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SEC Proposes Amendments to Form ADV Part 2

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  • Baker, John
    The Securities and Exchange Commission has proposed amendments to Part 2 of Form ADV and related rules. Release Nos. IA-2711, 34-57419 (Mar. 3, 2008). Part 2
    Message 1 of 1 , Mar 9, 2008
      The Securities and Exchange Commission has proposed amendments to Part 2 of Form ADV and related rules. Release Nos. IA-2711, 34-57419 (Mar. 3, 2008). Part 2 of Form ADV sets forth the information that registered investment advisers are required to provide to their clients in a brochure. The proposed amendments would require the brochure to be written in plain English, a significant change from the current check-the-box format. The amendments also would require the brochure to be filed electronically with the SEC, which would make the current version of the brochure available to the public through its web site. The SEC previously proposed amendments to Part 2 in 2000, and the current proposal is a reproposal in response to public comments made then.

      The proposal is very focused on the disclosure value of the Part 2 brochure to advisory clients. The brochure would be required to be provided to clients annually, a switch from the existing requirement that the adviser offer annually to provide the brochure. The updated brochure (or an accompanying communication) would have to identify any changes from the prior version of the brochure, unless the client did not receive the prior version. However, the initial provision of the brochure would no longer be required to be at least 48 hours prior to the entry into the advisory contract. (The current rules alternatively allow a five-business-day cancellation privilege, which likewise would no longer be provided.) An adviser could have multiple versions of the brochure and tailor each version to the clients who receive it. Of course, clients could still view the other versions online. Most significantly, an adviser that is not required to deliver the brochure to any clients (e.g., if its only clients were registered investment companies) would not be required to prepare or file Part 2.

      The contents of the brochure are generally similar to the 2000 proposal, but with several changes intended to address industry concerns. Among these are that an adviser would have to respond only to the items that apply to its business and that advisers would have to explain succinctly how they address conflicts of interest, rather than disclosing their policies and procedures.

      Advisers would also have to provide brochure supplements that provide information about the advisory personnel on whom clients rely for investment advice. A brochure supplement ordinarily would be less than a page long and would contain information about the educational background, business experience, and disciplinary history (if any) of the supervised person who provides advisory services to that client. The supplements would not be required to be filed with the SEC or provided annually to existing clients.

      Comments on the proposal are due on or before May 16, 2008. The SEC's proposing release is available online at


      For my most recent post on the proposal, giving more detail on the historical background, see


      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1220 19th Street NW, Suite 600
      Washington DC 20036
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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