Disclosure Statement

What it is:

A disclosure statement is an official document that outlines the terms, conditions, risks and rules of a financial transaction, such as a loan or an investment.

How it works/Example:

In the case of a loan, the disclosure statement describes the terms of the loan, such as the interest rate, the amount borrowed, the repayment schedule, fees, disbursement conditions, collateral requirements, insurance requirements, prepayment rights (or penalties), and any other expectations of the lender and any additional obligations of the borrower.

The disclosure statement is part of the loan documentation and may be referenced and used as a part of other legal documentation, including the loan agreement, note, security agreements, pledge agreements, and other documents signed when the loan is closed.

The disclosure statement for investments, such as IRAs, explains the rules of the investment in simple, non-technical language. The disclosure statement includes the rights and restrictions of deposits, redemptions, withdrawals and penalties of the investments. In these cases, the disclosure statement is provided in advance of the execution date of the investment, allowing the investor time to consider the requirements and make a decision.

Why it Matters:

The disclosure statement is an important source of clear, concise, non-technical information about the loan or investment. It is usually written without the legal-speak or complex financial language found in other official documents. It provides the borrower, lender or investor with straightforward information about the obligations, commitments, and rights.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.