Could you imagine buying a house without a home inspection? Or hiring an employee without running a background check? Most people wouldn’t.

Yet when it comes to choosing a financial advisor, many people don’t realize there’s a document that reflects the same principle of due diligence.

It’s called Form ADV.

Form ADV is the uniform registration form that investment advisers are legally required to file with the Securities and Exchange Commission and state securities authorities. It tells you what services a firm offers, how they are compensated, what conflicts may exist, and whether there’s relevant disciplinary history.

Most people don’t even know this document exists, yet the transparency it provides could heavily impact your choice of advisor.

Reviewing their disclosures can help you understand whether the firm receives compensation from other sources, such as commissions, revenue sharing arrangements, or proprietary products.

Form ADV is broken down into three distinct sections.

Part One details the advisor’s business ownership, operational practices, and certain disciplinary events involving the firm or its advisory personnel.

Part Two consists of the narrative brochures. This section discloses a firm’s business practices, exact fee schedules, potential conflicts of interest, and disciplinary history, if applicable.This section also discloses whether client assets are held with an independent third-party custodian rather than directly by the advisory firm.

Finally, Part Three, is called Form CRS. This is just a short relationship summary. If you are comparing two firms, it might be helpful to just take their CRS filings and compare side to side as every firm is required to answer the same questions.

Form ADV is a public record, and you can look up any firms or advisors instantly at adviserinfo.sec.gov.

At Zhang Financial, we believe informed clients make better decisions. For more educational content and financial planning insights, visit ZhangFinancial.com.