Date:    06/13/2000  8:18 PM

Subject: S7-10-00

June 13, 2000
     
Jonathan G. Katz, Secretary
Securities and Exchange Commission
Office of Investor Education and Assistance 
450 Fifth Street, NW
Washington D.C. 20549
     
Re: Proposed Rule: Electronic Filing by Investment Advisers; Proposed 
Amendments to Form ADV. File No. S7-10-00
     
Dear Jonathan G. Katz:
     
The Personal Financial Planning Executive Committee of the American 
Institute of Certified Public Accountants (AICPA) appreciates the 
opportunity to comment upon the Securities and Exchange Commission's 
("SEC") proposed rules which would create a an Internet-based system of 
electronic filing for a substantially revised Form ADV for Investment 
Advisers. As a preliminary matter, we applaud you and your staff for 
helping the investing public and investment advisers move to the Internet 
in making filings with the SEC and state securities authorities. However, 
the AICPA believes some of the proposals should be modified.  The 
modifications we suggest, and the reasons for our suggestions, are set 
forth below.
     
The comments set forth in this letter address a number of the issues raised 
in the Proposed Rule that are of particular interest to our members. The 
AICPA appreciates the opportunity to comment on this very important matter 
and requests that the SEC consider our comments when revising the Proposed 
Rule for final adoption.
     
Background
The proposed rule will create a system to be called the Investment Adviser 
Registration Depository (the IARD), will permit investment advisers to 
satisfy filing obligations under state and federal laws by making a single 
electronic filing.  Information contained in filings made through the IARD 
will be stored in a database that the public will be able to access free of 
charge through the Internet.  The proposed amendments to the rules will 
require advisers to make filings through the IARD after the system begins to 
operate.  In addition the SEC is proposing substantial amendments to the 
application, repotting and disclosure for investment advisers.  We also 
understand that participation by all states will probably not begin 
immediately since some state securities regulators lack statutory authority 
to require advisers that are registered or notice filed with them to file 
through the IARD and would postpone full participating in the system until 
necessary legislation is enacted.
     
We recognize that the IARD is being built and operated by the NASD 
Regulation, Inc, (NASDR) under contract with the SEC and the North American 
Securities Administrators Association (NASAA).  We would like the NASDR's 
role to be limited and not further expanded as the IARD become operational.
     
Implementation
Filing fees -- AICPA does not favor the proposed system of establishing an 
account and maintaining funds in the account. AICPA members would prefer to 
be billed by SEC, or, better, to receive a bill from each state. This 
provides a record for the payer, and also allows the payer to audit of the 
accuracy of the charge imposed. AICPA advocates placing an interactive 
calculator on the site to enable users to verify the amount(s) they owe to 
each agency.
     
Continuing hardship exemption -- AICPA is in favor of a continuing hardship 
exemption for SEC-registered advisers.
     
The SEC's proposed transition process, and advisors' readiness to submit -- 
AICPA believes that, instead of using the process proposed by SEC, the first 
filing should be when advisers would normally do their annual filing (or 
electronic submission). And there should be provision for test filing 
between January and March. Also, the first year all advisers should be 
eligible for the hardship exemption. That is, for the first year
electronic filing should, in effect, be optional.
     
Also, in the first year that an adviser files electronically, the fee(s) 
should be waived. This would encourage electronic filing while not placing 
a hardship on small firms that are not yet ready to file electronically. 
This also provides adequate time for the SEC to smoothly transition this 
change.
     
Comments on Part 1B, for state-registered advisers for NASAA's 
consideration by the state securities authorities -- The AICPA would like 
to see more conformity across states on issues like disclosure, de minimus 
rules, holding-out rules, and bonding rules. Currently a significant 
proportion of our members are subject to reporting in more than one state, 
and thus are subject to more than one rule on these points (among others). 
In the future, the increase of Internet-based business will doubtless 
increase the burdens of compliance with varying standards.
     
Also, the AICPA would like to see increased conformity between states' 
requirements and federal requirements, so as to ease record-keeping and 
reporting burdens as a practitioner crosses the $25MM threshold from state 
to federal reporting.
     
Part 2A ? The firm brochure's proposed delivery requirements:  AICPA 
believes that the changed Form ADV delivery requirement which is whenever 
information in the brochure become materially inaccurate should contain a 
list of examples of types of materially inaccurate information requiring an 
adviser to revise and deliver the new brochure.  The AICPA has concern that 
there might be advisers who are uncertain about what types of material 
changes would trigger the delivery requirement. As an example, would 
changes in an adviser's structure, fees, location, business practices, and 
services be material changes?
     
In addition, the SEC proposes to allow advisors a 30-day transition period 
to provide new brochures and supplements to existing advisory clients. 
AICPA recommends a 60-day window.
     
Proposed Item 5 of Part 2A -- AICPA favors also requiring an advisor to 
discuss its conflict of interest in charging performance or other incentive 
fees with its client in addition to having the requirement to disclose it 
when the type of fee structure presents a material conflict.
     
Proposed Item 8 of Part 2A: Should disciplinary information should appear 
in a separate document accompanying the brochure itself, in order to 
highlight its importance to advisory clients?  No. AICPA recommends that 
this information appear in Part 2, not in a separate document.
     
Situations on widening disclosure of complaints against an adviser -- AICPA 
recommends disclosure of awards against an adviser, but recommends against 
disclosure of complaints or potential civil actions against an adviser.  We 
believe that judgements of criminal behavior should be disclosed.
     
Proposed Item 10 of Part 2A: Disclosure where an advisor has a material 
financial interest in an issuer of securities it recommends to clients, 
and/or where the adviser has a material financial interest and recommends 
that clients buy into a company's public offering (an IPO) --  The AICPA 
believes that additional guidance would be helpful to advisors.  In 
addition, AICPA believes that in both of these situations the adviser 
should be required to disclose the adviser's interest.
     
Proposed Item 18 of Part 2A: disclosures concerning bankruptcies -- AICPA 
recommends that the disclosure rules not be widened, i.e., that disclosure 
should be required only as to the persons that the disclosure rules affect 
now. Thus, the bankruptcy of an owner or other control person (e.g., 
executive management) would be disclosed. AICPA does not believe it is 
appropriate to disclose bankruptcies of non-owners.
     
Where the subject of the bankruptcy petition was a predecessor adviser, and 
the predecessor advisor/bankrupt is a firm, AICPA believes disclosure is 
appropriate.
     
Where the predecessor advisor/bankrupt is a management person, AICPA 
believes that disclosure is not appropriate, unless this person is deemed 
to be a control person.
     
Where the predecessor adviser/bankrupt is under common control with the 
advisor, AICPA believes disclosure is appropriate, because there is common 
management.
     
Part 2B ? The Brochure Supplements for advisory personnel ("supervised 
persons") -- AICPA supports requiring supplements for relevant advisory 
personnel.
     
Item 3 of Part 2B:  Disclosure of disciplinary actions where supplements 
are prepared for groups of supervised persons -- AICPA agrees with SEC that 
where supplements are prepared for groups there should be disclosure and 
highlighting of disciplinary actions.
     
Item 10 of Part 2B, Personal trading (page 16 of 79) --  AICPA has no 
problem with the requirement that the brochure discuss any practices giving 
rise to conflicts, the nature of the conflicts and the procedures and 
controls the advisers used to address the conflicts.
     
However, the AICPA believe that the books and records requirement for 
investment advisers (Rule 204-2) should be modified and to the extent an 
advisor is in a position to benefit from personal trading, that adviser 
should be required to keep a record and disclose to the firm personal 
holdings. We recommend that the SEC rethink the requirement of the treating 
all advisors is the same way including those who are not selecting or 
recommending securities. AICPA believes that an advisor who is not 
selecting securities for clients and not recommending securities to clients 
should not have to disclose to his or her firm what is in his/her own 
personal portfolio.
     
Again, AICPA is pleased to have the opportunity to provide comments to the 
SEC on these issues. If you or your staff would like to discuss our 
comments further, we would welcome the opportunity to do so.  Please 
contact me at 201-938-3663 or Sarah Phelan at 201-938-3717.
     
Very Truly Yours,
     
     
Phyllis J. Bernstein
Director, Personal Financial Planning
American Institute of Certified Public Accountants
     
     
cc:  Personal Financial Planning Executive Committee