SEC Approves Changes to Form ADV Part 2

The Securities and Exchange Commission (SEC) voted Wednesday, July 21, to adopt long-awaited changes to the Form ADV Part 2 used by advisors, moving the primary disclosure form that advisors use from a check-the-box format to a more robust narrative one.

As it stands now, the SEC approved a single Form ADV Part 2–one that can be used by both SEC and state-registered advisors. During the last minutes of the SEC’s open meeting, the Commission approved a five-day window for the SEC and the states to work on technical, state-specific provisions that will enable state and federally registered investment advisors to use a single Form ADV Part 2. The North American Securities Administrators Association (NASAA) was up in arms over the SEC staff recommendation to adopt a version of Form ADV Part 2 to be used by investment advisors registered only with the SEC, and not those that are registered with the states. But Denise Voigt Crawford, Texas Securities Commissioner and president of NASAA, says that the five-day window gives the SEC time to fix a “procedural” snafu that cropped up, and that she’s confident state-specific procedural language will be inserted during the five-day timeframe and a single Form ADV Part 2 will be adopted by the SEC. One form “is the right result,” Crawford says.

Under the new rules, the SEC says that advisors will have to “provide new and prospective clients with narrative brochures that are organized in a consistent, uniform manner and that include plain English disclosures of the advisor’s business practices, fees, conflicts of interest, and disciplinary information.” Advisory firms also must provide “brochure supplements,” to clients containing information about the employees who will provide the advisory services to that client.