SEC mobilizes to upgrade ADV-2 disclosure requirements

The Securities and Exchange Commission is close to proposing upgrades to Part 2 of the Form ADV, the primary disclosure document that clients receive from investment advisers.
“We are looking to move past the 1960s check-the-box, paper-based approach, by requiring a plain-English narrative discussion of an adviser’s conflicts, compensation, business activities and disciplinary history,” SEC Chairman Mary Schapiro told compliance officials at a Securities Industry and Financial Markets Association conference.
The SEC proposed revisions to the ADV form as long ago as 2000, and again in March 2008.
“We’ve been pushing the SEC hard to get this done,” David Tittsworth, executive director of the Investment Advisor Association, wrote in an e-mail. “While the new requirements will involve substantial work for advisory firms, we believe the changes will help to improve the level and quality of information for advisory clients.”
According to a copy of Ms. Schapiro’s remarks, the agency’s staff is preparing to make recommendations to the full commission about modernizing the ADV form. The revised rule will call for the form to be made available to the public through the SEC’s website “so that investors, regulators and the public at large have free and simple access to it,” she said.
Ms. Schapiro also told members of SIFMA’s Compliance and Legal Society that the SEC will this year consider new rules addressing 12(b)-1 mutual fund fees paid to brokers. The fees were initially intended to pay for marketing.
“In 2008, these fees totaled $12 billion, but many investors have little idea that they are being deducted from their mutual fund — or what they are paying for,” Ms. Schapiro said. “We need to critically rethink how 12(b)-1 fees are used and whether they remain appropriate.”