Regulators Propose Disclosure Rules for Financial Advisors
Federal securities regulators proposed new rules Wednesday that would require investment advisors to publicly disclose more information about their methods and possible conflicts of interest.
U.S. investors, who have entrusted more than $18 trillion to advisors, would in turn be able to obtain information via the Internet about advisors’ fees and any past disciplinary actions.
“The objective here is not just more disclosure, but better disclosure,” Securities and Exchange Commission Chairman Arthur Levitt said at a public SEC meeting.
Under the plan put out for public comment by the SEC, advisors would be required to file their registration forms online in a reader-friendly format that included information about how they operate and possible conflicts of interest.
Advisors would have to disclose when they sell securities that they are advising others to invest in, when they use a brokerage firm to obtain benefits such as research, and how they vote client proxies in shareholder votes.
As part of the shift to an online database, the SEC also proposed requiring advisors to give clients brochures that are written in plain English and provide all the required information in a more narrative form.
The new brochures “should lead to better, more meaningful disclosure to clients,” Levitt said.
The online registration process, being developed by the regulatory arm of the National Assn. of Securities Dealers Inc. for the SEC and state securities regulators, is expected to begin accepting electronic filings in October or November satisfying both state and federal registration requirements.
“An advisor will be able to file its Form ADV with us, send notice filings to the states, and pay the state fees, all with a click of the mouse on a desktop computer,” said Paul Roye, head of the SEC’s Investment Management Division.
If all goes according to plan, the Web site would go live to the public sometime early next year, the SEC said.
However, an Internet domain name has not yet been determined for the database, which will be named the Investment Advisor Registration Depository.
The system would be available to the public for free, financed by annual fees paid by the advisors. The specific fee structure has not been set, but Roye said the likely fee range for advisors would be $200 to $400 a year.
The five SEC commissioners unanimously agreed to put the proposals out for public comment and set a 60-day deadline for interested parties to comment on the proposals.
