Where do we find ourselves in the Form ADV debate? You'll recall that in April the SEC published proposed amendments to Part 2 of Form ADV. Form ADV Part 2 is used by investment advisors to satisfy the SEC's written disclosure statement requirement. According to the Financial Services Institute, the purpose of the Proposed Amendment is to require investment advisors to provide clients and prospective clients with a clear, current and meaningful disclosure of the business practices, conflicts of interest and background of the investment advisor and its advisory personnel. The Proposed Amendment would replace the current "check-the-box" format and related disclosure schedules with a plain English, narrative brochure. The brochure would contain enhanced disclosure of potential conflicts of interest and would incorporate the disclosure of legal and disciplinary events involving the investment advisor firm and its management personnel.
The Proposed Amendment would also revise the disclosure, delivery and updating requirements for Form ADV Part 2. Advisors would file their brochures with the SEC electronically. The brochures would then be made available to the public through the SEC's Web site.
While the Proposed Amendment is largely a useful improvement in the disclosures provided by investment advisers to clients, FSI believes certain changes must be made to provide clarity and reduce the cost of compliance. In addition, the organization believes the effectiveness of the disclosures contained in Form ADV Part 2 could be significantly improved through focus group testing with investors. While the deadline for comments has passed, the SEC will accept late comment letters. As a result, the organization urges all FSI members to submit comment letters to the SEC raising the talking points described in the Member Briefing available at www.financialserives.org. FSI has submitted a detailed comment letter and will continue efforts to advocate for further improvements to the Proposed Amendment.