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Compliance With Investment Adviser Code of Ethics Effective This Week

Paul Roye, the director of the SEC's Division of Investment Management, reminded investment advisers that as of February 1, they must be in compliance with the investment adviser code of ethics requirement. The SEC believes that the prevention of unethical conduct by advisory personnel is part of the answer to recent problems in the industry. Roye reviewed a number of recent initiatives that respond not only to industry scandals, but also to the rapidly changing environment in the industry at a recent ALI-ABA course of study on investment adviser regulation.

Roye said he was very impressed by the Investment Council Association of America's set of best practices relating to codes of ethics. He suggested that resource in crafting the investment adviser codes of ethics. Roye also said that the Council's best practices reflect a prime example of cooperation between the industry and the SEC to develop an effective regulatory framework that is in the best interests of advisory clients.

Roye also reviewed the SEC initiative to require hedge fund managers to register as investment advisers under the Investment Advisers Act. Hedge fund advisers were given until February 1, 2006 to become compliant with the rule. Roye said the staff is available to work with the industry to ensure a smooth transition.

The comment period closes on February 7 on the SEC's reproposal on a broker-dealer exception from registration under the Investment Advisers Act. Roye said the new proposal would expand the disclosures that are necessary to address any confusion about the differences between brokerage and advisory accounts. He added that the SEC has a self-imposed deadline for considering a final rule for adoption, which is April 15.

Roye said one of the staff's top priorities is the adoption of a revised Part II to Form ADV to include a plain English, narrative document that can accommodate charts, graphs and other illustrations, and to enable the electronic filing of the document on the SEC's Web site. The rulemaking should be ready for consideration in the coming months, he said. He urged the industry to continue to work with the staff after new initiatives have been adopted to ensure a smooth transition.