A decade of pushing to make disclosures by registered investment advisers more user-friendly may now be paying off, although, as with similar reforms in the past, investors will need to make time to read them.
New brochures for clients now being required from registered investment advisers are a "vast improvement" over information that investors previously received, said Barbara Roper, director of investor protection at the Consumer Federation of America, an advocacy group based in Washington.
Thousands of the new disclosures, filed by registered advisers, recently became publicly available on a database run by the Securities and Exchange Commission and state regulators.
Dow Jones Newswires asked Roper to review a sampling of the filings known as the SEC's new Form ADV Part 2.
Rules for the format and content were recently amended to require a new, publicly available two-part brochure with plain English disclosures about the firm and how it operates. It's a type of document that advisers had never been obliged to produce before. Most registered investment advisers were required to file the document by March 31.
"It's easier to locate relevant information and then to understand," Roper said.
"You used to need the combined talents of a top-rated detective to find the relevant information and a top securities lawyer to understand the disclosures," she said.
The amendments required advisers to address 18 topics in the brochures, including a description of their businesses, the types of clients they service and any conflicts of interest. Smaller advisory firms, which register in their respective states, must address 19 items.
Advisers previously gave investors a disclosure using a form from the SEC. It required checking boxes in response to questions about their businesses. They had to attach written explanations depending on certain answers. The SEC could request the disclosure from advisers, but there weren't requirements to file it with the agency or make it publicly available.
There's still some room for improvement, however, in some of the new brochures prepared by advisers, many of whom need to sharpen their plain-English writing skills, said Bill Lutz, a consultant based in Philadelphia who helped the SEC develop a handbook on the subject.
Lutz, who also reviewed a sampling of filings for Dow Jones Newswires, pointed out certain problems such as wordy sentences and technical terms. "You know you're in trouble when before you get to the main text, you have a half page of defined terms," he said.
