SEC Approves New Rules For Investment Adviser’s ADV, Part 2

SEC registered Investment Advisers are required to give each of their customers a copy of Part 2 of their Form ADV, commonly referred to as “the brochure.” According to the SEC, the brochure is supposed to explain the Investment Adviser’s investment strategies and business practices, and yet it may not describe them “in a way that is truly accessible to the investor.” Early last week, amendments to the current format of the brochure were approved by the Commission unanimously. According to the SEC, “these changes are designed to provide clients with greater information about the individuals who will provide them with investment advice.” Since Investment Advisers owe their clients the highest of fiduciary duties when it comes to peoples’ life savings, “greater information” doesn’t seem like a bad idea. For a full copy of the SEC’s press release regarding the amendments, click here.

Two of the more critical amendments require the Investment Adviser to disclose any disciplinary or legal event relevant to the client’s evaluation of the integrity of the Investment Adviser as well as background information regarding information about the specific individuals that will be serving the clients. Currently, certain large national Investment Advisers distribute slick brochures that fail to disclose legions of customer lawsuits and that hype up the background of only high-profile managers who actually have no contact whatsoever with the client or his or her portfolio.