More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
The Securities and Exchange Commission has voted unanimously to require fund companies "to provide investors with a concise summary -- in plain English -- of the key information they need to make informed investment decisions ... at the front of a fund's prospectus." In addition, the SEC has approved amendments to encourage funds "to make greater use of the Internet so investors can receive more detailed information in a way that best suits their needs," according to the regulatory body.
"Today's action will help mutual fund investors more easily obtain the key information they need -- such as the description of the fund's investment objectives and strategies, fees, risks and performance," explains SEC Chairman Christopher Cox. "The summary prospectus will quickly give investors a basic understanding of the fund and will permit them readily to compare one fund to another."
Andrew J. Donohue, director of the SEC's division of investment management, adds, "Many investors often find current fund prospectuses to be lengthy, legalistic and confusing. This mutual fund disclosure framework will provide information that is easier to use and more readily accessible, while retaining the comprehensive quality of the mutual fund information available today."
In late November, the Investment Company Institute welcomed the "summary prospectus" decision. According to ICI President and CEO Paul Schott Stevens, ICI research has shown that investors would prefer such a document to the long-form statutory prospectus.
"ICI has worked with the Commission for almost 15 years to promote the development of a short-form prospectus," adds Schott Stevens. "In today's financial environment, investors need clear, concise disclosure more than ever."
While the rule changes are effective on February 28, 2009, funds must begin complying with the form changes on January 1, 2010.
Janet Levaux, MBA/MA, is the managing editor of Research; reach her at email@example.com.