How to read a financial advisor's disciplinary disclosures
Item 11 of Form ADV asks whether the firm or its advisory people have criminal, regulatory, or civil events on their record. Most firms answer no to every question. When a firm answers yes, the details are on the SEC's IAPD site, and for individual advisers on FINRA BrokerCheck; read the date, the amount, and how it was resolved.
Of everything on a firm's record, the disclosure section is the one people worry about most, and the one that's easiest to misread. A "yes" doesn't always mean trouble, and a clean record doesn't mean you can skip the rest of your homework. Here's how to read it calmly.
What Item 11 asks
Form ADV Part 1, Item 11, is a long list of yes-or-no questions about the firm and its advisory people. They fall into three groups:
- Criminal: felony convictions or charges, and certain misdemeanors involving investments, fraud, or theft.
- Regulatory: findings, sanctions, or orders from the SEC, other federal agencies, state regulators, foreign regulators, or self-regulatory organizations like FINRA.
- Civil: court injunctions or findings related to investment activity.
Every question covers the firm and its advisory affiliates: its current employees other than clerical staff, its officers, partners, and directors, and anyone who controls the firm or is controlled by it. So a yes can be about a parent company or one employee rather than the firm itself. One event can also produce several yes answers: a single settled SEC case, for example, can mean yes to a finding of a violation, to an order, and to a penalty. SEC-registered firms may leave out events more than ten years old.
The large majority of firms answer no to every question. AdvisorCensus shows how many questions a firm answered yes and which ones, in plain English, and links straight to the detail.
Where the detail lives
Each yes answer comes with a disclosure reporting page describing what happened. You'll find them on the firm's record at the SEC's IAPD site. IAPD's report on an individual adviser also shows customer complaints and regulatory events. If the person has ever been a registered broker, FINRA's BrokerCheck adds their brokerage history.
How to weigh what you find
When you open a disclosure, a few details tell you most of what you need to know:
- When. An event from 1998 and one from last year aren't the same thing.
- Who. Was it the firm, a person you'd actually work with, or someone who left years ago?
- What kind. A paperwork lapse with a small fine is different from a finding of fraud.
- How it ended. Settled, dismissed, or found against the firm? For how much?
- A pattern. One old matter is common in a long career. Several similar ones deserve a closer look.
If something is on the record, it's completely fair to ask about it in your first meeting. A good advisor will explain it plainly and without getting defensive. How they handle the question is useful information in itself.
What a clean record doesn't tell you
No disclosures means no reportable events, which is reassuring. It doesn't tell you whether the firm is a good fit, how it's paid, or whether its advice suits you. Pair it with the rest of the filing: compensation, the clients it serves, and the services it offers.
Checking a firm on AdvisorCensus
The Disclosures section on every firm page shows the number of yes answers as filed, lists each question answered yes with its Item number, and links to the firm's IAPD record, where each disclosure is described in full. For the people behind the firm, search their names on BrokerCheck.
Common questions
Does a disclosure mean I should avoid the advisor?
Not automatically. A decades-old customer complaint that was settled for a small amount reads very differently from a recent regulatory sanction. Read the detail, then ask the advisor to explain it; how they answer is useful too.
Where do I find the details of a disclosure?
On the firm's record at adviserinfo.sec.gov, and for individual advisers on brokercheck.finra.org. AdvisorCensus shows how many questions the firm answered yes and which ones, and links straight to the firm's IAPD record.
Do firms have to report complaints?
Item 11 covers criminal, regulatory, and civil actions. Customer complaints against individual registered representatives appear on BrokerCheck; the firm's own brochure, Item 9, also describes legal or disciplinary events material to clients.
Sources
- SEC, Form ADV Part 1A (the form itself)
- SEC, Investment Adviser Public Disclosure (IAPD)
- FINRA BrokerCheck
Written from the public record and the regulators' own instructions. AdvisorCensus is a directory built from Form ADV filings; nothing here is investment advice. Spot something wrong? Tell us.