T he SEC and an association of
state securities administrators have formally
introduced a Web-based depository of information
on investment advisory firms, ushering in a new
phase of the digital age for both advisers and
investors. The new system will enable the firms,
which manage more than $18 trillion in assets, and
the individuals who represent them to satisfy
federal and state registration and notice
requirements with one electronic filing and give
investors convenient access—free of charge—to
detailed information on the advisers’ services,
fees and disciplinary records. Investment advisers
also will be able to pay state filing fees online
by approving debits from accounts they set up and
fund for that purpose.
Bernstein, director of the AICPA personal
financial planning division, said, “The
efficiencies of electronic filing will help ease
the regulatory burden on advisers, who eventually
will be able to do all their filings through their
The SEC said investment
advisers will be able to register themselves and
update their information via the new system by
early 2001, but their employees will not be able
to apply for or renew registrations online until
later in the year.
Although the National
Association of Securities Dealers Regulation,
Inc., will operate and maintain the system, it
will not have a policy-making role.
SEC also is introducing a revised version of form
ADV, which investment advisers use to register
their firms and their employees with the SEC or
with state securities authorities or to amend such
A pilot implementation of
the system, known as the Investment Adviser
Registration Depository (IARD), ended November 3.
More than 100 investment advisory firms of all
sizes participated in the pilot program.
In September the SEC approved rules and
amendments that require most of the approximately
8,000 investment advisory firms registered with it
to use the IARD to submit any filings they make
after April 2001, as follows:
- Advisers managing more than $25 million in
assets are required to register with the SEC.
- Advisers managing less than $25 million in
assets must register with the securities
regulator in the state where their principal
office is located. (They are not permitted to
register with the SEC.)
- All advisers in Wyoming, regardless of the
asset amount they manage, must register with the
SEC because the state has no securities
S tate-registered advisers will
be limited to paper-based registration until their
respective states implement the IARD program.
After January 1, 2001, advisers who wish to
register with the SEC must submit their
applications (part 1 of form ADV) electronically
through the IARD. Currently registered advisers
who want to amend their registrations will be
required, through an incremental schedule, to make
the transition to electronic filing during the
first four months of 2001. Limited hardship
exemptions from this requirement are available to
advisers who qualify.
Advisory firms may
encounter a variety of hurdles in gearing up for
IARD use. However, the SEC said it would grant a
“temporary hardship exemption,” extending the
registration deadline for seven business days, to
anyone who requests one because of computer
malfunctions or other unexpected difficulties that
hinder use of the IARD.
But a “continuing
hardship exemption” is available only to what the
SEC refers to as a “small business.” In addition,
the SEC will grant such an exemption only to an
investment adviser who can demonstrate filing
electronically would constitute an undue hardship
because, for example, he or she does not have a
computer and cannot afford to use a filing
The roughly 12,000
state-registered advisers will not be able to make
the transition to electronic filing until state
officials pass regulations to implement the IARD.
In the meantime, the system is generating
Marc Beauchamp, executive
director of the North American Securities
Administrators Association, said his organization
and its members are “very bullish” on the IARD.
The NASAA represents state securities agencies and
collaborated with the SEC to establish the new
system. “We expect that by early in 2001 the
majority of states will pass rules or legislation
supporting the IARD,” he added.
advisers, investors and regulators gave the IARD a
warm reception, the SEC’s proposed revisions to
form ADV received mixed reviews. Several people
commented that the requirement for public access
to personal information raised privacy issues.
The SEC made final the revisions to form
ADV’s part 1, which requests information about
investment advisory firms, the individual advisers
they employ and their disciplinary history, as
well as other data, where applicable, required by
state regulators. The revisions facilitate
electronic filing and conform to new laws
affecting investment advisers.
also had proposed revisions to part 2 of the form,
which specifies the information advisers must
include in a brochure to clients about their
business practices, fees and possible conflicts of
interests. But objections from many advisers, who
believe the proposed form’s questions are
intrusive, onerous and not beneficial to
investors, have persuaded the SEC to indefinitely
defer adoption of its proposed amendments to part
SEC-registered advisers no longer have
to file part 2 with the SEC but instead must keep
a copy of it in their files and distribute it to
new clients and offer it annually to all clients.
Whenever part 2 information becomes materially
inaccurate, they are required to update it and
offer it to their clients.
register with their state authority, however, must
continue to file part 2 with the state, regardless
of whether they file part 1 on paper or
electronically through the IARD.