Form ADV serves as a critical disclosure document that contains essential information for both regulators and the investing public. In particular, Part 2 of Form ADV serves as the written disclosure statement that registered investment advisers are required to provide to advisory clients in order to describe, among other things, the adviser's business practices, investment strategies, advisory fees and conflicts of interest.
Information gathered on Form ADV, both in Part 1 and Part 2, informs the Commission's exam program, our programmatic divisions, and even our enforcement actions. Accessing and understanding this information is fundamental to the Commission's ability to fulfill our mission. Moreover, this information is critical to investors' assessment and to the evaluation of whether to hire, and/or retain, an investment adviser.
Today's amendments to Part 2 of Form ADV are designed to provide enhanced and more meaningful disclosures. This will benefit both investors and the SEC. Investors need clearly written, meaningful information to be in a position to make wise decisions — and, to be effective, the SEC must have access to information about those it regulates and the environments in which they operate. In addition, this information will now be filed with the SEC and will be accessible to the investing public, a vast improvement from the current lack of public access.
I support these amendments because they will further implement and give life to the investment adviser's fiduciary duty. The entire investment adviser regulatory oversight regime is grounded in an adviser's fiduciary duty to act in a client's best interests and to put those interests ahead of its own. The amendments, among other things, will allow clients to better evaluate any existing conflicts. For example, with these amendments, investment advisers will now be required to go beyond merely providing a description of the nature of conflicts and explain how they expect to address these conflicts.
As you have already heard this morning, Part 2 of Form ADV, as amended, would consist of two parts: the Brochure and the Brochure Supplement.
I would like to highlight the Brochure Supplement. I have publicly spoken out in support of the Brochure Supplement and I am delighted that investors will finally receive disclosure specific to the advisory personnel sitting right across from them. Currently, advisory clients often receive disclosures that discuss the advisory firm rather than the specific advisory personnel that will actually service their account and interact with the client. This is particularly the case as to large firms that employ thousands of employees. Today's amendments will require that registered advisers provide more than general, oftentimes vague, disclosures — such as, most everyone in the firm is "college-educated." Instead, investors will now receive specific disclosures about the particular individuals actually providing them with advice. This will be a significant improvement. The Brochure Supplement will empower investors to evaluate the background and experience of the particular person giving them advice. This is the way the system should work.
I do want to note one concern I have regarding the calculation of an investment adviser's assets under management. The adviser industry is a heterogonous one — the more than 11,000 advisers registered with the SEC differ in a multitude of ways — including size, business models, and strategies. However, all investment advisers calculate their assets under management. In fact, the amount of assets under management is often used by advisers as a selling point to convince investors to hire them. Because of the importance of the information, I am concerned that after our amendments go into effect, investment advisers will calculate this figure using different formulas. However, all of these calculations are expected to use the same name — assets under management. I am bothered that investors may not be able to make apples-to-apples comparisons of assets under management, much less understand that advisers are utilizing different formulas to calculate the amount of assets. I have discussed my concerns with the staff at length and look forward to further work on this issue.
I would like to offer my congratulations and thanks to all of our staff who labored on this project. I would especially like to offer congratulations to those of you in Investment Management who have shepherded this project for over a decade. Like with many of our initiatives, I thank you for the work you have done and the work to be done to make sure that this initiative is properly implemented. I look forward to an update of how these different requirements are working once they become effective.