Added ADV Disclosure Is An Opportunity For Advisors With Nothing To Hide, Fi360 Says Hot

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Under the latest SEC disclosure rules, all advisors need to include general notes on any enforcement actions against them in Part 2B of their ADV and distribute it to their prospects by July 1. Existing clients need to see it by September 30.


"This is not a shock and it is not logistically difficult for advisors who already run really clean shops," Duane Thompson, senior policy analyst at Fiduciary 360, tells me.


In fact, advisors with clean records can tout that fact in their marketing materials and even introduce the theme into their initial conversations with prospects.


Teaching potential clients to actually take disclosure seriously helps this new regulation work to the benefit of truly fiduciary advisors and the industry, Thompson says.


The sad fact was that many prospects just didn't even look at the old non-"plain language" disclosures. But seeing that an advisor's been in trouble with the regulators in the past might help steer them away from tarnished players -- provided, of course that the up-and-up advisors out there start training investors to look at every sheet of paper in the brochure.


Thompson suspects that much of the "angst" surrounding the new disclosure comes from the wirehouses, where the bulk of the complaints and other problem cases over the years are concentrated.


Truly client-focused advisors, on the other hand, tend to already operate more transparently anyway, because they have nothing to hide.


Thompson isn't completely happy with the new rules. He'd like it if the SEC mandated disclosure of why a disciplinary mark was entered into the record -- at the moment, all advisors need to say is that they got in trouble in the past -- and there are gray areas where "advisors" who simply interview investors and build pre-fabricated portfolios for them are concerned.


But on the whole, he says, it's good.


"Nothing has changed from a fiduciary standpoint. But for those who are not so much living up to that standard, updating the forms can become incrementally more expensive. It will be harder to hide."


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