ADV overhaul: Plain English is Greek to some advisers

Advisers struggle with new ADV forms; like learning a new language

Jan 23, 2011 @ 12:01 am

By Liz Skinner

Many financial advisers are finding out that they aren't as fluent in English as they thought.

Starting March 31, many advisers will be required to provide clients with plain-English descriptions of their investment philosophies, fee schedules and conflicts of interest on the Securities and Exchange Commission's Form ADV Part 2. The rule change is intended to make it easier for clients to compare advisers' services and business models.

But writing in plain English is more complex than simply substituting nickel-and-dime words for dollar words and “dumbing down” content, according to experts who have spent decades helping the U.S. government and many companies make their documents easier to understand.

“People tend to oversimplify what plain language means,” said Joseph Kimble, a legal-writing professor at Thomas M. Cooley Law School. “It covers everything — organizing the document, designing it, sentence construction — and should involve testing the document on typical readers.”

Mr. Kimble has identified 40 elements to consider when moving to plain language, including the use of an active voice, short sentences, everyday words, descriptive headings, adequate line spacing, clear fonts and readable type sizes.

However, it's much more than a style issue, he said.

“It's a matter of effective, efficient government and business communication that really serves the needs of citizens and clients,” he said.

But for that to happen, there must be “the will to do it and the skill to do it,” Mr. Kimble said. “It takes practice, training and effort.”

BIGGER PUSH

The SEC rule change is part of a bigger push by the federal government to cut back on the use of legalese in documents going to consumers. Directives pushing the government to use plain language have been signed by Presidents Jimmy Carter, Bill Clinton and Barack Obama, although Ronald Reagan rescinded his predecessor's efforts.

Even so, one look at an IRS tax form or an agency rule proposal reveals that plain English hasn't taken hold.

There are a few reasons for this, according to Annetta Cheek, board chairwoman at the Center for Plain Language and a retired federal worker.

“They've been taught to write in another way their entire careers,” she said.

Additionally, many attorneys and engineers believe that their material is so technical and special that it's impossible to write it simply.

“Of course, that's bull,” Ms. Cheek said.

Some government efforts failed over the years because they lacked support from higher-ups, she said. For instance, a plain-English initiative at the Small Business Administration in the late 1990s stalled when a new chief counsel wasn't as interested in plain language as the departing one.

“People have sometimes given up because it was too much work,” Ms. Cheek said.

The Center for Plain Language grants awards for documents and websites that have moved to plain language. It also gives out “WonderMarks” (as in, “we wonder what they were thinking”) for the “least usable” documents.

The most recent WonderMark went to the Department of Homeland Security for its Form I-94W, which states: “This form must be completed by every nonimmigrant visitor not in possession of a visitor's visa, who is a national of one of the countries enumerated in 8 CFR 217.”

Studies show that plain language saves time and money for communicators and eliminates hours of frustration for end-users.

HIDDEN COST

“Bad writing is a tremendous hidden cost, both in [terms of] production and cost to customers,” said Richard Lauchman, a plain-language consultant to government and private industry.

Experts suggest that advisers struggling to rewrite their documents take a look at the handbook developed by the SEC in 1998 to help companies write sections of their prospectuses in plain English (sec.gov/pdf/handbook.pdf).

However, it's likely that many chief executives will feel the need for a professional's help — if they can find one.

Advisers have been preparing for the change since July, when new rules for the ADV Part 2 were approved. However, consultants and lawyers say that only in the past 20 days have they been inundated with calls from advisers seeking help.

“I don't see how advisers are going to make the deadline,” said Ken Kaltman, chief operating officer at National Compliance Services Inc.

His firm isn't accepting new clients for ADV work, because the 12-person team will have to work full-time through the deadline to meet the needs of existing clients.

“We're getting two dozen calls a day from advisers who haven't started yet,” said Patrick Burns Jr., president of Advanced Regulatory Compliance Inc. and managing attorney with an eponymous law firm.

Moving from mostly a “check the box” type of prescribed format to a document with paragraphs that describe 18 or 19 items required by the SEC is a challenge, especially the first time, said David Canter, executive vice president of practice management at Fidelity Investments.

“Whenever something is so new, folks want to make sure they are paying enough attention to detail and getting it right,” he said.

For months, Fidelity has been providing its 3,000 registered investment adviser clients with webinars featuring consultants who offer advice on plain English.

An informal survey of 200 Fidelity advisers conducted Jan. 6 showed that most aren't ready, Mr. Canter said. “It was surprising how many folks are still working on it, and a lot haven't started on it.”

The rules require that firms whose fiscal year ends Dec. 31 file their ADV Part 2A documents by March 31. The SEC estimates that the rule covers 92% of the advisers registered with the agency.

The SEC recently extended by four months the deadline for the ADV Part 2B forms, which contain personnel profiles.

“All of these people procrastinate, but I don't think anybody is going to jail over this,” Mr. Kaltman said.

E-mail Liz Skinner at lskinner@investmentnews.com.

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