Disclosures

In addition to making disclosures to the state administrator and/or 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 client disclosures:

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

Broker-dealer disclosures

In a future chapter, we’ll discuss various fees broker-dealers 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) offers a model fee disclosure template that many broker-dealers use.

This information must be available to customers. In practice, many firms include fee schedules in account applications and post them 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 figure that is 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. This review helps confirm the order was entered correctly.

The supervisor (often called the principal) can update the order ticket if there’s a mistake. Even if the agent notices the error first, the principal must approve any changes made to the ticket.

Agents may also encounter situations where a customer wants to place an unsuitable order. For example, a retired customer with limited resources may want to buy a very risky stock. Financial professionals should explain the risks involved. However, if the customer insists on placing the order, the order must be placed. Ultimately, the customer controls their finances and 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 they lose significant money, these notes can help address liability questions. If the trade resulted from a recommendation, the firm could be held liable if the trade was unsuitable.

Investment adviser disclosures

The most important disclosures made by an investment adviser are typically presented in the brochure. Here are the three key sections of this disclosure document:

• 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 disclosures is to help clients understand the person they’re trusting with their money. These documents describe the products and services offered and also provide information about the firm and its investment adviser representatives (IARs). If the adviser has a checkered past, or employs an IAR with a criminal record, that information can be found in the brochure.

Promoters for state-registered advisers

NASAA rules also regulate promoters, sometimes still called solicitors in older material. NASAA’s amendments, adopted May 4, 2026, retired the term “solicitor” and folded paid solicitation into the same framework that governs testimonials and endorsements. Under Model Rule 102(a)(4)-1, 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 - so a paid referral is now treated as an endorsement and follows the same conditions any other endorsement does.

In other words, a promoter is anyone compensated for connecting potential clients with an adviser. A promoter might be an employee of the adviser, or a separate third party. For example, someone with a marketing background might network locally and refer prospective 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 protocols are followed and disclosures are made. Under NASAA’s rule, 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
• Clearly and prominently disclose required information at the time of the referral

Register as an IAR
This requirement is straightforward: the promoter must be registered as an IAR of the firm they’re soliciting business for.

Not be an ineligible person
Promoters are treated like other financial professionals. An ineligible person is someone subject to a disqualifying event - the same concept older material calls a statutory disqualification - within the preceding 10 years. A person is disqualified if they are:

• Subject to denial, suspension, or revocation by any securities regulator
• Convicted of any felony or securities-related misdemeanor in the past 10 years
• Subject to any injunction or other court-related order prohibiting work in the securities industry
• Found to have filed a registration application with inaccurate or false information
• Found to have willfully violated a securities act (e.g. Uniform Securities Act, Investment Advisers Act of 1940)

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

Disclose required information to the prospective client
At the time the 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, and it still delivers its own Form ADV Part 2A (the brochure) to the client.

Sidenote

What the 2026 amendments removed

Two requirements that older material treats as central to state solicitor rules no longer exist:

• The separate solicitor’s brochure, delivered alongside the adviser’s Form ADV Part 2A
• The signed receipt from the prospective client acknowledging both brochures were received

Both lived in Model Rule 203(a)-2(a)(15), the recordkeeping rule, and were deleted on May 4, 2026. The amended rule instead asks the adviser to keep records of the promoter disclosures, documentation of its reasonable basis for believing the endorsement complies, and a list of its affiliated persons. The word “solicitor” no longer appears in the rule at all.

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 de minimis exemption at the state level

The SEC’s marketing rule excuses a promoter from the written-agreement requirement when compensation is de minimis - $1,000 or less, or its non-cash equivalent, over the preceding 12 months. NASAA’s rule has no such exemption: “de minimis compensation” is defined in the amended rule, but no operative subsection ever references that definition, so it exempts nobody. A state-registered adviser needs a written agreement and remains bound by the ineligible-person bar no matter how small the payment.

For example, an accountant who prepares clients’ taxes and recommends an adviser in return for a $200 finder’s fee is still a promoter under state rules, even though the same arrangement might clear the SEC’s de minimis exemption at the federal level. Sharing assets under management (AUM) fees with a third party is further inside the framework still.

The only exemptions NASAA’s rule provides are for uncompensated testimonials and endorsements, and for the adviser’s own affiliates - and affiliates remain subject to the ineligible-person bar.

Solicitors for federal-covered advisers

Prior to 2020, solicitor rules for federal-covered advisers were essentially the same as state rules. In 2020, the Securities and Exchange Commission (SEC) finalized 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 omitted here:

• Solicitors are not required to be registered as IARs.
• There is no brochure delivery requirement for promoters.

Because the adviser must provide the brochure to the client, the SEC viewed a separate requirement for the solicitor to deliver it 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. Because additional demand could raise the market price, the IAR recommends the stock to multiple clients - even if it isn’t fully suitable. That creates an obvious 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.

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

As noted above, most (if not 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 firms. Compliance staff can then compare client recommendations against the access person’s personal trading.

Access persons must file two types of reports:

• Holdings reports
• Transaction reports

Holdings reports
A holdings report provides a detailed snapshot of an access person’s personal portfolio, including:

• 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 report 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)