Some financial advisers waited until today — the federal filing deadline — to send the SEC their updated disclosure documents because they didn't want to share this sensitive business information until absolutely necessary, consultants said.
Advisers have had since last July, when the Securities and Exchange Commission approved new requirements that the advisers' ADV Part 2 forms include plain-English descriptions of their investment philosophies, fee schedules and possible conflicts of interest. The rule changes are intended to make it easier for clients to compare advisers' services and business models.
“There's sensitivity among these advisers about being the first to share their information about their business, their fees and any potential conflicts,” said Barry Schwartz, partner at ACA Compliance Group LLC. “Everyone is looking to show their cards last.”
All financial advisory firms whose fiscal year ends Dec. 31 were required to file their ADV Part 2A documents by today. The SEC estimates that the rule covers 92% of the roughly 11,000 advisers registered with the agency. Most state-registered firms also have similar requirements.
Some advisers who filed the forms in the last day or two said it was because it took extra time and effort to complete the documents, which were more difficult to prepare than many advisers expected, consultants said. The form is moving from a mostly “check the box” type of prescribed format to a document with that requires the adviser to write a paragraph for 18 or 19 items.
Mr. Schwartz said there had been concern within the industry about how the IARD system would handle a large number of filings in the last 48 hours. So far, though, the system is not having any problems, he said. The IARD system, which is what advisers use to file their ADVs, is open until 11:00 pm.
The commission requires the disclosure document be submitted in a PDF format, which will allow SEC examiners to more easily search the ADV forms and look for certain information. The agency is expected to be most interested in the potential conflicts of interest, disciplinary actions, how advisers hold assets in custody and referral fee arrangements.
“The commission will focus on areas that are high up on the radar screen from a compliance standpoint,” said Ken Kaltman, chief operating officer at National Compliance Services Inc. “They'll look where the risks are and what the advisers are offering as investments to their clients.”
The information advisers reveal in their ADVs is likely to be scrutinized by their competitors, as well as regulators. Firms will be able to review each others' methodologies and strategies, as well as see what their competitors are charging, Mr. Kaltman said.
Over the next month or two, advisers likely will check out each others' disclosures and adjust their own.
“They may have forgotten to disclose certain conflicts,” Mr. Schwartz said. “Some firms may have found they overdisclosed.”
Firms have 60 days from the day they file the info with the SEC to get it to their clients.
