket for each order they place. The order ticket creates a historical record of the trade and includes key details such as:

• Customer identifier
• Cash or margin account
• Registered representative identifier
• Long or short sale
• Security identifier (symbol or CUSIP)
• Number of shares or units
• Order type
• Date and time
• Solicited or unsolicited order
• If order is discretionary

Definitions

Ticker symbol

A set of characters that represent an investment. Every publicly traded stock has its own unique ticker symbol, which makes it easy to track a stock without typing out the full business name. Examples of ticker symbols:

• TGT = Target Corporation

• HD = Home Depot Inc.

• AXP = American Express Company

CUSIP

In plain terms, it’s like a Social Security number for a security. It’s a unique alphanumeric identifier assigned to each security. Examples of CUSIP numbers:

• Uber (UBER) = 90353T100
• Alibaba (BABA) = 01609W102
• Twitter (TWTR) = 90184L102

Solicited orders

A trade recommended to a customer by a financial firm or its representative.

After an order ticket is submitted, the agent’s supervisor must review it “promptly,” which typically means by the end of the day. When an agent places orders for customers, the supervisor (often called the principal) reviews the ticket to confirm the order was entered correctly. If there’s an error, the principal can update the order ticket. Even if the agent notices the mistake first, any changes to the ticket must be approved by the principal.

Agents may also encounter situations where a customer wants to place an unsuitable order. For example, a retired customer with limited resources may insist on buying a very risky stock. Financial professionals must explain the risks involved. However, if the customer still insists on placing the order, the order must be entered. The customer ultimately controls their own securities transactions.

In these situations, it’s a best practice for agents to document the discussion. Firms maintain files on each customer that include transaction history and notes from prior interactions. If a customer’s expectations are unrealistic and the trade results in significant losses, detailed notes can help address questions about what was discussed and disclosed. If the trade resulted from a recommendation, the firm could be held liable if the recommendation was unsuitable.

Investment adviser disclosures

The most important disclosures made by an investment adviser are typically presented in the brochure. This disclosure package has three key parts:

• Form ADV Part 2A - The brochure
• Form ADV Part 2A Appendix 1 - The wrap fee program brochure
• Form ADV Part 2B - The brochure supplement

The purpose of these documents is to help clients understand the person they’re trusting with their money. They describe the firm’s products and services and provide background information on the firm and its investment adviser representatives (IARs). If an adviser has a disciplinary history, or employs an IAR with a criminal record, that information can be found in the brochure materials.

Promoters for state-registered advisers

NASAA rules also regulate promoters - people compensated for bringing clients to an adviser. Older material calls them solicitors, and you may still see that term, but amendments NASAA adopted on May 4, 2026 retired it in favor of “promoter.”

The change folded paid solicitation into the same framework that governs testimonials and endorsements. An endorsement is any statement by someone other than a current client that indicates approval or support of the adviser, or that solicits or refers a prospective client to it. A paid referral is therefore an endorsement, and it carries the same conditions as any other endorsement.

In practical terms, a promoter is anyone compensated for connecting prospective clients with an investment adviser. A promoter might be an employee of the adviser, or a third party. For example, someone with a marketing background might network locally and refer potential clients to an adviser.

Definitions

Prospective client

A person a financial professional aims to sign as a client.

This arrangement is legal and ethical as long as required procedures are followed and disclosures are made. A promoter soliciting for a state-registered adviser must:

• Register as an IAR
• Not be an ineligible person
• Maintain a written agreement with the adviser

Register as an IAR
The promoter must be registered as an IAR of the firm for which they are soliciting business.

Not be an ineligible person
Promoters are treated like other financial professionals. An ineligible person is someone subject to a statutory disqualification - a disqualifying event, such as a securities-related felony, that occurred within the preceding 10 years. Statutory disqualifications (covered in a previous chapter) include:

• Denial, suspension, or revocation by any securities regulator
• Any felony or securities-related misdemeanor conviction in the past 10 years
• Any injunction or other court-related order prohibiting work in the securities industry
• Filing a registration application with inaccurate or false information
• Willfully violating a securities act (e.g. Uniform Securities Act, Investment Advisers Act of 1940)

An ineligible person may not act as a promoter.

Maintain a written agreement with the adviser
NASAA’s rule requires a written agreement between the adviser and the promoter. The adviser must keep this agreement in its records, and the state administrator may request it. The agreement must describe:

• The scope of the solicitation activities the promoter will be engaged in
• The terms of the promoter’s compensation for those activities

At the time a referral is made, the promoter (or the adviser, on the promoter’s behalf) must clearly and prominently disclose:

• Whether the promoter is a current client or investor, or someone other than a current client or investor
• That cash or non-cash compensation was provided for the referral
• Any material conflicts of interest arising from the promoter’s relationship with the adviser
• The material terms of the compensation arrangement, including a description of the compensation provided or to be provided

The adviser must also have a reasonable basis for believing the endorsement complies with the rule. The adviser still delivers its own Form ADV Part 2A to the client directly.

Sidenote

What changed from the old solicitor's brochure rule

Older solicitor rules required the solicitor to deliver a separate solicitor’s brochure alongside the adviser’s Form ADV Part 2A, and to obtain a signed receipt from the prospective client acknowledging both were received. NASAA’s May 4, 2026 amendments eliminated both requirements. The adviser now keeps records of the promoter disclosures above, documentation of its reasonable basis for believing the endorsement complies, and a list of its affiliated persons - but no separate brochure or signed receipt is required.

Sidenote

Solicitation of impersonal advisory services

The promoter is not required to register as an IAR if they only solicit impersonal advisory services. For example, a solicitor attempts to sell an adviser’s newsletter that includes market commentary and general recommendations (nothing specific to any one client).

Sidenote

No nominal-fee or de minimis exemption at the state level

Under the SEC’s marketing rule, a promoter for a federal-covered adviser is excused from the written-agreement requirement when their compensation is de minimis ($1,000 or less, or the non-cash equivalent, over the preceding 12 months). NASAA’s rule has no such exemption. Compensation of any amount, cash or non-cash, brings the arrangement inside the framework - so even an accountant paid a $200 finder’s fee for referring a client to a state-registered adviser must follow the promoter rules above.

Sharing asset under management (AUM) fees with a third party falls inside the framework as well. The only exemptions NASAA’s rule provides are for uncompensated testimonials and endorsements, and for the adviser’s own affiliates (who remain subject to the ineligible-person bar).

Solicitors for federal-covered advisers

Before 2020, solicitor rules for federal-covered advisers were largely similar to state rules. In 2020, the Securities and Exchange Commission (SEC) adopted a new rule that simplified how solicitors are regulated. You’ll notice some overlap with the state requirements.

The solicitor must disclose:

• If they’re a client of the adviser
• If they’re being compensated and, if so, how much
• Any conflicts of interest related to their relationship with the adviser

Additionally, these rules must be followed:

• A written agreement must exist between the adviser and solicitor*
• The solicitor may not be subject to any statutory disqualification

*Essentially the same items that must be in the agreement between a state-registered adviser and their solicitor (discussed above) are the same here.

Last, the solicitor may not*:

• Make an untrue, inaccurate, or misleading statement
• Discuss potential benefits without discussing potential risks
• Reference the adviser’s recommendations in a way that is not fair and balanced
• Present the adviser’s performance in a way that is not fair and balanced

*Although these prohibitions are specifically for solicitors of federal-covered advisers, you can assume the same applies at the state level.

Two major items from the state-based solicitor rule are not included here. First, solicitors are not required to be registered as IARs. Second, there is no brochure delivery requirement for promoters. Because the adviser must provide the brochure to the client, the SEC viewed a separate brochure-delivery requirement for the solicitor as redundant. As discussed above, the promoter must still make disclosures at the time of solicitation. The SEC rule says these disclosures must be made “clearly and prominently,” but it does not explicitly require them to be in writing.

Sidenote

De minimis fees

If a promoter is collecting a “de minimis” (small) fee for their services, the SEC does not require a written agreement between the adviser and solicitor. De minimis fees are defined specifically as $1,000 or less.

Access person disclosures

Securities rules and regulations have increasingly emphasized transparency in investment advice. One key concern is whether an IAR’s personal holdings could influence recommendations to clients. For example, suppose an IAR owns stock in a thinly traded company. If the IAR knows that additional demand could raise the market price, they might recommend the stock to multiple clients - even when it isn’t appropriate for those clients. That creates a clear conflict.

Rules for both federal-covered and state-registered advisers are designed to reduce this risk. Employees of advisers (typically IARs) who have access to certain nonpublic information must regularly disclose their personal securities holdings to their compliance departments. Here’s how the requirement works.

These disclosure rules apply only to access persons.

Definitions

Access person

Any supervised person of an investment advisor who:

• Has access to non-public information regarding any client’s purchase or sale of securities
• Has access to non-public information regarding the portfolio holdings of any reportable fund (e.g. a mutual fund)
• Is involved in making securities recommendations to clients, or who has access to such recommendations that are non-public

Most (and often all) IARs of a registered adviser qualify as access persons because they can access client accounts, portfolio holdings, and recommendation details. To support transparency, regulators require access persons to disclose their personal holdings and transactions to their employing firms. This allows compliance staff to compare client recommendations with the access person’s personal trading activity.

Access persons must file two types of reports:

• Holdings reports
• Transaction reports

Holdings reports
A holdings report provides a snapshot of an access person’s personal portfolio. It includes:

• Securities owned by the access person
• Name of broker, dealer, or bank where the portfolio is held
• The date the holdings report is submitted

Holdings reports must be filed:

• No later than 10 days after the person becomes an access person, and the information must be current as of a date no more than 45 days prior to the date the person becomes an access person
• At least once each 12-month period thereafter on a date selected by the investment adviser, and the information must be current as of a date no more than 45 days prior to the date the report was submitted

Transaction reports
Transaction reports disclose personal securities transactions. They must include:

• Date of the transaction
• Security traded and any relevant details (e.g. number of shares)
• Nature of the transaction (e.g. buy, sale, short sale)
• Price the security was traded at
• Name of the broker, dealer, or bank performing the transaction
• The date the transaction report was filed

Transaction reports must be filed no later than 30 days after the end of the quarter in which the transactions occurred.

Regulators provide three exceptions to the holdings and transaction reporting requirements. No filing is required for:

• Activity in which the access person had no direct or indirect control over
  • For example, the access person is a beneficiary of a trust account owning and trading securities, which is managed by a separate third-party trustee
• Transactions related to an automatic investment plan
  • For example, dividends received from a mutual fund that are automatically reinvested
• Transactions the adviser has direct access to
  • For example, an IAR maintains an account with their employing adviser’s affiliated broker-dealer (the adviser can access this account at any time)