SEC gives OK to major redesign of ADV Part 2

Revisions to disclosure form seen as better for investors; could create headaches for advisers, though

Jul 21, 2010 @ 2:37 pm

By Jed Horowitz

It's been a busy day for the Securities and Exchange Commission. Along with announcing a proposal to ditch 12(b)-1 fees for mutual funds, the agency's commissioners unanimously adopted rules to redesign Form ADV Part 2, the key disclosure document provided by advisers to clients.

The SEC said the ADV Part 2 redesign is a major advance in helping consumers shop for an investment adviser. But it may also place a burden on advisers who must figure out how much information to divulge.

The rules would require advisers to send prospects and clients in narrative form a “brochure” with information on 18 different areas of their practices before engagement contracts are signed. What's more, the SEC wants advisers to provide regular updates of the brochures in electronic format for public viewing on the SEC's website — rather than merely providing the info to new clients. Advisers will have to prepare “plain-English" written narratives for the new form.

The current ADV Part 2 form is largely a check-the-box, multiple-choice document that does not present information in a way that “enhances investor understanding,” Andrew "Buddy" Donohue, director of the SEC's Division of Investment Management, said in presenting the rule changes.

Disclosure about conflicts of interest, one of the benchmarks of advisers' fiduciary duty to clients, more often confuses clients under the current form, added SEC member Elisse Walter.

Adviser groups for years have been urging the SEC to take action on the redesign of the ADV Part 2. They contend that the new narrative form will be more investor-friendly than the old check-the-box format.

Nevertheless, the new disclosure document means advisers must present relevant information about fees, investment styles, disciplinary histories and conflicts of interest — all without overwhelming investors.

The change "will require a significant effort by all investment advisers to revise their current Part 2 forms," David Tittsworth, executive director of the Investment Adviser Association, wrote in an e-mail earlier this week..

[InvestmentNews senior editor Dan Jamieson contributed to this story]

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Children of AI, and when they are coming to financial advice

Technology reporter Ryan Neal talks about the tremendous progress in artificial intelligence in other industries, and how its applications are slowly making headway in the advice sector.

Latest news & opinion

SEC advice proposal unveiling: Here's what to expect

Chairman Jay Clayton will initiate momentous action Wednesday, as the commission meets to debate a rule on broker and adviser standards.

How active are the largest actively managed funds?

Active-share measures for the 15 largest actively traded mutual funds.

Morgan Stanley's success looks long in the tooth to analyst

Sanford C. Bernstein & Co. analyst Christian Bolu, concerned over stalled adviser growth and what it means for lending and deposit growth, believes the stock will "under perform."

Retirement coverage gap, 401(k) rollovers are big emerging threats for plan advisers

Proliferation of state retirement programs approaching the 'tipping point' where it will lead the federal government to step in.

Biggest arb awards firms won from their brokers

These are among the biggest arbitration decisions that brokerage firms have won from their brokers over the past year. The awards highlight intra-firm battles.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print