DATE: July 13, 2000

TO: Jonathan G. Katz, Secretary
Securities and Exchange Commission

FROM: Donald M. Rembert, Chairman
703/821-6655 (tel) -- 703/821-2928 (fax)

RE: File no. S7-10-00

Dear Secretary Katz:

This letter is to provide extended comment on the proposed amendments to Form ADV. It follows my abbreviated comment dated June 13, 2000, and previous correspondence of August 26, 1999 and my meeting with Paul Roye of March 2, 1999. This extended comment is prompted after reviewing again the minutes of the SEC Roundtable of May 23 of this year, especially the "Modernization of Advisor Regulation" session. The two themes that stand out through out this session seems to be the unquestioned importance of maintaining fiduciary standards and the role of "plain English" full disclosure.


It would be hard to imagine Chairman Levitt placing any greater importance on maintaining the fiduciary standard than he has done. The Chairman states the future success of the industry "depends on an unwavering commitment to the very highest fiduciary standards... (as) the guiding principles of the investment adviser profession remain timeless." Furthermore, Chairman Levitt notes the role of full disclosure as a means of maintaining the relationship of a "fragile" trust with clients, which "the markets depend".

This interrelationship between the "fragile" trust between adviser and client, maintaining a high fiduciary standard and full disclosure of an advisors' practices and compensation, seems to be clearly accepted, and also reflected in the proposed rule. For example, "We believe it is incumbent upon an adviser, as a fiduciary, to keep its clients apprised of material changes in its operations, its fees..." (p. 13) There can be no better way to create a professional culture supportive of the "highest fiduciary standards" than by first disclosing to clients that such a fiduciary standard exists, and then incorporating key responsibilities of the adviser-fiduciary into the brochure.


Below are three sections of the brochure where specific reference to this fiduciary standard as set out by the Uniform Prudent Investor Act (UPIA) would further adherence to these standards by advisers and the mutual trust between client and advisor.

Item 1. Cover Page

There is concern that some advisers' imply a professional credential associated with registration. Consistent with the objective of ensuring advisors do not communicate an implied "level of skill or training" associated with registration, there should likewise be an equally clear message of the advisor's acceptance of his or her fiduciary responsibility as inherent with SEC registration.

Item 5. Fees and Compensation

The need for complete disclosure of fees and compensation is at the heart of the rationale for a "plain English" brochure. In addition to the details of the advisor's compensation, there should be a "plain English" reference to the fiduciary standard requiring that investment expenses (i.e.: advisers' fees) be minimized and that the fiduciary is strictly accountable for these expenses.

Item 7. Methods of Analysis, Investment Strategies and Risk of Loss

The proposed rule recommends a discussion of the general risk "clients face in following the adviser's advice or permitting the adviser to manage assets". This proposed rule specifically notes that "we would not (emphasis added) require these advisers to list the risk involved in each type of security or trading strategy."

This discussion guideline for addressing "investment strategies and risk of loss" clearly reflects the thrust of the UPIA's emphasis on accepting key tenets of MPT and analyzing the risk/return of the portfolio in its entirety, and not the individual investments. This fiduciary standard should be stated as such in this section of the brochure.


I wholeheartedly support the proposed amendments crafted to introduce "plain English" within the ADV. This is a key step towards maintaining the special "trust" Chairman Levitt rightly highlights as a cornerstone "upon which our markets depend".

However, if "disclosure" is to mean what it says, the "plain English" brochure should include a "plain English" acknowledgment that RIAs are fiduciaries, and should include specific references -- where appropriate -- to elements of the fiduciary standard. In light of the efforts that have been undertaken to ensure full "plain English" disclosure, to not disclose to investors this fundamental responsibility inherent in registration is to an raise, I believe, an interesting question: What other facts about an advisory firm should not be disclosed? What other facts are not "material"?

We all know the answer. There are too many. David Tittsworth of the Investment Counsel Association of America characterizes correctly at the May 23 Roundtable how the disclosure requirements for advisers are "unprecedented" compared to other professions. If this is the case, the question from an investor quite reasonably becomes:

Why is an adviser's responsibility to maintain the highest fiduciary standard
not viewed important enough to disclose, while, other "facts" of an advisory
firm; ie: "the types of advisory clients the firm generally has" are viewed
important enough to disclose?

Thank you for your consideration of these comments and I or our counsel will be glad to offer you any additional information you might find useful.


Donald M. Rembert