Form ADV Review Brings Impassioned Pleas From Investment Advisors

As lawyers from the U.S. Department of Labor prepare to close the comment period on a proposed rule requiring a fiduciary standard of care from advisors dealing with retirement accounts, the Securities and Exchange Commission is in the midst of soliciting comments around proposed changes to Form ADV and amendments to the Advisers Act.

The SEC and state regulators use Form ADV to register investment advisors.

Although the SEC’s request for Form ADV comment has generated less interest than the DOL’s fiduciary proposal, some of the reaction has been even more passionate as advisors beg regulators for breathing room and relief from scorching new requirements.

“For the love of Pete, STOP. If your intention is to drive small firms out of business, you are doing a very good job,” wrote Adrian Day, president of the Adrian Day Asset Management in Annapolis, Md., in written comments to the SEC.

“Your estimate of time and costs is, as usual, ludicrous,” Day also wrote. “Three hours and $750! I have taken nearly three hours just to read and try to understand your convoluted and repetitive 10-page document.”

Impassioned pleas about regulatory relief aren’t new to the SEC, nor are they likely to be the last comments that trickle in before the comment period closes Aug. 11.

SEC officials say the proposed changes — which are, in effect, attempts to modernize and enhance the disclosure of information by registered investment advisors — are necessary to learn more about advisors’ assets, the role of borrowing and how advisors use derivatives in separately managed accounts.

The proposed amendments also seek to standardize the process of “umbrella” registration of related advisors on Form ADV. Other proposals ask advisors to provide more information about branch office operations and the use of social media.

“Investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry,” SEC Chairman Mary Jo White said in a news release.

Investment advisors have been feeling the weight of heavier regulation ever since passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act five years ago. Dodd-Frank was enacted in an attempt to protect the economy from the near-collapse its experienced in 2008.

Public interest groups generally have welcomed the regulatory efforts at transparency proposed by the government agencies.

Opponents say regulation has overwhelmed many advisors, small ones in particular. They also contend that new laws and rules have increased paperwork volumes without commensurate guarantees that the rules will be effective.

In the end, many advisors say investors are the ones who will be hurt the most as advisors drop unprofitable clients, pass on the costs to other clients, redirect their business toward more lucrative niches within the industry, sell their practices or leave the business altogether.

“Our point is that increasing the volume of disclosure does not benefit the client,” said Charles E. Dodson, vice president and chief compliance officer of JAG Capital Management in St. Louis. “The greater the volume of paper, the less it tends to be read.”

The SEC’s proposed Form ADV changes are separate from Labor Department initiatives designed to impose a fiduciary standard of care on any advisor dealing with employer-sponsored and individual retirement accounts.

The DOL proposal, which has more far-reaching consequences than the SEC’s proposed changes to Form ADV, has been labeled “unworkable” by industry opponents.

Whether proposed regulatory changes to Form ADV or to retirement plan advice are adopted, amended or eventually buried, Form ADV and the fiduciary rule underscore how thorny and difficult it is to try to regulate behavior.

Under orders from Congress, regulators’ responsibilities are to protect investors and taxpayers — not intermediaries and distributors — in a rapidly evolving and complex market.

Unleashing a torrent of new rules, however, only imposes more burdens on the majority of law-abiding advisors. This risks driving advisors away from guiding investors while, at the same, still falling short of guaranteeing investors protection from fraudsters.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].