Form ADV Part 2 to be Reproposed
The SEC is planning to put Form ADV Part 2 out for additional public comment.
From a substantive perspective, "they could technically do it" without a reproposal, according to an industry source familiar with the SECís deliberations. Despite five years of interim rulemakings following the formís April 2000 proposal, the substantive issues in Part 2 do not appear to have significantly changed.
So why do a reproposal? Partly, because itís been so long since Part 2 was first proposed. However, the primary reason seems to be that the SEC is considering splitting the Part 2 into two versions: a federal Part 2 for SEC-registered advisers and a state Part 2 for state-registered advisers. The source described that as a "major issue" that has been "bubbling under the surface for over a year." The states donít like the two Part 2 route, and apparently want the SEC to put it out for public comment ó in the hope that the public will agree.
"My position and NASAAís position is that the form was proposed as one form," said Maryland Securities Commissioner Melanie Senter Lubin, who chairs the North American Securities Administrators Association's CRD/IARD steering group committee. "Maintaining one form will best serve investors and will best serve the regulated industry," she said. "Over time, if there were two forms, we think the forms would diverge." Once the form is not a federal form, "there goes uniformity," agreed the industry source. Investors, when selecting advisers, would have to compare federal Part 2s to state Part 2s. Moreover, a state-only Part 2 will be more susceptible to tinkering by individual states, he said.
However, from the SECís perspective, splitting things into two Part 2s will allow them to move ahead. "They donít want NASAA holding up something," said the source.
Itís not clear whether the reproposal will be issued under the acting directorship of Meyer Eisenberg or whether it will be held for the next director. Itís also not clear what form the reproposal will take. In all likelihood, the SEC will follow the "lean and mean" approach, as used in the SECís January 2005 fee-based brokerage reproposal. Under this approach, the agency simply gives notice that the proposal is out again for comment, and solicits questions on specific issues. This sort of reproposing release could be whipped out fairly quickly.
However, if the staffís thinking has fundamentally changed from the original proposal, the SEC might take the "rehash everything" approach, as most recently demonstrated by the SECís December 2004 Reg. NMS reproposal. Producing this sort of release is a full-blown rulemaking project, and could take months.
In any event, the IARD system is ready and waiting for the new Part 2(s). "Once the last couple of decisions are made, it could go live without much further effort," said the industry source.