WASHINGTON — The SEC proposed requiring money managers to file electronically plain-English narratives of their business practices and conflicts.
The enhanced Part 2 Form ADV brochures being proposed are intended to provide investors immediate Internet access to critical information about the kind of services a money manager offers, the fees charged and the conflicts of interest they face.
In addition, the proposed rule would require money managers to describe their soft-dollar practices and document any disciplinary actions that have been taken against them, including any violations of security laws.
Although much of that same information is already required to be cited in the paper version of Part 2 Form ADV, the existing form is presented in a “check-the-box” format that is not filed electronically at the Securities and Exchange Commission, nor is it available on the agency’s website.
“This is going to be a major development for all investment advisers,” said David Tittsworth, executive director of the Investment Adviser Association, a Washington-based trade group of money managers.
“Until we see the proposal, we can’t say how burdensome or how detailed the disclosure will be.”
The proposal has not yet been released. But according to a summary released by the SEC, new information it will require would include:
•descriptions of the conflicts of interest that could arise when a money manager offers products that charge performance fees as well as products that don’t;
•disclosure of commissions a manager receives for recommending a financial product; and
•recaps of the qualifications of a firm’s portfolio managers.
“The release addresses disclosure, which is at the core of the fiduciary principles that govern the relationship between advisers and their clients,” said Andrew J. Donohue, director of the SEC’s division of investment management, in a news release. “Central to the proposal is narrative, plain-English disclosure to advisory clients and prospective clients that will empower them to make informed decisions when hiring advisers and to manage the advisory relationship on an ongoing basis.”
The SEC originally unveiled the proposal to require electronic filing of Part 2 Form ADV in 2000. In its action Feb. 13, the SEC has essentially updated the old proposal to include the new provisions.
John Heine, an SEC spokesman, said the public would have 60 days to comment on the proposals.