By Peter Silvern,  JD, Writer/Analyst,  Federal Securities Law Reports, Mutual Funds Guide, Investment Adviser Newsletter

New Electronic Filing Proposal Outlined at Adviser Conference 

Paul F. Roye, Director of the Division of Investment Management for the Securities and Exchange Commission, gave an extended talk before the annual meeting of the Investment Counsel Association of America this week. As part of his discussion Mr. Roye revealed details about a proposal involving the Investment Adviser Registration Depository (IARD) which had been announced  the day before.

The proposal, Mr. Roye explained, provides advisers with an electronic "one-stop filing feature'' allowing them to satisfy both state and federal filing requirements at one time. More specifically, the proposal amends adviser disclosure requirements and increases the quality of information made available to clients. For example, Mr. Roye said, the proposal calls for advisers to "provide clients with a narrative brochure'' in plain English. The brochure must be made available to clients on a yearly basis and contain disclosures about the advisory firm, conflicts of interest and procedures in place to prevent these conflicts from harming clients. In addition, the proposal requires a supplemental brochure "containing important information about the advisory personnel with whom the client is dealing.'' This additional brochure would replace the check-the-box/multiple choice format currently in use.

For the first time the adviser's brochure must "disclose to clients material disciplinary or legal events involving the adviser or its management.'' A participant at the conference asked Mr. Roye what happens when changes take place after the brochure has been delivered. Mr. Roye responded by saying the changes, if material, would have to be disclosed electronically and, if necessary, mailed to clients as an additional supplement. When asked to define "material,'' Mr. Roye smiled and said there was no specific answer to that question but the commission would make determinations on a case by case basis.

Internet Access to Adviser Information Planned

One of the most important changes, Mr. Roye explained, requires information provided by advisers through the new IARD to be accessible, at no charge, to anyone over the Internet. The information to be made public includes current firm ownership, fees, conflicts of interest and disciplinary problems. This information is not currently available through the EDGAR system and is not easily accessible elsewhere.

A secondary advantage of the new system would "help us better monitor advisers and administer our regulatory program,'' Mr. Roye said. For instance, built into the IARD program is a requirement that advisers register with the proper federal or state authority or the filing will not be accepted. Mr. Roye said the proposed changes would also help the commission follow trends in the industry and better determine the impact of changes on advisers and their employees.

The new electronic filing system for advisers is being designed by NASD Regulation and will eventually work in conjunction with NASD for those advisers who are also registered broker-dealers. Mr. Roye said that NASD Regulation will not administer the new electronic filing system, but had been given the job of designing it because of their experience creating a similar system for broker-dealers.

Mr. Roye concluded his remarks by saying "the fundamental business of an investment adviser has not changed. It is still based on a relationship of trust and integrity between a fiduciary and a client.''