SEC proposes improved disclosure

Although a proposal from the Securities and Exchange Commission would make disclosure forms easier to read, it could call for advisers to include their disciplinary histories. Last Wednesday, the Washington-based regulator proposed rule amendments that would require investment advisers to prepare narrative brochures in plain English for clients and prospects. These brochures would be available through the Investment Adviser Public Disclosure website, detailing conflicts of interest and business practices, as well as disciplinary histories. The proposed amendments will affect Part 2 of Form ADV, the adviser brochure and related rules. The problem is that a similar rule had been introduced eight years ago, calling for expanded online disclosure. The SEC pulled back after facing opposition from large investment advisory firms and their attorneys who found the requirements burdensome, according to The Wall Street Journal. At the moment, advisers have a check-the-box and fill-in-the-blank form for their brochures, but the plain English narrative brochure would give investors information on the types of advisory services an adviser provides, as well as the fees they charge and the risks that the clients can anticipate. The benefit to the clients outweighs the possible inconvenience behind detailed disclosure, said S. Nick Massey, regional vice president and a certified financial planner at the Householder Group. “I think disclosures to clients in something they can understand is a good thing,” he said. “If advisers have had disciplinary actions, their being required to disclose that protects the rest of us who haven’t been disciplined.”