SEC Proposes Amendments To Form ADV Part 2.The SEC has proposed amendments to Part 2 of Form ADV Form ADV An SEC form for reporting information about an investment adviser, including education, business, regulatory problems, services, and fees. The form has two parts, and an investor should read both prior to employing the services of an investment , which dictates the information about a registered adviser's services, personnel, business practices, fees and conflicts of interest that must be provided to new clients during the process of establishing an advisory relationship and must be made available to existing clients on an annual basis (the "brochure" or "firm brochure"). The SEC's proposal is designed to complete the overhaul of Form ADV that began in 2000. (Part 1 of Form ADV requests census type information from advisers that the SEC uses, in part, to inform its inspection process.) The SEC's proposal would require Part 2 to be electronically filed (making it publicly available on the SEC website, as Part 1 is currently). The proposed amendments to Part 2 would replace Part 2's check-the-box format with a list of disclosure requirements and would compel Compel - COMpute ParallEL advisers to produce a narrative brochure in plain English Plain English (sometimes known, more broadly, as plain language) is a communication style that focuses on considering the audience's needs when writing. It recommends avoiding unnecessary words and avoiding jargon, technical terms, and long and ambiguous sentences. to satisfy their brochure delivery obligations. The proposal would also revise Part 2's disclosure, delivery and updating requirements. In many cases the revised disclosure requirements would require an adviser to disclose conflicts of interest created by the practices described and identify the procedures the adviser uses to address those conflicts. Related changes are proposed to rules under the Advisers Act of 1940, as amended (the "Advisers Act"). This article summarizes some of the more significant aspects of the proposal. Brochure Format. Advisers may currently deliver the brochure in a format of their own choosing but typically use a completed version of Part 2 itself. Under the proposal, an adviser would have to produce a brochure in the narrative format of its choice. The proposal would allow an adviser to tailor a brochure to include only the disclosures relevant to particular client recipients. Summary of Material Changes. In connection with each annual update of Part 2, an adviser would be required to highlight any material changes to its Part 2 information since the most annual update of Form ADV. Only recipients of the prior annual update would have to receive this material change information, which could appear either at the beginning of the brochure or in a separate document provided with the brochure. In the latter case, an adviser would not be required to file a description of material changes electronically with the SEC, but would have to preserve a copy of the description as part of its records made available to the SEC staff upon request. Specialization A career option pursued by some attorneys that entails the acquisition of detailed knowledge of, and proficiency in, a particular area of law. As the law in the United States becomes increasingly complex and covers a greater number of subjects, more and more attorneys are . If an adviser holds itself out as specializing in a particular type of advisory service, such as financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against , quantitative analysis Quantitative Analysis A security analysis that uses financial information derived from company annual reports and income statements to evaluate an investment decision. Notes: , or market timing, its brochure would have to explain the nature of that service in greater detail. In addition, if the adviser provides investment advice only with respect to limited types of investments, the brochure would have to disclose those limitations and explain the type of investment advice it offers. Compensation. If an adviser or its personnel receives compensation from the sale of a security or other investment product (e.g., brokerage commissions), its brochure would have to disclose that fact and discuss the conflict of interest it creates and how the adviser addresses the conflict. An adviser that receives more than half of its revenue from commissions and other sales-based compensation would be required to explain that commissions are the firm's primary (or, if applicable, exclusive) form of compensation, and an adviser that charges both advisory fees and commissions would have to disclose whether it reduces its fees to offset the commissions. Performance Fees and Side-by-Side Management of Accounts With and Without Performance Fees. An adviser that charges performance fees (or that has a supervised su·per·vise tr.v. su·per·vised, su·per·vis·ing, su·per·vis·es To have the charge and direction of; superintend. [Middle English *supervisen, from Medieval Latin person who manages an account that charges performance fees) would have to disclose that fact. If the adviser also manages accounts that are not charged a performance fee, its brochure would have to discuss the conflicts that arise from the simultaneous management of the performance fee and non-performance fee accounts, and how the adviser addresses those conflicts. Investment Strategies and Related Risks. An adviser's brochure would have to discuss the risks clients face in following the adviser's advice or permitting the adviser to manage their assets. Advisers that offer a wide variety of advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal could simply explain that investing in securities involves a risk of loss. Advisers that primarily use a particular method of analysis, strategy, or type of security would be required to explain the specific material risks involved, with more detail if those risks are significant or unusual. Firms that use multiple investment strategies would not be required to make the same level of disclosure. The release describing the SEC's proposal (the "Proposing Release") notes, however, that multi-strategy advisers must already disclose the risks associated with the strategies they use and indicates that the proposal would not require them to do so in the brochure. An adviser whose primary strategy involves frequent trading, a term the proposal does not define, would have to specifically disclose how strategies involving frequent trading can affect investment performance. Disciplinary Event Disclosures. An adviser would be required to disclose in its brochure material facts about any legal or disciplinary event in which the firm, its executives, directors and certain personnel involved in determining investment advice ("management persons") that occurred in the previous 10 years and is material to a client's evaluation of the integrity of the adviser or its management. The disclosure requirement includes a non-exhaustive list of the disciplinary events that are presumed to be material. The events in the list are similar to those currently required to be disclosed either orally or in writing by advisers under Advisers Act Rule 206(4)-4, e.g., convictions for theft, fraud, bribery bribery Crime of giving a benefit (e.g., money) in order to influence the judgment or conduct of a person in a position of trust (e.g., an official or witness). Accepting a bribe also constitutes a crime. , perjury perjury (pûr`jərē), in criminal law, the act of willfully and knowingly stating a falsehood under oath or under affirmation in judicial or administrative proceedings. or forgery forgery, in art forgery, in art, the false claim to authenticity for a work of art. The Nature of Forgery Because the provenance of works of art is seldom clear and because their origin is often judged by means of subtle factors, art and violations of securities laws. An adviser could rebut To defeat, dispute, or remove the effect of the other side's facts or arguments in a particular case or controversy. When a defendant in a lawsuit proves that the plaintiff's allegations are not true, the defendant has thereby rebutted them. TO REBUT. the presumption A conclusion made as to the existence or nonexistence of a fact that must be drawn from other evidence that is admitted and proven to be true. A Rule of Law. If certain facts are established, a judge or jury must assume another fact that the law recognizes as a logical of materiality MATERIALITY. That which is important; that which is not merely of form but of substance. 2. When a bill for discovery has been filed, for example, the defendant must answer every material fact which is charged in the bill, and the test in these cases seems to that would require disclosure of a listed disciplinary event in the brochure, but would have to document its determination in a memorandum and retain the memorandum among its records available for inspection by the SEC. In connection with adopting the disciplinary event disclosure requirements, the SEC would rescind To declare a contract void—of no legal force or binding effect—from its inception and thereby restore the parties to the positions they would have occupied had no contract ever been made. rescind v. Rule 206(4)-4. The Proposing Release notes that advisers with clients to whom they have not brochure obligation, e.g., certain clients receiving impersonal im·per·son·al adj. 1. Lacking personality; not being a person: an impersonal force. 2. a. Showing no emotion or personality: an aloof, impersonal manner. investment advice, registered investment companies and business development companies, would still be subject to their fiduciary duty Noun 1. fiduciary duty - the legal duty of a fiduciary to act in the best interests of the beneficiary legal duty - acts which the law requires be done or forborne of full and fair disclosure, which would require them to continue to disclose to all their clients any material disciplinary or legal events or inability to meet contractual commitments. Other Financial Industry Activities and Affiliations and Related Conflicts of Interest. An adviser's brochure would have to describe any material relationships or arrangements it (or any of its management persons) has with specified affiliated financial industry participants, any material conflict of interest that the relationships or arrangements create, and how the adviser addresses the conflict. In addition, if an adviser selects or recommends other advisers for clients, the adviser would have to disclose any compensation arrangements or other business relationships with the other advisers, and discuss the conflicts created and how the adviser addresses them. Brokerage and Soft Dollars. The proposed brochure requirements would expand the information provided regarding soft dollar benefits, the consideration of client referrals in selecting or recommending broker-dealers and directed brokerage practices. Soft Dollars - An adviser's brochure would have to disclose its soft dollar practices and discuss the conflicts of interest they create. The disclosure and discussion would have to include all soft dollar benefits the adviser receives, including, in the case of research, both proprietary and third party research. The brochure would have to describe the types of products and services the adviser and its affiliates acquired with client brokerage commissions (or markups or markdowns) during the adviser's last fiscal year, with greater detail for products or services that do not qualify for the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. in Section 28(e) of the Securities Exchange Act of 1934, as amended. An adviser would also have to explain the procedures it used during its last fiscal year to direct client transactions to a particular broker-dealer in return for soft dollar benefits. An adviser would have to disclose whether it uses soft dollar benefits to service all of its clients' accounts or only those that paid for the benefits, and whether it seeks to allocate soft dollar benefits to client accounts proportionately pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. to the soft dollar credits the accounts generate. Client Referrals - An adviser that considers whether it or certain affiliates receives client referrals from a broker-dealer or third party in determining which broker-dealer to use would have to disclose that it does so and discuss the procedures it used to direct brokerage on this basis during its most recent fiscal year this practice, and the conflicts of interest the practice creates. Directed Brokerage - An adviser that routinely recommends, requests or requires that a client direct it to execute transactions through a specified broker-dealer, would have to describe its directed brokerage practices. To the extent that the adviser and the broker-dealer to which transactions are directed are affiliates or have another economic relationship that creates a material conflict of interest, the brochure would have to describe the relationship and discuss the conflicts of interest it presents. Proxy Voting Proxy voting is the delegation to another member of a voting body of that member's power to vote in his absence. It is essentially synonymous to delegated voting. Proxy voting is commonly used in corporations for voting by members or shareholders, because it allows members . An adviser's brochure would have to include much of the information on its proxy voting policies that Rule 206(4)-6 under the Advisers Act requires an adviser to provide clients if the adviser exercises voting authority over client securities. Advisers that routinely rely on one or more third-party proxy voting services to advise them in connection with voting client securities would be required to list the proxy voting services that they use and describe how they select the proxy voting services they use. An adviser would also have to disclose whether it permits a client to specify the use of a particular proxy voting service. The brochure would not have to identify a service a client directs it to use unless the adviser uses the service in voting other clients' securities. Advisers would have to disclose how they pay for proxy voting services. Brochure Delivery Requirements The stipulation that requires that an item of materiel must be delivered in the total quantity required by the date required. . The SEC proposal would simplify the current brochure delivery requirement with respect to new clients by requiring that an adviser deliver a current firm brochure before or at the time it enters into advisory contract with a client required to receive a brochure under Advisers Act Rule 204-3. The brochure delivery requirement for existing clients would be modified to require actual delivery of a current brochure to existing clients at least once each year no later than 120 days after the end of an adviser's fiscal year. (The Proposing Release notes that this and other delivery requirements under the proposal could be met by electronic delivery consistent with the SEC's guidance in that area.) An adviser would have to deliver an interim update of its brochure to clients only when the adviser amended its brochure to add a disciplinary event or materially change disciplinary information already disclosed in the brochure. The Proposing Release notes that while the proposal would not require an adviser to deliver an interim update to its brochure under other circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , an adviser has an ongoing obligation to inform its clients of any material information that could affect the advisory relationship, which may require an adviser to disclose material changes between annual brochure updates even if those changes do not trigger the interim update requirement. Wrap Fee Program Brochure. The SEC's proposal would update the separate, specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. brochure that advisers provide to participants in wrap fee programs they sponsor (the "wrap fee program brochure") instead of the firm brochure discussed above. The changes to the current wrap fee program brochure requirements generally mirror charges proposed for the firm brochure, e.g., requiring the wrap fee program brochure to include, or be accompanied by, material change information, and requiring an adviser sponsor to deliver the wrap fee program brochure to new participants at or before the time they enter the program and to existing participants within 120 days of the adviser's fiscal year end. An adviser sponsoring a wrap fee program would have to disclose whether certain of its affiliates are portfolio managers in the program, and describe the conflicts of interest that the arrangement presents and how the adviser addresses them. The adviser sponsor would also have to disclose whether affiliated portfolio managers are subject to the same selection and review process as other portfolio managers who participate in the wrap fee program and, if not, how the affiliated portfolio managers are selected and reviewed. Brochure Supplement. The SEC's proposal would require delivery of a "brochure supplement" with specified information about adviser personnel providing advisory services to a client. The brochure supplement would have to be delivered before or at the time those personnel begin to provide advisory services to the client. A brochure supplement would only need for being delivered to clients receiving a firm brochure or a wrap fee program brochure. In addition, an adviser would not be required to deliver a brochure supplement to clients who meet the net worth tests to be "qualified purchasers" within the meaning of the 1940 Act and certain adviser insiders who are clients. An adviser would have to prepare a brochure supplement for each of its supervised persons who formulates investment advice for a client and has direct client contact, and each supervised person who has discretionary authority over a client's assets, regardless of direct client contact. A brochure supplement would not be required for a supervised person who has discretionary authority over a client's assets only as part of a team and has no direct client contact. Brochure supplements could be incorporated into firm brochures, and a firm could prepare a "group" brochure supplement, i.e., a brochure supplement presenting information about more than one supervised person, but would have to cover each supervised person in a separate section. The SEC proposal takes a similar approach to that discussed above with respect to the brochure in requiring that an adviser deliver a brochure supplement update to clients when the adviser amends AMENDS. A satisfaction, given by a wrong doer to the party injured for a wrong committed. 1 Lilly's Reg. 81. 2. By statute 24 Geo. II. c. 44, in England, and by similar statutes in some of the United States, justices of the peace, upon being notified of an information in the supplement dealing with disciplinary information, while at the same time maintaining that an adviser has a continuing obligation to inform clients of any material information that could affect their advisory relationships, which may necessitate ne·ces·si·tate tr.v. ne·ces·si·tat·ed, ne·ces·si·tat·ing, ne·ces·si·tates 1. To make necessary or unavoidable. 2. To require or compel. disclosure between annual updates, even if the information does not trigger the supplement update delivery requirement. Brochure supplements would not have to be filed electronically with the SEC, but an adviser would need to maintain a copy of its supplements and any updates for inspection at the SEC's request. The topics covered in a brochure supplement would be as follows: Educational background and business experience Disciplinary Information - the disciplinary information requirements The information needed to support a business or other activity. Systems analysts turn information requirements (the what and when) into functional specifications (the how) of an information system. for a brochure supplement duplicate DUPLICATE. The double of anything. 2. It is usually applied to agreements, letters, receipts, and the like, when two originals are made of either of them. Each copy has the same effect. the requirements proposed for the brochure (including the ability to rebut a presumption that a disciplinary event is material) but also include information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the revocation The recall of some power or authority that has been granted. Revocation by the act of a party is intentional and voluntary, such as when a person cancels a Power of Attorney that he has given or a will that he has written. or suspension of a professional attainment, designation or license, or related resignation or relinquishment RELINQUISHMENT, practice. A forsaking, abandoning, or giving over a right; for example, a plaintiff may relinquish a bad count in a declaration, and proceed on the good: a man may relinquish a part of his claim in order to give a court jurisdiction. . Other Business Activities - the disclosure regarding other business activities would require a discussion of a supervised person's investment related businesses or occupations and material conflicts of interest they generate, as well as a manner in which the adviser addresses those conflicts. The brochure supplement would have to disclose compensation received by the supervised person based on the sale of securities or other investment products. For supervised persons actively engaged in other business activities that provide a substantial source of their income or involved a substantial amount of their time would need to disclose that fact and describe the nature of the business. Additional Compensation - the brochure supplement would have to provide a general description of any arrangement under which someone other than a client provides an economic benefit to a supervised person for providing advisory services. A supervised person's regular salary and regular bonuses would not be subject to this disclosure requirement, but any bonus that is based, at least in part, on the number or amount of sales, client referrals or new accounts, as well as sales rewards and other prizes, would. Supervision - a brochure supplement would have to explain how an adviser monitors the advice provided by a supervised person and provide the name, title and telephone number of the person responsible for oversight
Oversight may refer to:
Proposed Implementation Plan. The Proposing Release indicates that if the SEC adopts the proposal, beginning six months after the effective date of the changes, a new application for registration as an investment adviser would have to comply with the proposal's brochure and filing requirements. Advisers that are registered as of the effective date would be required to comply with the new requirements in their next annual updating amendment to Form ADV, provided that no adviser would be required to comply with the new requirements sooner than six months after they became effective. Request for Comment. The SEC has requested comment on numerous aspects of its proposal. Comments must be received by May 16, 2008. Goodwin Procter Goodwin Procter LLP is a law firm based in the United States, with a team of 750 attorneys serving clients through offices in Boston, Los Angeles, New York City, San Diego, San Francisco, Washington, D.C. and Palo Alto. LLP LLP - Lower Layer Protocol is one of the nation's leading law firms This list of the world's largest law firms by revenue is taken from The Lawyer and The American Lawyer and is ordered by 2006 revenue:[1]
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