At its July 21, 2010, open meeting, the SEC approved the new Form ADV Part 2, a "plain English"–narrative approach to client disclosure, which replaces the current Form ADV Part II's "check the box" and Schedule F approach. The SEC first proposed this in 2000 and then re-proposed it in March 2008.
There are 18 specific potential disclosure topics, including advisory business, fees and compensation, disciplinary events, and brokerage practices. In addition, there will be a new "brochure supplement" requirement, which will be a résumé-like disclosure for each individual providing advice to a client.
Other changes include:
- Part 2 will be filed electronically in a PDF format and will be publicly available as Part I is now (this does not apply to the brochure supplement); and
- An annual summary of material changes to Part 2 will have to be provided to clients in addition to the offer to deliver or actual delivery of Part 2.
As discussed at the meeting, the compliance date for the new Form ADV Part 2 will be the date of the annual update for fiscal years ending on or after December 31, 2010 (which would be the end of March 2011 for advisers with a December 31, 2010 fiscal year end). New advisers registering with the SEC after January 1, 2011, will need to use Form ADV Part 2.
At the meeting, both commissioners and staff emphasized the importance of meaningful, clear and useful disclosure, as well as the need for advisers to avoid legalese and boilerplate disclosures. The new form's instructions will focus disclosure on the adviser's actual practices and conflicts, as well as on practices and conflicts reasonably likely to exist. Disclosure of the material facts concerning conflicts and how the adviser deals with them will also be specifically required.
The SEC's press release and related fact sheet on the new Form ADV Part 2 can be found on the SEC website.
