More On Legal & Compliancefrom The Advisor's Professional Library
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
In my most recent blog posting, I wrote about the history of the Form ADV, and about the July 2010 decision by the SEC to require a new Form ADV Part II. In that blog, I mentioned that this is not a cosmetic change, but a true overhaul. Here is my second big-picture observation about the new Part II.
This is not a regulation that only compliance officers should fret about.
Advisory firms will be required to file their brochures electronically in PDF format and the most recent version of the brochure will be publicly available on the SEC’s website. The SEC, other regulators, the media, your clients (both current and prospective), all of your competitors, and anyone else with a computer will have instant access to your firm’s brochure. This means that every principal in your firm should be concerned about the content and accuracy of the brochure. But look on the bright side. If it’s done right, the new brochure could present a great marketing opportunity for firms that have their act together. It allows them to describe what their firm does, how it understands potential problems and deals with them, and why they should be entrusted with the job of providing investment advice to others.
Whether or not the new rule actually accomplishes its goal of producing a document that is readable and understandable will be the subject of debate in the months and years ahead (in the IAA's initial comment letter on Part 2 in 2000, we noted that the “proposed brochure will be too lengthy and dense for retail clients to read or understand…”). For now, you should be concerned about how to comply with the significant changes the SEC has approved
Oh, and by the way, it’s my understanding that the SEC will soon consider significant changes to Part 1 of Form ADV.
I welcome your thoughts about the new brochure requirements and how you intend to deal with them…