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Regulation and Compliance > Federal Regulation > SEC

SEC mandates plain English for investment advisor brochure

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If you’re a registered investment advisor, get ready to disclose more information on your Form ADV, Part 2 and to use plain English. That’s because the Securities and Exchange Commission recently voted to adopt changes to the principal disclosure document that advisors provide to clients and prospective clients.

The brochure in its current format requires advisers to respond to a series of multiple-choice and fill-
in-the-blank questions organized in a check-the-box format that frequently does not correspond well to an advisor’s business. In some cases, the required disclosure may not describe the advisor’s business
or conflicts in a way that is truly accessible to the investor.

“These changes are designed to provide clients with greater information about the individuals who will provide them with investment advice,” says SEC Chairman Mary L. Schapiro. “(They) will help transform the brochure into a plain English narrative that is well-suited to serve investors’ needs and describes the advisor’s conflicts, compensation, business activities and disciplinary history.”

The amendments adopted by the SEC will:

  • Improve the format and update the requirements of the brochure.
  • Expand the content to better include details most relevant to the clients of investment advisers.
  • Require brochure “supplements” to be delivered to new and prospective clients to give resume-like information about the individuals at an investment advisory firm that will provide services to the clients.
  • Ensure investors have easy access to the brochures as investment advisors are required to file them electronically for posting on the SEC’s website.

The amended rules and forms will be effective 60 days after publication in the Federal Register. Most investment advisors will begin distributing and publicly posting new brochures in the first quarter of 2011.


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