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November 01, 2010 at 08:00 PM
In this, the third in our series of columns looking at the latest regulations for advisors from the SEC, let’s look at the new Form ADV disclosure. Is it really different?
We have been using the new format for two months now. If you have been preparing your written disclosure statement properly (fully disclosing your operations, practices, and conflicts—yes, all advisors have conflicts), outside of the new biographical sections (which are a throwback to the retired Schedule D from 13 years ago), the new Form ADV should not be a big challenge. Since we have been crafting our clients’ disclosure documents using plain English narratives for many years, we have found it to be a relatively smooth transition. For many, it will be a rearranging of the deck chairs. For others, I encourage you to take this opportunity to do it right now so you can rest assured that your written disclosure statement will pass regulatory muster.
Form ADV Part 2 has been broken out into two new sections, ADV Part 2A and ADV Part 2B. This amendment to Form ADV will not affect the vast majority of investment advisors until their annual amendments are due.
The New Form ADV Part 2A
The new Form ADV Part 2A, or brochure, takes the place of an investment advisor’s old ADV Part 2 and Schedule F, and is meant to be the investment advisor’s primary disclosure document. The ADV Part 2A contains 18 disclosure items, each to be included in the investment advisor’s brochure. Each disclosure item is to receive a narrative, plain English response.
The new ADV Part 2A attempts to homogenize the way that investment advisors disclose their business practices and conflicts of interest. The intent of the revised Form ADV is to provide investment advisory clients with greater transparency, thereby helping RIAs’ clients to better assess the services, investment strategies, risks and conflicts of interest associated with the selection of a particular investment advisor. The ADV Part 2A must be filed electronically through the IARD system by all advisory firms.
