Advisors: The SEC wants more information from you.
In a long-anticipated move, the commission is proposing to increase Form ADV reporting requirements for all of its investment advisors. It wants to know more about the composition of clients' portfolios and risk profiles (in aggregate) and advisors' use of social media.
"The new rules would enhance the quality of information available to investors and would allow the Commission to more effectively collect and use data provided by investment companies and investment advisors," the SEC says in a release.
But the proposed changes will help large firms and hurt small ones, argues prominent securities lawyer Brian Hamburger, while allowing the SEC to avoid doing more important work.
Larger firms -- often those with the most conflicts of interest -- will be able to comply with the new rules easily, because of the size of their compliance departments, he says.
'BUSYWORK' FOR FIRMS
More broadly, the proposals "really reflect a severe disconnect between the SEC leadership and what the industry needs from its regulator," Hamburger says. "At the end of the day this is busywork. This is asking advisors to furnish information that is not likely to be meaningful in the regulation of investment advisors."
SEC spokeswoman Judith Miller declined to respond to these criticisms.
The commission posted the full proposed rules on Wednesday. Once the Federal Register publishes the proposal -- a process that can take about a week -- the advisors and the public will have 60 more days in which to comment on them on the SEC website.
The proposed changes will allow the SEC to gather more and better data, and deploy its limited enforcement resources more effectively, says Karen Barr, president of the Investment Advisor Association -- which says it represents the interests of larger RIAs -- who says she participated in the SEC's process to develop the proposals.
MUTUAL FUND ADVISORS
The changes also would impose new rules on the country's 1,800 mutual fund advisors -- who account for 16% of the SEC's 11,500 RIAs -- requiring them to file a new monthly portfolio reporting form (to be called N-PORT) as well as a new separate annual report, Barr says.
The SEC gets "a lot of data about hedge funds and other private funds," she says. "They have a lot of data about money market funds, but they think there is a data gap with respect to the type and amount of information they get on mutual funds and on separately managed accounts. If the SEC thinks there's a gap there, that's pretty important."
The increased reporting requirements for the other 84% of investment advisors will give the public more information with which to assess a prospective advisor, Barr says.
Mutual fund advisors will need to make new investments in processes and technology to comply, Barr says. Yet smaller independent firms may be subject to less extensive reporting requirements, if the commission proposes rules that scale up in complexity with the size of a firm, she says -- something she says it's expected to do.
Hamburger, however, still maintains that the rules miss much larger priorities that the SEC should be focusing on to improve its regulation of advisors -- including improved advisor examinations and an updated definition of "accredited advisors," to name a few.
"On the range of problems that they have to contend with and all of the low hanging fruit out there, this is what they do," he says.
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