SEC To Change ADV Reporting, Group Says

(Dow Jones) State securities regulators are upset over what they say is a plan by their federal counterparts to drop a shared system that has gathered information on financial advisors and made it available to the public.

The North American Securities Administrators Association says it has learned that the Securities and Exchange Commission wants to adopt its own version of a form on which firms list details like fee policies, investment strategies and the education and work histories of advisory staff. The new form would be exclusively for SEC-registered investment advisors.

The SEC plans to propose the move at a meeting Wednesday, according to NASAA. It believes such a move will complicate efforts to provide the public with information about advisors' qualifications and background. The apparent rift comes at a time when more advisors are coming under state oversight, and when Congress is pushing for cooperation among regulatory agencies at all levels.

"This is going to be very, very bad for the industry," NASAA President and Texas Securities Commissioner Denise Crawford told Dow Jones. "We had come to an agreement that we were going to have one uniform form."

The SEC declined to confirm such a plan or to otherwise comment on the issue.

Investment professionals use a Form ADV to register as investment advisors. A Part 2 of the form provides information on things like fees, investment strategies, and the education and work histories of individual investment advisor representatives. According to NASAA, the SEC now wants to use its own version of Form ADV Part 2.

"If this goes ahead, consumers are going to have two disparate disclosure regimes," says Melanie Lubin, securities commissioner for Maryland and a member of NASAA's board of directors.

For the time being, state- and SEC-registered investment advisors use the same version of the form, completed versions of which are available to the public on the SEC's Investment Adviser Public Disclosure Web site.

The Wall Street Reform and Consumer Protection Act, approved last week by Congress, calls for RIAs who manage as much as $100 million to come under state regulation. The threshold had been $25 million, and the change will bring about 4,000 more firms under state oversight.

The legislation also requires the SEC to study ways to improve investor access to information about individual advisors' professional backgrounds, including disciplinary histories and arbitration proceedings.

In addition to making it potentially harder for investors to get apples-to-apples background information on investment advisors under federal and state oversight, the emergence of a "bifurcated" disclosure regime could make it harder for investment advisors to go from SEC to state oversight or vice versa, says Lubin. This movement takes place fairly frequently as small firm's assets under management rise or fall.

In a July 13 letter to SEC Chairman Mary Schapiro, Crawford asks that the SEC drop the idea and move forward with "a joint form for use by state- and federal- regulated advisors as proposed by the commission in 2000 and reproposed in 2008."

At the very least, writes Crawford, the SEC should "seek public comment on the need for a Part 2 specific to SEC-registered advisors."

In an interview with Dow Jones, Crawford said, "It doesn't bode well for our future relationship with the SEC, in terms of making the transition for state-regulated investment advisors and all those things we need to be working on cooperatively."

Out of approximately 26,340 investment advisor firms, about 14,830 are state-registered, according to Nasaa. In terms of individual practitioners, states oversee more than 270,000 investment advisor representatives.