Form ADV Part 2A Item 14: how to disclose referral compensation

What does Item 14 of Form ADV Part 2A ask?

Item 14, titled Client Referrals and Other Compensation, has two parts. The first asks about economic benefits an adviser receives from someone who is not a client for providing advisory services to clients. The second asks about compensation the adviser pays to people who are not its supervised persons for client referrals. Read the current instructions on the SEC's Form ADV page for the exact wording, because the instructions are the authority and this page is a summary.

The question for a wealth advisor is a narrow one. If you introduce a client's business to SourceX and later receive a reward, does that fit either part of Item 14, or does it belong somewhere else in your brochure? The honest answer is that it depends on facts your compliance team has to review.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, chief compliance officer or regulator before acting.

Where a data licensing reward may or may not fit

Item 14 is written around advisory services. A reward for introducing a client's operating company to a data licensing program is not advice about securities, and it is not a referral of a client to you. That does not close the question. The fiduciary duty to clients, and the conflict-disclosure expectations that come with it, apply to compensation that could affect what you recommend.

For registered representatives, FINRA reported that the SEC approved new Rule 3290 on outside activities in September 2026, replacing Rules 3270 and 3280, with the effective date to be announced. Until then the existing rules apply, so ask your firm which version governs your activity.

How would an adviser describe the arrangement?

Plain language works better than legal phrasing. A useful disclosure names the program, the trigger for payment, the amount in general terms and the fact that the client's proceeds are not reduced. Put a draft in front of compliance rather than writing it in isolation.

Three drafting rules keep the wording honest:

• State that the reward exists before the introduction, not after.
• Say who pays it and when it becomes payable.
• Avoid promising any amount; use the program's published terms on the program terms page.

A review sequence before you make any introduction

1. Read Item 14 and the neighboring items of your own brochure, and note what is already disclosed about outside compensation.
2. Ask your chief compliance officer in writing whether this reward is in scope, and keep the answer.
3. Check whether your firm, custodian or broker-dealer must approve outside activities.
4. Decide whether the reward goes to you, to your firm or to nobody, and document that decision. Some firms prefer firm-level receipt so the individual has no personal incentive.
5. Draft client disclosure, give it to the client in writing before the introduction, and record that you did.
6. Update the brochure at the next amendment if compliance concludes it is required.

Other professions face the same pattern of disclose first, then introduce. The questions of whether a tax preparer can accept a referral fee and how independent sponsors disclose referral income show how different rulebooks reach similar practical advice.

What a disclosure should not do

• It should not describe SourceX's pricing, a client's data or a client's name to anyone without the client's consent.
• It should not imply that licensing data is suitable for every business.
• It should not tell the client that a reward is certain. Rewards depend on a completed deal and on SourceX receiving payment.
• It should not stand in for the conversation. A signed acknowledgment helps, but a client who did not understand the arrangement has not really consented.

Disclosure to clients is also good practice for any public recommendation. The FTC's Endorsement Guides, covered in the agency's announcement of the updated guides, expect a material connection between a recommender and a seller to be clearly disclosed. That is a separate regime from the adviser rules, and it applies if you ever post about the program.

How the SourceX reward works

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. The reward is a share of SourceX's fee and is never deducted from what the company receives. Whether you can accept it at all is a question for your compliance function, not for this page.

When to skip it

• Your firm prohibits any compensation from third parties unrelated to advice.
• The client is an individual with no operating company, or the company falls below 50 full-time employees at peak (contractors excluded).
• The records mainly belong to the company's own customers who have not agreed to licensing.
• Compliance has not answered in writing.

You can still be useful without a reward: some advisers simply tell a business-owner client that the option exists and point to the company fit checker, a preliminary, non-binding screen that needs no contact details.

Next step

Ask your compliance officer the Item 14 question this week. If the answer is yes, register as a partner, read the who qualifies baseline, and introduce a client only after the disclosure is in writing.