Form ADV Part 2B is the “brochure supplement” that every investment adviser must prepare for each supervised person who gives advice to clients, and it must be written in plain English with six specific disclosure items. You file it through the IARD system and deliver it to clients before or at the time the supervised person begins advising them, under Rule 204-3 of the Advisers Act.
Failing to prepare or deliver an accurate Part 2B is one of the most common deficiencies the SEC’s Division of Examinations cites in its annual exam priorities report. According to a 2023 SEC Risk Alert, more than 38% of newly registered advisers had brochure supplement deficiencies during their first routine exam, ranging from missing disciplinary disclosures to outdated supervision contacts.
Here is what you will learn in this guide:
- 📋 The six required items in Form ADV Part 2B and how to draft each one
- ⚖️ How to decide what disciplinary events you must disclose (and which you can leave out)
- 🧑💼 The exact definition of “supervised person” and who needs a supplement
- 🏛️ The federal vs. state-registered adviser differences you cannot ignore
- 🚫 The most common mistakes that trigger SEC and NASAA enforcement actions
What Is Form ADV Part 2B?
Form ADV Part 2B, often called the “brochure supplement,” is the part of Form ADV that gives clients information about the individual people who provide them with investment advice. While Part 2A describes the firm, Part 2B describes the human beings behind the advice. The SEC adopted the modern version of Part 2B in 2010 to move advisers away from the old check-the-box format and toward a narrative, plain-English disclosure model.
The rule sits inside the Investment Advisers Act of 1940, and the SEC enforces it through Rule 204-3, sometimes called the “brochure rule.” The plain-English explanation is simple: clients deserve to know who is managing their money, what training that person has, and whether that person has ever been disciplined by a regulator. The consequence of violating the rule is direct — the SEC can bring an enforcement action, impose civil penalties, and require restitution to clients. For example, in In re Aegis Capital, LLC, the SEC fined an adviser for failing to deliver supplements that disclosed a portfolio manager’s prior bankruptcy.
A common misconception is that Part 2B is “just paperwork.” It is not. The supplement is a fiduciary disclosure document, and inaccurate information can support a securities-fraud claim under Section 206 of the Advisers Act.
Who Must Prepare a Supplement?
A supplement is required for every “supervised person” who (1) formulates investment advice for a client and has direct client contact, or (2) makes discretionary investment decisions for a client’s assets, even with no client contact. The term “supervised person” is defined in Section 202(a)(25) of the Advisers Act and includes officers, partners, directors, and employees. If a supervised person only places trades at someone else’s direction, no supplement is needed for them.
The consequence of missing a supplement is that the firm cannot lawfully let that adviser meet with clients. A real example: Maria Chen, a newly hired junior portfolio manager at Acme Wealth Advisors, LLC, begins managing five household accounts on a discretionary basis. Even though Maria never speaks to clients, Acme must prepare a Part 2B for her because she makes discretionary decisions. A common misconception is that interns or part-time analysts never need supplements — they do, if they meet either trigger.
Where Does Part 2B Get Filed?
Unlike Part 2A, Part 2B is not uploaded to the IARD system for public posting. Instead, the firm keeps each supplement on file and delivers it directly to clients. The firm must still maintain copies under the Advisers Act books-and-records rule, Rule 204-2 for at least five years.
The consequence of poor recordkeeping is severe: during a routine SEC exam, examiners will request a sample of supplements and compare them to the firm’s client list. If a supplement is missing for an active supervised person, the examiner can issue a deficiency letter or refer the matter to enforcement. David Park, a solo RIA in Texas, learned this the hard way when his first exam revealed he had never drafted his own supplement.
The Six Required Items in Part 2B
Form ADV Part 2B has exactly six numbered items, and each one has its own SEC instruction. You must address every item, in order, using the heading the SEC provides. The plain-English rule is that you write the supplement as if you were explaining the adviser’s background to a curious but non-expert client at a kitchen table.
The consequence of skipping an item or burying it in dense legalese is a deficiency citation. A real example: in the SEC’s 2022 Exam Priorities Risk Alert, staff highlighted advisers who copied boilerplate from other firms and forgot to update names, education, or disciplinary history. A common misconception is that you can use one supplement for all advisers — you cannot, because each item is personal to the supervised person.
Item 1: Cover Page
The cover page must include the supervised person’s name, business address, telephone number, and the firm’s name, plus the date of the supplement. It must also include a statement that the supplement provides information about the supervised person and supplements the firm’s brochure, and that clients should contact the firm if they did not receive the brochure. The plain-English version is a clear, short page with no marketing language.
The consequence of an inaccurate cover page is that the entire supplement may be considered misleading under Rule 206(4)-8. For example, Jasmine Roberts updated her last name after marriage but forgot to update her supplement; the SEC flagged it during an exam. A common misconception is that the cover page can use a logo or photo — the SEC discourages anything that looks like marketing.
Item 2: Educational Background and Business Experience
Item 2 requires the formal education after high school and the business background for the past five years of the supervised person. You must list each degree, the school, and the year, plus each position, the employer, the title, and the dates. If the person has no high-school diploma or post-secondary degree, you must state that too.
The consequence of inflating credentials is fraud liability under Section 206. A real example: the SEC’s In re McGinn, Smith & Co. action included false educational claims. A common misconception is that you can omit short-term jobs — you cannot, because the five-year window is continuous, and gaps must be explained.
Professional Designations
If the supervised person uses a professional designation like CFP, CFA, ChFC, or CPA/PFS, Item 2 requires a brief explanation of the minimum qualifications for each. The plain-English explanation must cover the prerequisites, education, exam, continuing education, and any ethical standards. The SEC’s General Instructions for Part 2B include sample language for common designations.
The consequence of listing a designation without explanation is a deficiency. Carlos Rivera listed “AIF®” on his supplement but did not explain the Accredited Investment Fiduciary requirements; the SEC examiner required a corrective amendment. A common misconception is that the explanation can be a one-liner — it cannot, because each prong of the designation must be clear.
Item 3: Disciplinary Information
Item 3 is the most sensitive item. It requires disclosure of any “legal or disciplinary event” that is material to a client’s evaluation of the supervised person. The instructions list a presumption that ten categories of events are material if they occurred within the past ten years, including criminal convictions, SEC or state regulatory actions, self-regulatory organization (SRO) actions, and civil findings of fraud or violations of investment-related statutes.
The consequence of omitting a disclosure is severe. In In re Westport Capital Markets, LLC, the SEC barred a principal in part for hiding disciplinary history. A common misconception is that arrests without conviction never matter — they can, if they are part of a pending investment-related felony charge.
The Ten-Year Look-Back
The look-back runs ten years from the date of the event or the date the supervised person was released from any sentence, whichever is later. If an event is older than ten years, you may still need to disclose it if it remains material, meaning a reasonable client would want to know. The plain-English rule is: when in doubt, disclose.
The consequence of guessing wrong is a fraud charge, because a reasonable-investor standard governs materiality. For example, Brian Walsh had a 12-year-old SEC settlement involving misappropriation; even though it was outside the ten-year window, his attorney advised disclosure because the conduct directly affected client trust. A common misconception is that expunged events disappear — they may still be material for Advisers Act purposes, even after a FINRA expungement.
Cross-Referencing BrokerCheck and IAPD
The SEC expects Part 2B disciplinary disclosures to match the supervised person’s Form U4 and any entries on FINRA BrokerCheck or the SEC’s Investment Adviser Public Disclosure. Inconsistencies between these documents are a top reason examiners open a deeper investigation.
The consequence of a mismatch is a presumption of intent to mislead. Linda Park, a dual-registered rep, listed a customer complaint on her U4 but not on her Part 2B; the SEC treated the omission as a separate violation. A common misconception is that “settled without admission” means you do not have to disclose — you do, if the underlying claim is investment-related.
Item 4: Other Business Activities
Item 4 requires disclosure of any other business activity in which the supervised person is actively engaged, particularly if it is investment-related or creates a material conflict of interest. This includes acting as a registered representative of a broker-dealer, a licensed insurance agent, a real-estate broker, or the owner of a side business.
The consequence of hiding a side business is a conflict-of-interest violation under Section 206(2). A real example: Greg Sanderson, a dual-hatted insurance agent, failed to disclose that he sold variable annuities for commissions; the SEC found this material because it created a steering incentive. A common misconception is that “unpaid” board seats do not count — they do, if they involve investment-related entities.
Material Conflicts and Commission Income
If a supervised person receives more than 10% of income from a non-advisory activity, the supplement must say so explicitly. The plain-English rule is to describe the activity, the time it consumes, and how the firm addresses the conflict. The SEC’s Staff Bulletin on Conflicts emphasizes that disclosure alone is not always enough — the firm must also mitigate.
The consequence of inadequate mitigation is the conflict itself becomes a breach of fiduciary duty. For example, an adviser who recommends only proprietary annuities must disclose and document why those products are suitable. A common misconception is that disclosure cures all conflicts — under the SEC’s 2019 Fiduciary Interpretation, some conflicts must be eliminated.
Item 5: Additional Compensation
Item 5 captures economic benefits the supervised person receives from anyone other than clients for providing advisory services. This includes sales awards, prizes, soft-dollar benefits, expense reimbursements, and bonuses tied to gathering assets.
The consequence of omitting these payments is a fiduciary breach because clients cannot evaluate hidden incentives. A real example: in In re Robare Group, the SEC fined an adviser for failing to disclose revenue-sharing payments from a custodian. A common misconception is that de minimis gifts (under $100) never count — they may, if they form a pattern.
Item 6: Supervision
Item 6 requires the name, title, and telephone number of the person who supervises the supervised person, plus an explanation of how the supervision works. The plain-English rule is to describe the actual review process: who looks at trades, how often, what reports they review, and how they handle red flags.
The consequence of vague supervision language is a deficiency and, in severe cases, a separate charge under Section 203(e)(6) for failure to supervise. Tom Nguyen, a solo adviser, wrote “I supervise myself” on his supplement; the SEC told him to describe a specific compliance review program, including the annual review under Rule 206(4)-7. A common misconception is that solo advisers do not need an Item 6 — they do, and they must describe their compliance program.
Item 7: State-Registered Adviser Requirements
State-registered advisers must add an Item 7 covering additional disciplinary information not already in Item 3, including arbitrations, civil actions involving investment activity, and any bankruptcy filings in the past ten years. The NASAA Model Rule imposes these extra disclosures.
The consequence of skipping Item 7 is a state enforcement action and possible registration revocation. Anna Petrov, a state-registered adviser in California, omitted a personal bankruptcy from her Item 7; the California Department of Financial Protection and Innovation suspended her registration. A common misconception is that federal-registered advisers ignore Item 7 — they do skip it, but only if they are SEC-registered, not state-registered.
Three Real-World Scenarios
Different fact patterns trigger different disclosure choices. The scenarios below show how Part 2B works in practice.
Scenario A: Newly Hired Junior Adviser
| Filing Step | Outcome for the Firm |
|---|---|
| Junior adviser starts on day one with no prior history | Firm prepares a clean supplement listing degree, employer history, no disciplinary events |
| Firm delivers the supplement to all new clients before the first meeting | Firm satisfies Rule 204-3 initial delivery obligation |
| Firm files no Part 2B with IARD but retains a PDF copy | Firm meets Rule 204-2 recordkeeping for five years |
Scenario B: Dual-Registered Rep With a Customer Complaint
| Filing Step | Outcome for the Firm |
|---|---|
| Rep has a settled customer complaint on Form U4 from three years ago | Firm must disclose in Item 3 because it is investment-related and within ten years |
| Rep also sells insurance for commissions | Firm must disclose the outside business in Item 4 and the commission income in Item 5 |
| Firm fails to update the supplement when the U4 is amended | Firm faces a deficiency for stale disclosures |
Scenario C: Solo RIA Supervising Himself
| Filing Step | Outcome for the Firm |
|---|---|
| Solo adviser writes “I supervise myself” with no detail | SEC examiner cites Item 6 as inadequate |
| Solo adviser revises Item 6 to describe quarterly trade review and annual Rule 206(4)-7 review | SEC accepts the revised supplement |
| Solo adviser names a third-party compliance consultant as a check | Firm strengthens its supervision narrative and reduces enforcement risk |
Step-by-Step: Filling Out Each Item
The drafting process works best as a checklist. The SEC’s Part 2B General Instructions suggest the order below. The plain-English rule is to draft, peer-review, sign-off, and date.
Step 1: Gather the Source Documents
Collect the supervised person’s resume, transcripts, Form U4 disclosures, CRD report, professional designation certificates, and any litigation files. The consequence of skipping this step is that you may miss a disclosable event. Rachel Lee, a compliance director, built a “supplement file” for each supervised person to avoid this problem. A common misconception is that the resume alone is enough — it never is.
Step 2: Draft the Cover Page
Use a clean format with the SEC-required statement. The plain-English rule is to keep it under one page. The consequence of overloading the cover with marketing is a deficiency. For example, the SEC’s IM Guidance Update discourages logos that distract from disclosure. A common misconception is that you must use the SEC’s exact font — you do not, but readability matters.
Step 3: Build Items 2 Through 6 in Plain English
Write at a ninth-grade reading level. The consequence of legalese is that examiners read it as an attempt to obscure. Priya Sharma, an attorney, rewrote her client’s supplement using short sentences and saw the firm’s exam time drop in half. A common misconception is that lawyers must approve every word — review is wise, but the goal is client comprehension.
Step 4: Cross-Check Against U4 and IAPD
Run a side-by-side check of the supplement against the supervised person’s IAPD report and Form U4. The consequence of a mismatch is an automatic examiner red flag. For example, the SEC’s 2023 Risk Alert on Conflicts lists mismatches as a top finding. A common misconception is that small wording differences are fine — they are not, if they change the substance.
Step 5: Deliver and Document
Deliver the supplement before or at the time the supervised person begins providing advice to a client, per Rule 204-3(b). The consequence of late delivery is a per-client violation. Marcus Bell, a compliance officer, built an electronic delivery log with timestamps. A common misconception is that posting the supplement on the firm’s website satisfies delivery — it does not, unless the client affirmatively consents to electronic delivery under the SEC’s 1996 Electronic Delivery Interpretation.
Delivery, Updates, and Recordkeeping
The brochure rule has three timing obligations: initial delivery, annual updating, and interim amendments. Initial delivery happens before or at the time of entering the advisory contract. The annual updating amendment is due within 90 days after the firm’s fiscal year-end. Interim amendments are due promptly whenever information becomes materially inaccurate, especially under Item 3.
The consequence of missing an update is a per-client deficiency that compounds over time. A real example: in In re Westpark Capital, the firm was sanctioned for failing to update disciplinary disclosures after a new SEC action. A common misconception is that the annual amendment covers all updates — it does not, because material disciplinary events trigger an immediate update.
Books and Records Under Rule 204-2
Firms must retain each supplement, plus proof of delivery, for at least five years, with the first two years on-site. The plain-English rule is to keep PDFs in a centralized compliance folder with delivery logs. The consequence of weak recordkeeping is that examiners assume non-delivery. Sophia Martinez, a CCO, kept a delivery spreadsheet linked to her CRM system. A common misconception is that emails alone prove delivery — they do, only if the email shows the supplement was attached.
Mistakes to Avoid
Even careful advisers make recurring errors with Part 2B. Each mistake below has triggered SEC or NASAA action.
- Mistake 1: Using one supplement for multiple advisers, which makes Items 2 and 3 inaccurate and creates a misleading-statement claim.
- Mistake 2: Copying old boilerplate without updating dates, employers, or designations, which produces a stale supplement and a deficiency citation.
- Mistake 3: Omitting professional designation explanations, which violates the Item 2 instructions and signals sloppy compliance.
- Mistake 4: Hiding a customer complaint that is older than two years but within ten, which the SEC treats as fraud under Section 206.
- Mistake 5: Writing a one-line Item 6 like “the principal supervises,” which fails to describe the actual review process.
- Mistake 6: Failing to disclose outside business activity that generates commissions, which creates an undisclosed conflict.
- Mistake 7: Skipping Item 7 when the firm is state-registered, which triggers a state regulator’s enforcement action.
- Mistake 8: Treating electronic delivery as automatic, when SEC guidance requires informed consent.
- Mistake 9: Forgetting to update the supplement after a Form U4 amendment, which the SEC views as concealment.
- Mistake 10: Storing supplements only on a personal laptop, which violates Rule 204-2 recordkeeping standards.
Do’s and Don’ts
- Do write in plain, ninth-grade English, because the SEC requires clarity and clients deserve to understand the document.
- Do cross-check every disciplinary disclosure with Form U4 and IAPD, because mismatches are a top examiner red flag.
- Do update the supplement promptly after any material event, because the brochure rule treats delay as concealment.
- Do keep a delivery log with timestamps, because the firm must prove delivery during exams.
- Do involve outside counsel for Item 3 judgment calls, because materiality is a legal standard, not a guess.
- Don’t copy another adviser’s supplement, because each item must reflect the specific supervised person’s history.
- Don’t bury disclosures in footnotes, because the SEC treats burial as constructive omission.
- Don’t omit unpaid board seats, because Item 4 captures all investment-related activities.
- Don’t rely on a single annual update, because interim amendments are mandatory for material changes.
- Don’t assume expunged events are gone, because Advisers Act materiality is a separate inquiry from FINRA expungement.
Pros and Cons of Detailed Disclosure
- Pro: Detailed Part 2B disclosure reduces fraud claims under Section 206 because clients cannot allege concealment.
- Pro: Strong supplements build client trust and shorten the sales cycle for new advisers.
- Pro: Thorough Item 6 supervision narratives help defend against failure-to-supervise charges.
- Pro: Robust delivery logs cut exam time and reduce follow-up document requests.
- Pro: Plain-English drafting improves the firm’s Form CRS alignment and consistency.
- Con: Over-disclosure can create marketing concerns, especially for advisers with old, immaterial events.
- Con: Detailed conflict disclosures may invite client questions that consume staff time.
- Con: Frequent interim amendments increase compliance costs and require strong internal workflows.
- Con: Naming a third-party compliance consultant in Item 6 may shift some liability narrative onto that consultant.
- Con: Highly detailed designations explanations can make the supplement longer than the firm’s marketing team prefers.
Federal vs. State Differences
Federal and state regulators share most of the Part 2B framework, but the differences matter. The table below shows the key gaps.
SEC vs. State Requirements
| Topic | Federal (SEC) Rule | State (NASAA) Rule |
|---|---|---|
| Item 7 disclosures | Not required for SEC-registered advisers | Required for state-registered advisers, including bankruptcy and arbitration |
| Custody requirements affecting supervision | Rule 206(4)-2 | State custody rules vary, often stricter |
| Net worth and bonding | Generally none | Many states impose minimum net worth or surety bonds |
| Examination cycle | Risk-based, often 3-7 years | State exam cycles vary, sometimes annual |
| Books and records | Rule 204-2, five years | State rules often track Rule 204-2 but with state-specific add-ons |
Recap of Key Enforcement Rulings
Several SEC and state actions shape how examiners read Part 2B today. In In re Robare Group, the SEC penalized an adviser for hiding revenue-sharing payments — a direct Item 5 lesson. In In re Westport Capital, the SEC barred a principal for hiding a disciplinary history that should have appeared in Item 3. In SEC v. Strong, the SEC charged an adviser whose Item 2 educational claims were fabricated. These cases show that Part 2B is not paperwork — it is fiduciary disclosure that the SEC actively litigates.
The plain-English takeaway is that examiners read Part 2B with the same care as they read Part 2A. The consequence of treating it as a clerical task is enforcement exposure. For example, Henry Brooks, a small RIA owner, paid a six-figure penalty after his supplement omitted a state regulatory settlement. A common misconception is that small firms get a pass on enforcement — they do not, because the SEC’s Division of Examinations focuses on smaller advisers in its annual exam priorities.
Key Entities You Should Know
The Part 2B ecosystem involves several regulators and registries. The SEC sets the federal rules and runs exams for federal-registered advisers. The North American Securities Administrators Association (NASAA) coordinates the model rules that state regulators apply to state-registered advisers. FINRA operates the CRD and BrokerCheck systems that supply the U4 data underlying Item 3.
The Investment Adviser Public Disclosure (IAPD) database publishes Form ADV Part 1 and Part 2A but not Part 2B, which trips up many compliance officers. The plain-English consequence is that clients cannot self-serve supplements from a public website — the firm must deliver them. Olivia Brennan, a paralegal, built an internal portal that linked each supplement to the firm’s CRM so delivery proof was automatic. A common misconception is that the IARD and IAPD are the same — they are not, because IARD is the filing system and IAPD is the public-facing database.
FAQs
Do I need a Part 2B for every employee at my advisory firm?
No. Only supervised persons who give investment advice to clients with direct contact, or who make discretionary decisions over client assets, need a supplement under Rule 204-3.
Do I file Part 2B with the SEC through IARD?
No. Part 2B is not filed with IARD. The firm keeps it on file and delivers it to clients directly, while Part 1 and Part 2A are uploaded through IARD.
Do I have to disclose a settled customer complaint that is six years old?
Yes. A settled investment-related customer complaint within the ten-year look-back must be disclosed in Item 3, even if the supervised person admitted no wrongdoing.
Do I need to update the supplement every year?
Yes. The annual updating amendment is due within 90 days after fiscal year-end, but material changes — especially disciplinary events — require immediate interim updates.
Do solo advisers need a Part 2B supplement?
Yes. Solo advisers must prepare and deliver a supplement for themselves and describe a real supervision process in Item 6, even though they have no separate supervisor.
Do I have to explain every professional designation I list?
Yes. Item 2 requires a brief explanation of the prerequisites, exam, education, and continuing education for each designation, such as CFP, CFA, ChFC, or AIF.
Do expunged FINRA events need to appear in Part 2B?
No. Expunged events generally do not appear, but you must still evaluate materiality under the Advisers Act and disclose if a reasonable client would want to know.
Do I need to disclose unpaid board service on Item 4?
Yes. Unpaid board service at an investment-related entity must be disclosed because it creates a potential conflict of interest, even with no compensation.
Do state-registered advisers complete Item 7?
Yes. State-registered advisers must complete Item 7 with extra disciplinary disclosures, including bankruptcies and arbitrations from the past ten years.
Do I have to deliver the supplement on paper?
No. Electronic delivery is allowed if the client has given informed consent under the SEC’s 1996 electronic delivery interpretation, and the firm keeps proof of delivery for five years.
Do gifts under $100 count as additional compensation?
Yes. Even small gifts may count under Item 5 if they form a pattern or come from a product sponsor with a steering interest.
Do I need to disclose a pending criminal investigation?
Yes. A pending investment-related felony charge is presumed material under Item 3 and must be disclosed even before conviction.
Related reading
- How to Fill Out SEC Form ADV Part 2A (w/Examples) + FAQs
- How to Fill Out SEC Form ADV (w/Examples) + FAQs
- How to Fill Out SEC Form C (w/Examples) + FAQs
- How to Fill Out SEC Form CRS (w/Examples) + FAQs
- How to Fill Out SEC Form U4 (w/Examples) + FAQs
- How to Fill Out the State Investment Adviser Notice Filing + FAQs
- How to Fill Out SEC Form S-1 (w/Examples) + FAQs