Corporate & Securities Law

The SEC unanimously has approved changes in Form ADV Part 2.  This requires advisers to disclose in a plain-English, narrative format information about their practices in 18 different business areas and to prepare supplements with biographical information on employees who work with clients.

According to Investment News, the amorphous nature of the narrative format, however, will put an onus on advisers to determine just how much to disclose, and could lead to a protect-the-flanks deluge of information to avoid lawsuits from investors down the road.

The expanded content requirements for the brochure include:

• Descriptions of advisory services offered, including risks involved with particular areas of specialization, and the amount of client assets that are managed.
• Fee schedules, including whether fees are negotiable, and disclosure of brokerage fees, custody fees and other expenses that clients may pay.
• Disclosure of performance-based fees and a discussion of how conflicts of interest are managed if the adviser also oversees accounts that don't charge such fees.
• Descriptions of unusual risks that might accompany a particular method of investment analysis, strategy or type of security in which an adviser specializes.
• Disclosure of material facts about any legal or disciplinary event that would help a client evaluate the integrity of personnel and a mandate to promptly deliver to clients updates on such events.
• Disclosure of material financial interests that an adviser or an affiliate has in securities it recommends or trades for clients, and an explanation of how conflicts are addressed.
• Disclosure of incentives from brokers such soft-dollar services, client referrals and volume discounts on aggregated trades that could influence advisers' execution choices.

Attorneys at SNSFE help investment advisers in formulating Parts I and II of the ADV.  Feel free to contact attorneys at SNSFE for further assistance.

Source:  InvestmentNews