June 22, 2000

By Hand and Electronic Filing
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:

These comments are submitted on behalf of Thomson Financial BankWatch Inc. (BankWatch), Thomson Financial Global Markets (TGM) and Thomson Proxy Services Inc. (TPS) (collectively, the "Thomson Advisers") 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. While the Thomson Advisers support the development of an electronic investment adviser filing mechanism and the modernization of the investment adviser registration and disclosure form, we believe that a number of adjustments should be made to the current proposal before either of these measures is adopted.

The Thomson Advisers are divisions of Thomson Financial, which provides financial information, research, analysis and software to the global investment and corporate communities. With more than 7,000 employees in 65 offices around the world, Thomson Financial is part of the $6 billion Thomson Corporation. Each of the Thomson Advisers provides a specialized type of largely impersonal advisory services to a sophisticated global clientele. For example, BankWatch is a nationally recognized statistical rating organization (NRSRO) whose services consist primarily of credit ratings and reports on banks, thrifts and other credit institutions. Because BankWatch's services are designed mostly for corporate treasurers and money-market participants, they are credit-quality rather than equity-investment oriented.

TGM publishes various electronic and hard-copy technical market analyses and information products regarding securities, commodities and foreign currencies. TGM also affords subscribers to many of its services the opportunity to contact TGM's analysts to discuss published information. Almost all of TGM's subscribers are connected with major financial institutions or regulatory bodies, such as national and international broker-dealers and Federal Reserve Banks.

TPS' primary business consists of analyzing proxy proposals and producing reports thereon for major institutional investors, including pension plans. In addition to this analysis, TPS votes, records and generates proxy voting activity reports for many of its clients, and develops proxy policies and procedures for more than 30 markets worldwide. It also offers a social investment research service on a subscription basis.

Although none of the Thomson Advisers manages portfolios or directs investments for its clients, each of the Thomson Advisers is registered with the Commission: BankWatch by virtue of its status as an NRSRO, pursuant to rule 203A-2(a) under the Investment Advisers Act of 1940 (Advisers Act), TPS as a pension consultant pursuant to rule 203A-2(b) and TGM, pursuant to an exemptive order issued by the Commission.1

The Investment Adviser Registration Depository

The Thomson Advisers believe that migrating from a paper-based investment adviser registration system to an electronic one is an excellent idea. If designed properly, an electronic system will enable registrants to meet their regulatory obligations more efficiently and will permit easier public access to important information about registered advisers. Unfortunately, as it is currently proposed, the Investment Adviser Registration Depository (IARD) contains certain flaws in design that will prevent the benefits of an electronic filing system from being fully realized. In this regard, the IARD seems to be only a slightly modified version of Web CRD, the electronic filing system which NASD Regulation, Inc. (NASDR) designed and operates for broker-dealers. We understand that this system has proven extremely cumbersome to use, and we respectfully suggest that the IARD not be implemented without assurances that the most troublesome aspects of Web CRD will not be imported into the investment adviser filing system. In particular, we note the following:

In addition to the foregoing design issues, we note that the IARD proposes to make data available for commercial use. Before this is done, we request that the Commission ensure that proprietary information contained in the advisory database will not be disclosed to commercial users. (We address the issue of disclosing proprietary information in greater detail below.)4 We further suggest that it is inappropriate to post personal information such as home addresses and social security numbers on the internet, and we request that such information be redacted from the forms that are publicly available through the IARD.

Proposed Revisions to Form ADV

The Thomson Advisers applaud the Commission's efforts to overhaul Form ADV, which has not been thoroughly revised in fifteen years. We believe that it is crucial for this registration and disclosure document to accurately reflect the diversity and character of investment advisory services being rendered today. That being said, it appears that the new form is far too long and complicated, and we believe that the Commission has seriously underestimated the amount of time and expense that will be required to prepare this document. We further believe that the significant new burdens that will be imposed on advisers under the proposal will not be offset by corresponding benefits toclients. Rather than providing the public with the most important information necessary for the informed selection and monitoring of advisers, the proposed new Form ADV will lead to a disclosure "overload" that may discourage clients from reading the form at all. The sophisticated institutional clientele that the Thomson Advisers serve neither needs nor wants the level of disclosure that the Commission proposes.

With regard to the specific aspects of the new Form ADV, the Thomson Advisers note the following:

Glossary of Terms

The term Advisory Affiliate should not be defined to include any person who solicits clients on an adviser's behalf. Because a solicitor who is also an employee of the adviser is already included within the definition of Advisory Affiliate, the separate identification of solicitors is relevant only to non-employees. However, even here, the inclusion of solicitors as Advisory Affiliates is of limited relevance. While the term Advisory Affiliate is used in gathering disciplinary information in Part 1A, Item 11, advisers are already prohibited, by virtue of the SEC's cash solicitation rule (rule 206(4)-3), from paying solicitation fees to individuals who have been the subject of certain disciplinary actions. There is no reason to impose new disclosure requirements relating to these individuals.

Part 1A

On the whole, the questions in this part of the form are clearly worded and the instructions are helpful. However, the layout of this part relies far too heavily on the use of Schedule D, whose structured format is likely to produce a document that is cumbersome to work with and difficult to read. Responding to several items of Part 1A could require completing both the body of the form and multiple copies of Schedule D.5

We suggest that Part 1A be restructured to permit the inclusion of more information in the body of the form, and that Schedule D be changed to a modified free-text format that permits a more organized presentation of supplemental answers. Complete answers to one item should be displayed before the next item begins.

Part 2A

While, in the abstract, a narrative disclosure brochure may provide clients with enhanced information about the advisers who serve them, the brochure that is currently proposed is too comprehensive to be of much practical use. In modeling the investment adviser brochure after a mutual fund prospectus, the proposal threatens to overwhelm clients with information and will ultimately be counterproductive. Furthermore, in view of the substantial effort that will be required to produce the narrative brochure, we believe that the amount of time that is proposed for advisers to transition to the new disclosure format is inadequate.

The Thomson Advisers endorse the alternate transition schedule suggested in the comments filed by the Investment Counsel Association of America (ICAA).6

We also find the proposed requirement that advisers deliver all material brochure amendments to their clients to be ill-advised. As it stands today, less than one percent of our respective clients avail themselves of our annual offers of updated brochures. We see absolutely no evidence that our clients wish to be notified of every change we make to our Form ADV. Furthermore, if clients are interested in tracking all brochure amendments, they will be able to do so through the IARD.7

The proposal to require delivery of all Part 2A updates to existing clients should be eliminated.

In addition to these general issues, we also respectfully note the following specific problems with proposed Part 2A:

1. Proposed Part 2A does not appropriately provide for limited-purpose advisers.

2. Proposed Part 2A requires irrelevant and unnecessary information.

3. Proposed Part 2A would unwittingly require the disclosure of proprietary information.

4. Proposed Part 2A contains certain unclear terminology.

* * * * *

In proposing to create an on-line filing system and completely revamp From ADV, the Commission has embarked on an ambitious and laudable course of reform. The Thomson Advisers commend the Commission's efforts in this regard. However, we also believe that much work is left to be done before these proposals are implemented.

The Thomson Advisers appreciate this opportunity to comment on these very important rule proposals.

Very truly yours,


Gregory A. Root, President
Thomson Financial BankWatch


Michael S. Ross, Managing Director
Thomson Financial Global Markets



Bruce Babcock, President
Thomson Proxy Services

cc: Paul F. Roye, Esq.
J. David Fielder, Esq.
Cynthia M. Fornelli, Esq.
Jeffrey O. Himstreet, Esq.
Robert E. Plaze, Esq.
Lori H. Price, Esq.

1 IA Rel. 1691 (Jan. 6, 1998).
2 Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV, Release Nos. IA-1862, 34-42620 (April 5, 2000).
3 Proposing Release at 10.
4 See discussion of Part 2A, Item 16 at pages 7-8.
5 This could occur, for example, in responding to items: 1B (business names); 1K (locations of books and records); 1L (registration with foreign authorities); 5.I(2) (wrap fee programs); 7A (affiliated advisers); 7B (limited partnerships); and 10 (control persons). This layout, which is adopted from Web CRD, is largely responsible for the visual clutter of the electronic version of the current Form BD that is discussed above.
6 The ICAA suggests that if the Commission does not narrow the scope and extent of the brochure and brochure supplements, advisers will need at least 180 days to create the required documents and an additional 60 days to deliver the new materials to clients.
7 Proposing Release at note 122.
8 Id. at 43.
9 Id. at 46. Additional comments relating to Item 7 are set forth below.
10 Id. at notes 116 and 136.
11 Wellington Financial Corp. (Jan. 17, 1983)("[I]n the case of impersonal advisory services, such as the publication of an advisory newsletter, where the publisher adequately and meaningfully discloses his refund policy before a subscription agreement has been signed, it has been our position that it would not be a breach of fiduciary duty for a publisher not to provide a prorated refund if: 1) the subscription agreement covered a reasonable period of time and 2) the publisher's refusal to provide a refund accorded with the terms of his refund policy as disclosed").
12 The terms "significant" and "unusual" also appear in Item 7C.
13 Furthermore, because the Proposing Release speaks only of "arrangements" between advisers and their related parties, it appears that the inclusion of the word "relationship" in the form might be an error. Proposing Release at 52.