Date: 07/05/2000 1:51 PM Financial Management Services Benjamin A. Brown Managing Director July 5, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Mail Stop 6-9 Washington, D.C. 20549 Re: SEC File No. S7-10-00; Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV Dear Mr. Katz: I am submitting these comments in response to the above-referenced proposal by the Commission and the state securities regulators to establish an electronic filing system for investment advisers and to revise substantially Form ADV. I am a solo practitioner money manager who is registered as an investment adviser at the state level. Although I support the development of an electronic investment adviser filing mechanism and the modernization of the investment adviser registration and disclosure form, I believe that the current proposal, taken as a whole, will impose an enormous new burden on small advisers like me without actually benefiting the investors who use my services. In this regard, I note that the proposed Investment Adviser Registration Depository ("IARD") is based on the Web CRD system that the NASD operates for broker-dealers. I understand that this system is very cumbersome to use and produces a document that is very difficult to read. Advisers should not be required to use the IARD until the Commission and the states establish that this electronic filing system is truly user-friendly, and that the electronic version of Form ADV can fulfill its dual role as a registration and public disclosure document. I also believe that the narrative brochure that is proposed as ADV Part 2A is far too long and complicated, and I fear that the Commission and the state regulators have grossly underestimated the amount of time and expense that preparing such a brochure will entail. From the investor protection end, the level of detail required in this document is far more likely to overwhelm than enlighten my clients. Please consider streamlining this part of the form. I do not believe that advisers should be required to deliver brochure amendments to existing clients. None of my clients have requested the brochures I offer them already on an annual basis; there simply is no evidence that clients wish to see all of my brochure amendments. If anyone does want that information, he or she will be able to access it through the IARD. In addition to these general comments, please consider the following issues: l The definition of the term client contained in the proposed Glossary includes clients from whom no advisory fees are received, such as members of the adviser's family. While I support this definition for purposes of calculating assets under management and completing Part 1A of the Form, I note that this definition is different from the one that is used for purposes of applying the national de minimis standard for state registration. In determining whether an adviser has the requisite number of clients to trigger state registration requirements, an adviser need not count any person for whom the adviser provides investment advisory services without compensation. To avoid confusion, I request that the Glossary clarify the fact that its definition of client is not relevant for purposes of determining the need for state registration. l Item 2E. of proposed Part 1B of Form ADV would require the completion of an Arbitration DRP if any adviser or advisory affiliate has ever been the subject of an investment-related arbitration claim alleging damages in excess of $2500. This proposal is a very poor one, since it could require elaborate disclosure about completely de minimis claims and claims that have been proven meritless. Unless arbitrations are eliminated from Item 2 altogether (which is the best option), Item 2E. should be limited to arbitrations in which the adviser has been found liable for damages in excess of $25,000. Item 8 of proposed Part 2B should also be amended accordingly. l The proposal in Part 2A, Item 20F. that state-registered advisers include in their brochures a sample copy of each investment advisory contract that the adviser currently uses and has used during the most recent fiscal year is extremely ill-conceived. First, the only contract that is relevant to a client is the one he or she is asked to sign. Presenting clients with multiple versions of a legal document is likely to discourage clients from reading anything at all. Second, forcing an adviser to disclose all of its advisory contracts infringes on the adviser's right to bargain with its clients. An adviser should be able to strike any lawful deal he wants with one set of clients without being forced to disclose that deal to other clients. Finally, an adviser has a proprietary interest in his advisory contracts. It is inappropriate, therefore, to make those contracts available to the public (including competitors and other commercial enterprises). Item 20F. should be eliminated. I appreciate this opportunity to comment on these very important rule proposals. Very truly yours, Benjamin A. Brown d/b/a Financial Management Services __________________________________________________________________ 3116 Live Oak, Suite 201 Dallas, Texas 75204