SEC Adopts Amendments to Part 2 of Form ADV

By Final Rule dated July 28 and to be effective 60 days after publication in the Federal Register, registered investment advisers will be required to provide new and prospective clients with a brochure and brochure supplements written in plain English.  Advisers must file their brochures electronically, and the SEC will make them available to the public through the Investment Adviser Public Disclosure website.

Since 1979, the SEC has required IAs to deliver a written disclosure statement to clients pursuant to rule 204-3 under The Investment Advisers Act of 1940.  Part 2 of Form ADV sets out minimum requirements for this disclosure statement, which is commonly referred to as the "brochure."  In the past, Part 2 has required IAs to respond to a series of multiple-choice and fill-in-the-blank questions organized in a “check-the-box” format, supplemented in some cases with brief narrative responses. IAs have had the option of providing information required by Part 2 in an entirely narrative format, but few have done so. 

The revised Part 2 requirements include two sub-parts, Part 2A and Part 2B.  Part 2A contains 18 disclosure items about the advisory firm that must be included in the brochure, including disclosure of the adviser’s business, fees and compensation, conflicts of interest, disciplinary history, brokerage practices and other information that help clients make an informed decision about whether to hire or retain that adviser.  The Part 2B "brochure supplement" includes information about certain advisory personnel on whom clients rely for investment advice.