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SEC Proposes Revisions to Electronic Filing Form for Investment Advisers
Washington, DC, April 7, 2000 - The Securities and Exchange Commission has proposed substantial revisions to Form ADV and new rules under the Advisers Act relating to the form. Comments are due to the SEC on its proposal no later than June 13, 2000.
Proposed Revisions to Form ADV
The Commission’s proposal is intended to facilitate the implementation of an electronic filing system for investment advisers, the Investment Adviser Registration Depository (IARD). The IARD will permit investment advisers to satisfy their initial and continuing filing obligations with the SEC and state regulators through the submission of Internet filings. In addition to revising Form ADV for its use with the IARD, the proposed revisions to the form are intended to reflect regulatory changes since the form was last amended, and to improve the quality of information advisers must provide to their clients and prospective clients.
Some of the more significant changes proposed by the SEC are contained in Parts 2A and 2B of the form. Proposed Part 2A would consist of nineteen disclosure items, most of which the adviser would not be required to present in any particular order.
The Brochure Supplement
As proposed by the SEC, advisers would also be required to prepare and provide to clients a supplementary brochure (Part 2B) on those supervised persons of the adviser who provide advisory services to that client (even if the supervised person does not have any direct contact with the client). Each supplement would contain seven items of background information about an individual or group. An adviser would be generally free to structure the disclosure of these items in a manner that best conveys the information.
Information contained in filings made through the IARD will be stored in a database that members of the public will be able to access free of charge through the Internet. Once it becomes operational, SEC-registered advisers will be required to make all Form ADV filings through the IARD. The only exceptions will be in the event of hardship—either temporary hardship due to, for example, computer malfunction or electrical outage; or a continuing hardship, in the event use of the IARD would create an undue hardship on the adviser.
Proposed Revisions to the "Brochure Rule" Under the Advisers
The SEC has proposed to require all advisers to provide clients with a plain English narrative brochure and supplemental brochure containing disclosure about the advisory firm and its supervised persons. In addition to offering to clients at least annually a copy of the adviser’s current brochure and supplemental brochure, the SEC has proposed to amend the brochure rule (i.e., Rule 204-3 under the Advisers Act) to require an adviser to provide its clients with a written brochure update, which may take the form of a reprinted brochure or a sticker, whenever information in such brochures becomes materially incorrect.