SEC Passes New Form ADV Part 2 Rule for Investment Advisers

July 21, 2010

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Today, the United States Securities and Exchange Commission  (“SEC”)  passed long-proposed changes to the disclosure statements that federally registered investment advisers provide regulators and clients.  Originally, the SEC proposed changes to Form ADV Part 2 in 2000.  That proposal was never adopted, but a second proposal was issued in 2008 and finally passed today.

Under current SEC regulations, the Form ADV Part II, along with Schedule F (or a document containing the same information as Part II and Schedule F), serves as the required disclosure statement that must be given to a client initially and offered annually thereafter.  In past comments, Chairman Mary Shapiro described the current Form ADV Part II as a “1960s check-the-box, paper-based approach,” where as the proposed amendments would require more of a “plain English narrative discussion of an adviser’s conflicts, compensation, business activities, and disciplinary history.”  Finally, the proposed amendment would require this same information to be available through the SEC’s Investment Adviser Public Disclosure (IAPD) website, so that investors, as well as the general public, would have access to this information.

The SEC is  delaying the publication of the revised Form ADV Part 2 for five business days in order to work with state securities regulators on  technical, state-specific changes to items and instructions.  Ideally, all issues will be resolved and the same Form ADV Part 2  can  be used by both SEC and state registered investment adviser firms.

According to the SEC’s press release, “[t]he amended rules and forms will be effective 60 days after publication in the Federal Register. Most investment advisers will begin distributing and publicly posting new brochures in the first quarter of 2011.”  Based upon the explanation during today’s open meeting,  it appears that an SEC registered investment adviser firm will be required to submit the new Form ADV Part 2 through Web IARD when filing its Form ADV Part 1 Annual Amendment submitted for the fiscal year ending on or after December 31, 2010.  Form ADV Part 1 Annual Amendments must be filed no later than 90 days after a firm’s fiscal year ends.  The SEC registered investment adviser will then be required to deliver the new brochure to all clients within 60 days after filing the new brochure on IARD.  It appears an SEC registered investment adviser may choose to begin using the new Form ADV Part 2 before the compliance date. Investment advisers seeking initial registration with the SEC will be allowed to use the old Form ADV Part II through the end of the year, but new investment adviser firms seeking initial registration after January 1, 2011 will be required to use the new Form ADV Part 2.

Stay tuned to RIA Compliance Consultants for more information regarding the new Form ADV Part 2.

Posted by Bryan Hill
Labels: ADV Part 2, How to Become RIA, Investment Advisor Registration, SEC