Anytime the Securities and Exchange Commission enhances disclosure requirements ought to be a cause for celebration by investors, who rely on the information to make risk-appropriate investment decisions.
Unfortunately, the SEC has been tardy in improving disclosure of vital information about securities firms. Now it is making changes, but incrementally and unacceptably slowly.
It has announced plans to enhance disclosure, and make accessible online, two important sources of information pertaining to investment advisers.
One is Part 2 of the ADV form for the registration of investment advisers. The ADV Part 2 currently is available only in paper form. Asset advisers are required to provide Part 2 to clients, but there is no requirement for managers to provide annual amendments to Part 2 unless the clients request it. And don't try to look up Part 2 amendments in SEC filings, because the SEC doesn't require them.
The second involves the applications and orders for exemptions money managers seek from the Investment Advisers Act and the Investment Company Act.
These proposals deserve a cheer. But they should leave investors scratching their heads: What took so long to put online the ADV Part 2 and the exemption applications? ADV Part I was put online in 2001.
The ADV Part 2 should have been put online soon after Part I was put up, not seven years later.
And why hadn't the SEC put the exemption applications online long before this? They provide the detail and reasoning for the exemption sought. Had they been posted sooner, they might have provided important insight into the practices of the investment advisers and mutual funds involved in market-timing and other scandals in recent years.
The trouble is the SEC has over the years gone from being a regulator that is supposed to collect information useful to investors and make it available to them to a regulator collecting information that it keeps from investors.
Many forms are incomprehensible in detail, without underscoring, or even providing, the significant information, such as conflicts of interest and soft-dollar practices.
As for accessibility, the Internet is not a new medium, as the SEC knows well with its existing use of it. But for some important regulatory forms, the SEC stays with an antiquated paper format.
Form BD for registration of brokers and dealers, a disclosure document similar to the ADV for registered investment advisers, also is not online.
Whatever value this information might have is essentially hidden from investors, unless they gain access to the paper document in an SEC office.
If these forms had been made available online sooner, investors might have given the SEC valuable feedback for making the content more useful.
The SEC has yet to issue its proposal for revising ADV Part 2, stating only that it will be released as soon as possible. The proposal should make the entire ADV, including Part 1, more user friendly. For example, the current form gives no date for the reported assets under management.
Unlike corporate filings, ADVs aren't archived online, so investors can't see how assets under management have changed over the years.
The SEC ought to at least include such historical ADV data in each amended form. The assets under management numbers, which often are in the billions, are even hard to discern, because the SEC form has no offsetting commas for increments of thousands.
The form is annoyingly bureaucratic and indecisive: Page 1 asks if the firm has a website, and then instead of having the address placed right there, makes the reader go deep into the ADV pages to find the address.
One reason for the slow placement of these documents online is probably that Congress has routinely rejected SEC requests for more money, some of which might have been used to put these documents online.
Nevertheless, the SEC must now make greater efforts to provide the information investors needs in a timely and easily accessible manner.