More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- 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.
As the March 31 deadline for filing the new Form ADV Part 2A approaches, advisors are scrambling to provide the disclosure details required by the Securities and Exchange Commission—at the same time that they’re struggling to write the brochure as a plain-English narrative that makes sense to clients.
How are they managing to pull off such a balancing act?
As a service to other advisors, Susan John, president of the National Association of Personal Financial Advisors (NAPFA), has given AdvisorOne permission to publish this PDF of her firm’s Form ADV Part 2A brochure.
John’s goal is to share exactly how the brochure for her firm, Financial Focus Inc., Wolfeboro, N.H., provides the transparency that the SEC requires while providing clients a reader-friendly document that lets them better assess her firm’s services, investment strategies and risks.
Financial Focus will post the form on the Investment Adviser Registration Depository (IARD) site on Monday, but is already sending the form to clients.
Part 2A must be filed electronically on the IARD no later than March 31, according to Thomas D. Giachetti, chairman of the Securities Practice Group of Stark & Stark, a law firm with offices in Princeton, New York and Philadelphia. Click here for Giachetti’s complete rundown on getting the new Form ADV right.
“The instructions for Form ADV Part 2 are 26 pages long themselves, so we had to read through them, and I also read through the SEC’s 174-page final ruling on the new Part 2 and its narrative format,” said Rachel Sanborn, a financial planner at Financial Focus who also serves as the firm’s chief compliance officer and research analyst. “But I read the health-care reform act, which is almost 3,000 pages long, so 174 pages seemed pretty easy in comparison.”
Sanborn’s advice to advisors is to write the form using the SEC’s 26-page long instructions, and going step by step through those instructions. “That simplifies the process,” she said.
In addition, Financial Focus used the ProTracker ADV Part 2 software developed by Warren Mackensen, an advisor colleague of John’s. The ProTracker provides a formatting structure while filling in headings and basic text.
“Warren put in information we didn’t need, and he repeated himself in places because he’s such a thorough guy, but it gave us a good structure,” Sanborn said. “Then what let us make it really short and sweet was going through the SEC instructions and following it point by point.”
By cutting back on repetition, John and Sanborn managed to reduce their brochure to 21 pages, compared to the 35 to 40 pages they’re hearing that many advisors have written. For example, Financial Focus’ “firm description” section originally contained information about services and fees, but the SEC’s instructions call for services and fees information elsewhere, so John and Sanborn deleted that information from the firm description.
Read about NAPFA’s consumer guide for how to find a financial advisor, which includes a weblink to the guide, at AdvisorOne.com.