Speech by SEC Chairman:
Amendments to Form ADV:
by Chairman Arthur Levitt
U.S. Securities & Exchange Commission
Open Commission Meeting
April 5, 2000
Good morning. The Commission is meeting today to consider a recommendation from the Division of Investment Management to amend a number of rules and forms under the Investment Advisers Act of 1940. These proposals would modernize the investment adviser registration and disclosure system.
America's investors have put over 18 trillion dollars under the care of investment advisers. These advisers manage the country's pension funds, investment companies, endowments, charitable trusts, and thousands of portfolios of individual investors. In essence, investment advisers help millions of Americans plan and prepare for a financially secure future.
Unlike some of the other securities laws, the Advisers Act does not contain detailed rules governing the way advisers conduct their businesses. Rather, the Act broadly prohibits fraud and holds advisers to rigorous fiduciary standards when dealing with clients. Investment advisers have two choices under the Act. They must rid themselves of all conflicts of interest with their clients conflicts that might influence them to act in their own best interest rather than in the best interest of their clients. Or, they must fully disclose any conflicts to clients and prospective clients.
Today's proposals further the Commission's belief in full and fair disclosure as the bedrock upon which our securities laws are based.
First, the proposals will facilitate the creation of an electronic filing system for advisers. This new filing system, which will be called the Investment Adviser Registration Depository, or "IARD," will permit advisers to satisfy their SEC and state filings by using a single electronic filing accessible from their desktops, using the Internet.
The NASDR is currently building this "one-stop" registration system for the Commission and state regulators. I want to be clear that NASDR will be operating in this venture as a contractor for us and not as a self-regulatory organization for investment advisers.
Second, the information on the electronic filings will serve as a database of information about advisers. Investors will be able to access the database, free of charge, via the Internet where they will be able to get information about investment advisers, including information about advisory fees, conflicts, and disciplinary history.
Finally, amendments to Form ADV will require advisers to provide clients with brochures written in plain English. The new narrative format should lead to better, more meaningful disclosure to clients. The objective here is not just more disclosure, but better disclosure. To this point, the rules and the new Form ADV that are proposed today are written in plain English, and we trust that investment advisers will follow suit.
Before I turn to the Division, I would like to recognize a member of the Division, Lori Price, who has been working on this project for the last three years. Paul Roye tells me that without Lori's dedication, persistence, and patience the IARD would never have become a reality.
I would now like to turn to Paul Roye, Director of the Division of Investment Management, who will explain the proposals before us today.