Rule 206(4)-4 under the Advisers Act requires every SEC-registered investment adviser that has custody or discretionary authority over client funds or securities, or that requires prepayment six months or more in advance of more than $500 of advisory fees, to disclose promptly to clients and prospective clients (collectively, "clients") any financial conditions of the adviser that are reasonably likely to impair the ability of the adviser to meet contractual commitments to clients. The rule also requires advisers (regardless of whether the adviser has custody or requires prepayment of fees) to disclose promptly to clients legal or disciplinary events that are material to an evaluation of the adviser's integrity or ability to meet its commitments to clients. The rule lists a number of legal and disciplinary events for which there is a rebuttable presumption of materiality for these purposes (although an event may still be material even if it is not on the list).

The Division takes the position that an investment adviser must disclose to clients all material information regarding its compensation, such as if the adviser's fee is higher than the fee typically charged by other advisers for similar services (in most cases, this disclosure is necessary if the annual fee is three percent of assets or higher). An investment adviser must disclose all potential conflicts of interest between the adviser and its clients, even if the adviser believes that a conflict has not affected and will not affect the adviser's recommendations to its clients. This obligation to disclose conflicts of interest includes the obligation to disclose any benefits the adviser may receive from third parties as a result of its recommendations to clients.

An investment adviser (even if unregistered) may be subject to disclosure obligations not only under the Advisers Act, but also under other federal statutes, including the Securities Exchange Act of 1934 (the "Exchange Act"). For example, Section 13(f) of the Exchange Act, and Rule 13f-1 thereunder, generally require an investment adviser exercising investment discretion, or sharing investment discretion with others, over equity securities (which would include convertible debt and options) having a fair market value in the aggregate of at least $100 million to file, on a quarterly basis, a Form 13F disclosing the holdings that it manages on its own behalf and on behalf of clients.