SEC Plan for Bifurcated Form ADV Part 2 Is Balked at by State Regulators

"The switching of regulators by advisers happens on a frequent basis with little inconvenience for advisers. This is true for advisers moving to the states from the SEC or the SEC from the states," Crawford told Schapiro. "They simply make changes online to their existing registration forms and then submit their materials to the appropriate regulator. Introducing a SEC-only Part 2 into the process will inhibit advisers in their efforts to comply with the requirements imposed by their regulator."

The debate over how to modify Form ADV Part 2 has been a long one. Form ADV Part 2 discloses information to investors about an advisor's services, fees, and investment strategy. David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, says "disclosure of material facts, including compensation and potential conflicts of interest, is a key component of an investment adviser's fiduciary duty. While we have voiced concerns about aspects of the Form ADV Part 2 proposals, no other organization has done more in urging the SEC to move forward to adopt revisions that will make Part 2 a better disclosure document." That said, he continues, "We hope the SEC and the states will find a way to find common ground on a joint form. Ultimately, our overriding goal on behalf of SEC-registered advisers is to have a single, uniform disclosure document that is not subject to inconsistent or varying requirements."

Crawford details in her letter to Schapiro that prior to the SEC publishing for comment the proposed changes to Part 2 in 2008, "representatives from NASAA met with staff of the Division of Investment Management and SEC Commissioners to discuss various issues concerning the proposed changes to Part 2. As a result of those meetings, it was our clear understanding that the proposed changes to Part 2 would not include a proposal to adopt it as a form to be used by SEC-only registered investment advisers. In fact, the character and tone of these meetings were such that NASAA was led to believe that the joint nature of Part 2 as a single form for use by state- or SEC-registered advisers would not change and, in fact, when the Commission voted to issue the proposed changes, it did so as a joint form.

"Regardless of the fact that NASAA was advised by Commission staff that Part 2 would be proposed as a single form and in fact was proposed as such in both 2000 and 2008, we do not understand what has necessitated the decision to pursue the adoption of a bifurcated Part 2." Crawford goes on to say in her letter that NASAA "asked senior staff at the Commission to provide some reasoning for this decision and in response were told that the staff was 'constrained' from answering our questions."