The Securities and Exchange Commission has extended by four months the date by which advisors must deliver information about their personnel to their clients to help them make the necessary operational adjustments.
Advisors with fiscal years ending Dec. 31 have until July 31 to deliver Part 2B of Form ADV, otherwise known as the brochure supplement, to new clients and until Dept. 30 to deliver Part 2B to existing customers. The extended compliance date for Part 2B of Form ADV does not apply to the delivery of Part 2A; that date is still May 30.
Form ADV is the uniform form used by investment advisors to register with both the SEC and state securities authorities. In July, the SEC adopted changes to Part 2 of Form ADV to provide clients with a brochure and supplements written in so-called plain English. Part 2A, otherwise called the brochure contains information about the advisory firm while Part 2B, the brochure supplement contains information about the advisory personnel on whom clients rely for investment advice.
The information in Part 2B includes disciplinary information that is considered “material to a client’s evaluation of a supervised person’s integrity,” other business activities and additional compensation. Other business activities refer to work which may place the advisor in a conflict of interest with the client. Additional compensation is the income received from sales awards and other prizes and bonuses that are based in-part on the number of sales, client renewals or new accounts.
“The extension helps large advisors who need to customize brochure supplements for hundreds or thousands of clients,” says Todd Cipperman, president of Cipperman & Company, a Wayne, Pa- law firm specializing in investment advisors.
In its extension, the SEC said that it complied with the request of the Securities and Financial Market Association to delay its requirement to deliver Part2B of new Form ADV to clients so that firms could have additional time to design, test and implement systems and controls to ensure that each client receives an accurate brochure supplement.
“Based on the concerns expressed in the correspondence, and in light of similar concerns that have been expressed by other investment advisors to our staff, we are persuaded that a limited extension of the compliance date for the deliver of brochure supplements for existing registered advisors is appropriate,” wrote the SEC in announcing the extension on December 28. “In addition, to provide consistent treatment for newly registering advisors, we are also persuaded that the limited extension of the compliance date for the delivery of brochure supplements is appropriate for these advisors as well.”
In Part 2A of Form ADV, advisors must disclose conflicts of interest and how they propose to address them. Those conflicts include fees and compensation, brokerage activities such as soft-dollar commissions and proxy voting procedures.