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Regulation and Compliance > Federal Regulation > SEC

SEC’s New Form ADV Requirements: Fidelity Offers Guidance

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Fidelity Investments is scheduling a series of webinars and regional workshops in 2011 to help its registered investment advisor clients who are worried about complying with the Securities and Exchange Commission’s latest regulatory changes.

RIAs are attending Fidelity’s courses in record numbers to receive assistance from third-party experts such as lawyers and compliance consultants on such regulatory puzzles as how to answer Form ADV Part 2 and cost-basis reporting changes.

Boston-based Fidelity, with assets under administration of over $3.3 trillion as of Oct. 31 including managed assets of over $1.5 trillion, alerts clients to upcoming regulatory courses via its Insight & Outlook market-intelligence service on RIA platforms.

The SEC’s Form ADV Part 2, a 26-page form requiring 10.6 hours of “estimated average burden hours per response,” has been an area of particular concern. In the form, advisors have to describe the services they offer and be prepared to provide it to any client who asks. Starting next year, advisors are required to draft a new, more narrative brochure that describes their business practices, conflicts of interest and a background of their advisory personnel.  They are also required to post the form to their website and update it at least annually.

“What we’re finding is that with ADV Part 2, most clients are going to have to spend a significant amount of time in the first quarter to undergo the transition from what they were used to with ADV Part 2 to the new format, which is a narrative brochure,” said David Canter (left), executive vice president and head of practice management at Fidelity's RIA custody business. “Whenever you leave things open to interpretation, that creates uncertainty, especially when you’re dealing with a regulatory filing.”

But Fidelity is hearing from RIAs that they’re not just worried about Form ADV.

“The whole year of 2011 appears to have looming regulatory changes for advisors,” Canter said.

For example, he pointed to the Dodd-Frank reform bill’s requirement for advisors with $25 million to $100 million in assets under management to undergo a transition from federal to state registration. Beginning next year, 4,000 advisors who have under $100 million in assets will need to switch their ADV registration from the SEC to oversight by the states in which they do business. In many cases, advisors have clients across multiple states.

States are now converting over to the Part 2 A form, and “no state is rejecting the format,” said Stephen Galletto, an attorney and member of the securities department at the Lawrenceville, N.J., law firm Stark & Stark. Galletto is heading up a project to convert Stark & Stark clients to the new Form ADV Part 2. His colleague, Thomas Giachetti, chairman of Stark & Stark’s securities practice, is one of the law experts tapped to help Fidelity with its webinars and workshops.

Galletto also advises RIAs that:

  • With information required on the new Form ADV, customers in any state can see disciplinary action taken against an RIA, no matter what state the firm or representative is located in. Customers also can perform an Investment Adviser Search on the SEC’s website .
  • Deadline dates vary, but they are coming soon. For new filings, Parts 2A and 2B of the ADV Formmust be uploaded electronically as of Jan. 1, 2011, forRIA individuals or firms seeking to be SEC-registered. For existing SEC-registered investment advisor firms, the deadline is 90 days from the firm’s fiscal year-end. For example, fiscal years ending on Dec. 31, 2010, would have a “hot date” of March 31, 2011.

"From a practice management standpoint, what we’re trying to do is to make sure advisors are educated and prepared to protect their practice and its franchise value,” Canter said, noting that a recent Fidelity webinar on cost-basis reporting had more than 550 participants—strikingly higher than the couple hundred advisors who typically attend webinars."

As for the complications of Form ADV Part 2, the SEC’s new form is divided into two sections. Part 2A replaces the old ADV Part 2 and Schedule F, and requires advisors to provide a narrative, plain English disclosure of business practices and conflicts of interest. Part 2B is a supplement that details disclosure about anyone who provides investment advice to clients and has direct client contact, as well as anyone who has discretionary authority over client assets, even if that person doesn’t interact directly with the client.

According to “A Plain English Handbook,” the SEC’s 83-page handbook on how to create clear disclosure documents, advisors must determine what information investors need to make informed decisions before they begin writing the brochure and supplement.

According to a new Fidelity poll of more than 200 advisors, nearly 30% of respondents say they are not very confident in their preparedness to fulfill the new ADV Part II requirements. Additionally, 89% of respondents indicate that the new ADV Part II requirements will increase their workload somewhat to significantly.

Read about RegEd’s guides to help navigate ADV Part 2 at


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