Source: https://www.ria-compliance-consultants.com/2008/09/proposed-new-form-adv-part-2-must-be-delivered-to-all-clients-on-annual-basis/
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Proposed New Form ADV Part 2 Must Be Delivered to All Clients on Annual Basis | RIA Compliance Consultants
Proposed New Form ADV Part 2 Must Be Delivered to All Clients on Annual Basis
The new Form ADV Part 2 proposal outlines numerous changes regarding additional and more detailed disclosures of a registered investment advisor’s services, conflicts of interests and material arrangements. However, the most significant new requirement under the proposed rule may be an administrative one.
Currently, the U.S. Securities and Exchange Commission (“SEC “) and state registered investment advisors must offer their disclosure brochures to all clients at least annually. This annual offer requirement is typically provided along with other annual disclosures made by a registered investment advisor or is made by delivering an annual offer letter. Registered investment advisors are not required currently to provide a complete copy of the disclosure brochure as long as they inform all clients that the current disclosure brochure is available upon request. If a client requests a copy of the current disclosure brochure, the registered investment advisor must ensure the client receives a copy not later than seven days after the request is made.
Assuming the new Form ADV Part 2 rule is approved by the SEC as proposed, simply offering the disclosure brochure will not be sufficient. According to the proposed amendments, registered investment advisors will be required to deliver their current disclosure brochure to all existing clients at least once each year no later than 120 days after the end of the registered investment advisor’s fiscal year. Thus, clients would receive an updated disclosure brochure about the same time each year (identifying changes from the previous year’s disclosure brochure) shortly after the date by which registered investment advisors are already required to file their Form ADV Part 1 Annual Amendments.
The SEC is also proposing to require registered investment advisors to deliver an interim update to clients when the registered investment advisor amends its brochure to add a disciplinary event required to be disclosed under the Form ADV Part 2 instructions or to materially change information already disclosed for a disciplinary event. The SEC has stated that such circumstances warrant a formal delivery requirement because of the importance of disciplinary information to clients. According to the SEC, disciplinary information is more likely to reflect directly upon a registered investment advisor’s integrity and may affect a client’s trust and confidence in the registered investment advisor.
As with some of the other items in the proposing rule release, the requirement to annually deliver a complete copy of the brochure has generated some negative reaction and become fairly controversial. However, after reading many of the industry comment letters regarding the new Part 2 written to the SEC, RIA Compliance Consultants believes the annual delivery requirement will be included in the final rule. Stay tuned to RIA Compliance Consultants for more information and further updates regarding the new Form ADV Part 2. If you are interested in engaging RIA Compliance Consultants for its Form ADV Part 2 drafting services, please call us today for a proposal and quote.
Labels: ADV Part 2, Form ADV
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