PLAIN ENGLISH: THE COST OF COMPLIANCE

The SEC voted in February to propose changes to the structure of the Form ADV, the disclosure document that all investment advisors must complete. Instead of the current online check-the-box format, investment advisors would be required to create a narrative, plain-English mailing. The changes are intended to provide more detail and clarity for investors, but they're going to be pricey for investment

The SEC voted in February to propose changes to the structure of the Form ADV, the disclosure document that all investment advisors must complete. Instead of the current online check-the-box format, investment advisors would be required to create a narrative, plain-English mailing. The changes are intended to provide more detail and clarity for investors, but they're going to be pricey for investment advisors.

“It's going to be a huge deal as far as costs for small investment advisors go,” says Duane Thompson, managing director of the Financial Planning Association's Washington D.C. office. He says the FPA is in favor of the measure because it will benefit investors, but the high cost will probably make it “the biggest issue for financial planners this year,” he says. Because the full text of the proposal may not be up on the SEC website for “months,” according to an SEC spokesman, the exact costs of the proposal aren't yet known.

According to the SEC release, the proposed changes would require investment advisors to provide more detailed information about their business practices, including the types of advisory services they provide, the fees they charge, any risks posed to investors, the disciplinary history of the advisor or advisors employed by the firm, and any potential conflicts of interest inherent in the firm's business practices, among other things.

“The ADV is notorious for deficiencies and inconsistencies,” says the FPA's Thompson, and putting it into plain English is going to highlight those shortcomings for auditors and investors, he says. Public comment on the proposal will be open for 60 days after the proposal is published on the Federal Register.

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