Sometimes regulatory changes that are meant to benefit investors end up taxing industry professionals. That does not appear to be the case with the Securities and Exchange Commission’s new requirements for Form ADV, Part 2. 

On Wednesday the SEC decided to revamp the document’s format, doing away with fill-in-the blank questions organized in a check-the-box setup. Known as the “brochure”, Form ADV, Part 2 describes the firm’s investment strategies, business practices and advisor qualifications. All investment advisory firms that manage more than $25 million in assets file with the form with the SEC. (After financial reform laws are implemented, that threshold will go up to $100 million, in most cases.)

The new filing requirement will also ask advisors to present the information in a narrative way that aims to make it easier for the public to understand. There will be a table of contents, so that clients can find the information they want more readily, said Karen Barr, general counsel of the Washington, D.C.-based Investment Advisers Association.

New brochure supplements will have to be delivered to new and prospective clients to give resume-like information about the individuals at an investment advisory firm who will provide services to the clients.

“In its current form … the format frequently does not correspond well to an adviser’s business,” SEC Chairman Mary L. Schapiro said in opening remarks at the SEC’s open meeting on Wednesday. “In some cases, the required disclosure may not describe the adviser’s business or conflicts in a way that is truly accessible to the investor.”

The new requirements actually modernize the entire process for advisors, so they will eventually be more pleased with complying to the new format, Barr said. There may be some initial costs and burdens that come with the conversion, but once advisors get beyond that, they will probably like the new process. Advisors will be able to create the information on a common word processing document and convert it to a PDF. Then they will be able to log onto the Investment Adviser Registration Depository (IARD), the SEC’s electronic filing system, and attach the form to their filing.

Technically speaking, the form calls for expanded content. That includes descriptions of the advisory business, like the types of services offered; compensation practices; disclosures of performance-based fees and side-by-side management, methods of analysis, investment strategies, and risk of loss; disciplinary information; codes of ethics; and their brokerage practices.

In a practical sense, though, advisors had already been providing that information, Barr said. “When advisors wanted to make disclosures about items that were not requested they did not fit right, so they were put in random places,” Barr said. “Now advisors can make the disclosures in a coherent fashion.”

Another potential benefit: the SEC wants the information to be presented in plain English, stripped of dense legalese. Barr noted that SEC Commissioner Elise Walter specifically asked advisors to go with the spirit of the amendments and not slough off the task of filing the new forms on their attorneys.

"We are pleased the SEC has finally acted on this important investor protection initiative," said Paul D. Glenn, the IAA's special counsel. "It is something that has been long coming and we look forward to the improvement of disclosure."

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