Call Compliance! SEC’s ADV Proposal Could Be Costly

The SEC voted today to propose changes to the structure of the Form ADV, the disclosure document that all investment advisers must complete. Instead of the current online check-the-box format, investment advisers would need to create a narrative, plain-English mailing. The changes is intended to provide more detail for investors, but it’s going to cost investment advisers.

The SEC voted today to propose changes to the structure of the Form ADV, the disclosure document that all investment advisers must complete. Instead of the current online check-the-box format, investment advisers would need to create a narrative, plain-English mailing. The changes is intended to provide more detail for investors, but it’s going to cost investment advisers.

“It’s going to be a huge deal as far as costs for small investment advisers,” 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 be beneficial for investors, but it’s going to be costly for firms making it likely “the biggest issue for financial planners this year,” he says. But because the full text of the proposal may not be up on the SEC website for “months,” the exact costs of the proposal aren’t yet known.

The SEC release (view it here) says the proposed changes call for investment advisers to provide more detailed information about their business practices, including the types of advisory services they provide, fees, risks, disciplinary history of the adviser, conflicts of interest etc. “The ADV is notorious for deficiencies and inconsistencies,” says the FPA’s Thompson, and putting it into plain English is going to make those shortcomings that much more glaring to 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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