confident as a result of the revised brochure that they understand the
business, practices, and conflicts of an adviser, these clients may be
more willing to place their trust in investment advisers, seek
professional investment advice, and invest their financial assets. This
could have benefits for the clients, and possibly impact capital
formation and the economy.

    Most commenters strongly supported the narrative, plain English
format, and viewed it as a significant improvement over the current
form.\374\ They agreed that the new brochures would greatly benefit
clients by requiring advisers to present important information about
their firms in a clear and more meaningful way.\375\ They observed that
the enhanced disclosure required by the revised form would benefit
clients by improving their ability to thoroughly evaluate advisers,
their business practices and their conflicts of interest,\376\ and by
better equipping them with the knowledge to make informed decisions
about whether to hire or retain a particular adviser.\377\ Commenters
also generally supported making the brochures available to the public
through the Commission's Web site.\378\
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    \374\ See supra note 16.
    \375\ See, e.g., ICI Letter; MMI Letter; NASAA Letter;
Wellington Letter.
    \376\ See, e.g., AICPA Letter; Janus Letter.
    \377\ See Consumer Federation Letter.
    \378\ See, e.g., AICPA Letter; CAPIS Letter; CFA Institute
Letter; CGMI Letter; Fried Frank Letter; NAPFA Letter; NASAA Letter;
NRS Letter. But see, e.g., Brown Letter; Wernli Letter (stating that
public Web site disclosure of Part 2 was a violation of an adviser's
privacy).
---------------------------------------------------------------------------

    The new amendments provide significant guidance to advisers in
terms of highlighting the types of disclosures they, as fiduciaries,
are already required to make. We believe the enhanced clarity provided
by the new form will yield substantial benefits for advisers.
    We recognize, however, that revised Part 2 also imposes costs on
advisers. Advisers will be required to replace their previous Part 2
with the new narrative brochure and brochure supplements, and will be
required to file their brochures electronically with us. In addition,
the disclosure in the new brochure may be more extensive than what was
previously required, although there is significant overlap between the
items in new and old Part 2. Drafting the new narrative brochure will
likely entail additional expenses. As discussed above, we believe that
most of the costs that advisers will incur in connection with preparing
the new narrative firm brochure and supplements will be in the initial
drafting of these documents. We do not, however, expect advisers to
face substantial costs in gathering the required disclosure. Advisers
already are required to provide us and/or their clients with much of
the information required in the new narrative brochure. In addition,
much of the information needed for the brochure supplements can be
found in an adviser's current Form ADV or an investment adviser
representative's registration application (i.e., Form U4) filed with
state securities authorities.
    The cost of preparing a narrative brochure likely will vary
significantly among advisers, depending on the complexity of their
operations and the choices advisers make about how to structure their
disclosure given the flexibility permitted by Part 2. Some firms may
choose to prepare multiple brochures for several different services.
These firms likely will face only incrementally higher drafting costs
than an advisory firm that uses a single brochure to make the required
disclosure about the services it provides because there will be
substantial overlap between the multiple brochures of such advisers. We
understand that some smaller- and medium-sized firms outsource the
initial preparation of their brochures to compliance consultants. These
compliance consultants likely will achieve certain economies of scale
in preparing many brochures complying with the new Form ADV Part 2
requirements which may lessen the costs imposed by the amendments on
these advisers. Because compliance consultants work on many firms Part
2 disclosures and are familiar with industry practices generally, they
will begin their review of a firm's Part 2 with more familiarity with
the requirements of Part 2 and conflicts that should be addressed.
    Most of the comments relating to the costs of the brochure focused
not on the costs of brochure preparation, but rather on the costs of
annual delivery of an updated brochure. As noted above, in the rule
amendments we are adopting today, we are permitting advisers to satisfy
their annual brochure delivery obligation by delivering a summary of
material changes to the brochure with information about how clients can
receive the full updated brochure if they desire. This change should
reduce costs significantly for advisers relating to annual brochure
delivery but should improve client experiences with the disclosures
they receive by focusing their attention on the material changes in the
brochure. The timing of brochure and supplement delivery should allow
these documents to be included in other packages that the adviser is
already mailing to clients, providing additional cost savings. The
primary comment we received on brochure preparation cost was that we
had underestimated the time and thus costs of drafting the new
narrative brochure. As noted above, we have increased this estimate in
response to these comments.
    Similarly, the costs of preparing brochure supplements will vary
from one adviser to the next. Costs will vary most significantly
depending on the number of supervised persons for whom an adviser must
provide disclosure. An adviser with very few supervised persons for
whom a supplement must be prepared will incur lower costs than a large
adviser. Costs associated with preparing supplements also will vary
greatly depending on the amount of disciplinary information, if any,
required to be disclosed about a particular supervised person. Many
large advisers, who will have to prepare the largest number of brochure
supplements, have significant numbers of supervised persons that are
also registered representatives of broker-dealers and thus may be able
to reference the BrokerCheck or IAPD systems for disciplinary
disclosure, which will reduce preparation costs of the supplement for
these firms. The preparation of brochure supplements would be most
demanding for those few advisers whose supervised persons have
disciplinary records that must be disclosed, and less taxing for the
vast majority of advisers, whose supervised persons have no
disciplinary records and whose supplements would therefore likely be a
page or less in length.\379\
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    \379\ As of May 3, 2010, IARD data indicate that in response to
Item 11 in Part 1A of Form ADV, only 1,559, or 13%, of the 11,658
advisers registered with us report any disciplinary information
about their firms or advisory affiliates, including their advisory
employees.
---------------------------------------------------------------------------

    Many comments on the brochure supplement asserted that for a large
adviser registered both as an investment adviser and as a broker-
dealer, the supplement would impose substantial costs in creating
systems to track this information among a changing group of supervised
persons providing investment advice. Yet these same commenters also
often stated that much of the information required by the supplement is
available on FINRA's BrokerCheck system and thus collected on Form U4.
Accordingly, we assume that these firms already have in place systems
to track much of this information for a changing workforce (because
Form U4 also must be updated as responses to its information requests
change). Therefore, we believe that the supplement should impose
negligible new costs in this regard since we believe these same systems
could be used for supplement information tracking at negligible
additional costs. We also are allowing advisers that have supervised
persons with disciplinary information available through

BrokerCheck or IAPD to reference that information in their
electronically delivered supplements rather than reproducing that
information in the supplement. This also should further decrease the
costs and burdens cited by these firms in their comment letters. We do
recognize, however, that large advisers may need to implement systems
to track which supplements need to be provided to which clients as
personnel advising clients will change from time to time. In our
Paperwork Reduction Act analysis, we added an estimate of the burden
for designing and implementing these systems and the cost estimate for
this burden is reflected below.
    We expect that only a few advisers would incur substantial costs in
preparing supplements. IARD data indicate that less than one third of
one percent of advisers registered with us has over 1,000 employees
performing investment advisory functions on their behalf.\380\ Indeed,
less than five percent of our registrants have over 50 employees
performing investment advisory functions. The vast majority of SEC-
registered advisers--approximately 81 percent--have 10 or fewer
employees performing advisory functions on their behalf. We believe
most, if not all, of these firms may choose to incorporate required
information about their supervised persons into their firm brochures
instead of preparing separate brochure supplements, thus reducing costs
of preparation.
---------------------------------------------------------------------------

    \380\ Moreover, it may not be necessary to prepare a brochure
supplement for all of these employees.
---------------------------------------------------------------------------

    For purposes of the Paperwork Reduction Act, we have estimated the
number of hours the average adviser would spend in the initial
preparation of its brochure and supplements.\381\ Based on those
estimates, we estimate that advisers would incur costs of approximately
$33,639,980 in drafting these documents in the first year.\382\
Furthermore, for Paperwork Reduction Act purposes we also have
estimated that advisers may incur costs of approximately $22,775,400 in
connection with their use of outside legal services and compliance
consulting services to assist in preparation of their Form ADV.
---------------------------------------------------------------------------

    \381\ See Section VI.A of this Release. Unless otherwise noted,
the IARD data cited below is based on advisers' responses to
questions on Part 1A of Form ADV as of May 3, 2010.
    \382\ We expect that this function will most likely be performed
by a senior compliance examiner at small firms, a compliance manager
at medium firms, and a compliance attorney at large firms. Data from
the Securities Industry and Financial Markets Association's Report
on Management & Professional Earnings in the Securities Industry
2008, modified to account for an 1,800-hour work-year and multiplied
by 5.35 to account for bonuses, firm size, employee benefits and
overhead, suggest that costs for these positions are $212, $258, and
$270 per hour, respectively. Based on the number of small, medium
and large advisers (and assuming that the 1,000 additional advisers
per year are small advisers as is typically the case), this results
in a blended rate of $220 per hour. ((10,482 small advisers x $212)
+ (2,140 medium advisers x $258) + (36 large advisers x $270))
divided by 12,658 advisers = $220. 152,909 hours x $220 per hour =
$33,639,980.
---------------------------------------------------------------------------

    Advisers will incur annual expenses in addition to the initial
costs of preparing firm brochures and supplements, but we believe these
costs will be modest and similar to current costs. The rule amendments,
similar to the current requirements, would require advisers to revise
their disclosure documents promptly when any information in them
becomes materially inaccurate, and would require advisers to update
their brochures each year at the time of their required annual updating
amendment. For Paperwork Reduction Act purposes, we have estimated that
advisers in the aggregate would spend 87,435 hours per year on Part 2
amendments. We estimate that advisers would incur annual costs of
$12,153,465 in meeting these requirements.\383\ We also estimated for
Paperwork Reduction Act purposes that advisers would spend some time
creating brochure supplements for new employees hired each year. We
estimate that advisers would incur annual costs of $1,620,462 in
creating these new supplements.\384\
---------------------------------------------------------------------------

    \383\ We expect that preparing the amendments to Part 2 will
also most likely be performed equally by compliance managers (as
described in supra note 382) and compliance clerks. Data from the
Securities Industry and Financial Markets Association's Report on
Management & Professional Earnings in the Securities Industry 2008,
modified to account for an 1,800-hour work-year and multiplied by
2.93 to account for bonuses, firm size, employee benefits and
overhead, suggest that costs for a compliance clerk is $63 per hour.
Blending this rate with the blended rate for a compliance manager of
$215 per hour results in a cost per hour of $139. ($63 x 0.5) +
($215 x 0.5) = $139. 87,435 hours per year for amendments x $139 per
hour = $12,153,465.
    \384\ We expect that preparing the new supplements will most
likely be performed equally by compliance managers (as described in
supra note 382) and compliance clerks. The blended rate for this
work is $139 per year. See supra note 383. 11,658 hours per year for
new supplements x $139 per hour = $1,620,462.
---------------------------------------------------------------------------

    Finally, advisers would incur some costs in filing their brochures
with us through the IARD. Advisers would prepare their brochures on
their own computers and, as noted earlier, the filing of a brochure
would be similar to attaching a file to an email.\385\ We believe
conversion of an adviser's brochure to PDF format and filing of that
brochure through the IARD would impose minimal costs on advisers.
---------------------------------------------------------------------------

    \385\ We note that all advisers registered with the Commission
currently file Form ADV electronically via the IARD system and,
since implementation of the electronic filing requirements in 2000,
no adviser has applied for a permanent hardship exemption available
to advisers for whom filing electronically would constitute an undue
hardship. See rule 203-3(b) [17 CFR 275.203-3(b)].
---------------------------------------------------------------------------

C. Brochure and Supplement Delivery

    Advisers will be required to deliver their updated brochure or a
summary of material changes in their brochure to clients annually. The
amended rules require that, between annual brochure deliveries,
advisers deliver brochure and supplement amendments to existing clients
only if there is an addition or change to disciplinary disclosure.
    Advisers already are required to deliver a copy of Part 2 to new
clients. Thus, this requirement should present no new costs to
advisers. Moreover, we believe that because advisers must deliver
brochures to new clients, the cost of delivering brochure supplements
to new clients should not increase the existing cost of delivery.
Annual delivery of the updated brochures or summary of material changes
in the advisers' brochures will benefit advisory clients by ensuring
that they are kept apprised of material changes to their advisers'
business practices and procedures for managing conflicts and will
enable clients to make decisions with respect to the adviser using the
most currently available information. The shorter summary will focus
clients' attention on the material changes in its adviser's business
practices and conflicts and, unlike the prior annual offer requirement,
permit them to evaluate when they would like a full copy of the
brochure or to determine whether they want to take some other action in
response to the change. Previously, clients were just given notice that
they could request an updated brochure. In those circumstances, the
client would have to read through the entire brochure and try to
determine what had changed. Many clients may have determined that this
would not be a fruitful exercise and thus declined to request the
brochure. Now clients will be able to easily determine what has changed
in the brochure and thus decide if they would like to take any action
in response.
    In addition, we believe that changes to disciplinary information
disclosed in the brochure and supplements are of such importance to
clients that they merit interim delivery of these amendments. This
disciplinary information reflects on the integrity of the advisory firm
and the individuals providing the client with advice. Given

that clients entrust their financial assets and financial well being to
these firms and individuals, this information is vital to clients.
Moreover, advisers are already required to make disclosures regarding
disciplinary information under rule 206(4)-4. Based on the experiences
of examination staff, we believe that most advisers likely already make
these disclosures in writing so that they can demonstrate compliance
with the requirements of rule 206(4)-4 and thus are unlikely to incur
additional costs as a result of this requirement. The brochure
supplement will increase costs relating to disseminating disciplinary
disclosure, but it will not impose new costs in collecting this
information since firms already had to collect this information to
respond to Part 1A of Form ADV. The cost of disseminating brochure
supplements is reflected below.
    For Paperwork Reduction Act Purposes, we have estimated that the
total annual paperwork burden associated with annual and interim
delivery of brochures, supplements and the summary of material changes
is approximately 386,098 hours. This includes estimated time for large
advisers to design and implement systems to track that the right
supplements are delivered to the right clients as personnel providing
investment advice to those clients change. We estimate the burden
associated with annual and interim delivery of brochures, supplements
and the summary of material changes would represent an annual cost of
$18,918,802.\386\
---------------------------------------------------------------------------

    \386\ Based on data from the Securities Industry and Financial
Markets Association's Report on Management & Professional Earnings
in the Securities Industry 2008, modified to account for an 1,800-
hour work-year and multiplied by 2.93 to account for bonuses, firm
size, employee benefits and overhead, we expect that delivery of
amendments to Part 2 will also most likely be performed by a clerk
at an estimated cost for a general clerk of $49 per hour. 386,098
hours x $49 = $18,918,802. We estimate that advisers will not incur
any incremental postage costs in these mailings because we assume
that advisers will mail annual summary of material changes with
another mailing the adviser was already delivering to clients and
that advisers were already delivering to clients disclosure of new
material disciplinary events on an interim basis under rule 206(4)-
4.
---------------------------------------------------------------------------

    Advisers may significantly minimize the costs associated with
delivery of brochures, supplements and the summary of material changes
by arranging to deliver these documents to some or all clients by
electronic media.\387\ Advisers also may minimize delivery costs by
mailing some of these documents along with quarterly statements or
other routine mailings they already send to clients. No commenters
indicated the extent to which they collectively mail such documents.
Our rule and form amendments do not require advisers to take advantage
of any of these cost saving options--advisers alone bear this choice.
Accordingly, the extent to which advisers will take advantage of these
and other techniques to reduce costs is difficult to predict, but we
believe it will be significant.
---------------------------------------------------------------------------

    \387\ See Instruction 3 for Part 2A of Form ADV, which refers to
the Commission's interpretive guidance on electronic delivery. See
also supra note 198 for additional discussion of electronic
delivery.
---------------------------------------------------------------------------

D. Amendments to Rule 204-2

    The amendments to rule 204-2 require registered advisers to retain
certain records relating to brochures and supplements. These records
will benefit our examination staff by enhancing their ability to
determine advisers' compliance with Form ADV's requirements. One of the
revisions to the rule requires advisers to retain copies of brochure
supplements and separate summaries of material changes prepared as
required by Part 2. This provision generally imposes no additional
costs because advisers currently are required to retain records
relating to materials they distribute to their clients. Other revisions
to the rule require advisers to maintain certain records in the event
they use an alternative method to calculate assets under management in
response to Item 4.E of Part 2A and if they do not disclose in their
brochure a presumptively material legal or disciplinary event listed in
Item 9 of Part 2A or Item 3 of Part 2B. These provisions benefit
advisers by permitting them flexibility in drafting their firm
brochures and supplements while providing for maintenance of records
needed by our examination staff. Because we anticipate that only a
relatively small number of advisers will be subject to these
provisions, we expect that the cost of maintaining these records will
be relatively minimal. We estimate that advisers would incur annual
costs of $595,280 in meeting these requirements.\388\
---------------------------------------------------------------------------

    \388\ For Paperwork Reduction Act purposes we estimate that only
506 advisers will be required to prepare additional records in
accordance with the amendment to rule 204-2 and that each adviser
would spend approximately four hours to satisfy the obligation for a
total burden of 2,024 hours per year and that such advisers will
incur $150,000 per year in outside legal expenses relating to such
records. We expect that preparing the records will most likely be
performed by compliance managers (as described in supra note 382).
2,024 hours x $220 per hour = $445,280. $445,280 + $150,000 =
$595,280.
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VIII. Final Regulatory Flexibility Analysis

    We have prepared this Final Regulatory Flexibility Analysis (FRFA)
in accordance with section 4(a) of the Regulatory Flexibility Act
(RFA).\389\ It relates to the amendments to rules 203-1, 204-1, 204-2,
204-3, and 206(4)-4, and Form ADV under the Advisers Act. The rule and
form amendments are designed to improve the disclosure that investment
advisers provide to their clients. These amendments also revise the
instructions for updating and filing Form ADV (including adviser
brochures). We also are adopting conforming rule amendments that revise
the recordkeeping requirements relating to Part 2 of Form ADV.
---------------------------------------------------------------------------

    \389\ 5 U.S.C. 604(a).
---------------------------------------------------------------------------

    We included in the Proposing Release an Initial Regulatory
Flexibility Analysis (IFRA). We received no comments specifically on
that IRFA.

A. Need for the Rule and Form Amendments

    The rule and form amendments are necessary to improve the quality
of disclosure that advisers provide to their clients.\390\ Form ADV
with its two parts was adopted by the Commission in 1979 and advisers
use it to register with the Commission (Part 1A) and to provide clients
disclosure about their advisory firm and personnel (Part 2).\391\ Over
the years, however, experience has shown that the format and content of
the previous Part 2 of Form ADV did not lend themselves to disclosure
that is easy for clients to understand. Clients need clearer
information about an adviser's services, fees, business practices, and
conflicts of interests to be able to make an informed decision about
whether to hire or retain that adviser.
---------------------------------------------------------------------------

    \390\ Sections I through IV of this Release describe in more
detail the reasons for the amendments.
    \391\ See 1979 Adopting Release, supra note 6.
---------------------------------------------------------------------------

B. Significant Issues Raised by Public Comment

    In the Proposing Release, we requested comment on the IRFA. None of
the comment letters specifically addressed the IRFA. A few commenters
made specific comments about the proposed rule and form amendments'
impact on smaller advisers. One commenter was concerned that disclosure
of assets under management and financial information would unduly
discriminate against smaller advisers.\392\ As we discussed above with
respect to Item 18 of Part 2, we believe that a client that becomes a
creditor of an adviser because it prepays fees would

want information about the adviser's financial condition. In addition,
this information is currently required to be disclosed to clients, and
the commenter did not persuade us that it should be omitted. Another
commenter stated that Item 8's requirement that advisers primarily
using a particular strategy discuss the risks involved in its strategy
discriminates against smaller firms who are less likely to be multi-
strategy firms.\393\ As discussed earlier in this Release,\394\ we
agree that advisers should disclose material risks associated with
their strategies, regardless of whether they use one strategy or many
strategies but believe that the brochure may not always be the best
place for a multi-strategy adviser to disclose these risks. Another
commenter suggested that we permit smaller advisers to provide short-
form brochures.\395\ As discussed earlier in the release,\396\ we have
not determined to shorten the brochure for any type of advisers because
we believe that the brochure contains important information upon which
clients rely and much of which advisers are already required to make to
satisfy their fiduciary duty to their clients. We have, however,
allowed advisers to satisfy their annual brochure delivery obligation
by delivering a summary of material changes in their brochure to their
clients.
---------------------------------------------------------------------------

    \392\ Verbeck Letter.
    \393\ NAPFA Letter.
    \394\ See supra notes 71-75 and accompanying text.
    \395\ NSCP Letter.
    \396\ See supra notes 25-28 and accompanying text.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rules

    In developing the amendments, we have considered their potential
impact on small entities that may be affected. The rule and form
amendments will affect all advisers registered with the Commission,
including small entities. Under Commission rules, for purposes of the
Regulatory Flexibility Act, an investment adviser generally is a small
entity if it: (i) Has assets under management having a total value of
less than $25 million; (ii) did not have total assets of $5 million or
more on the last day of its most recent fiscal year; and (iii) does not
control, is not controlled by, and is not under common control with
another investment adviser that has assets under management of $25
million or more, or any person (other than a natural person) that had
$5 million or more on the last day of its most recent fiscal year.\397\
---------------------------------------------------------------------------

    \397\ See rule 0-7 [17 CFR 275.0-7].
---------------------------------------------------------------------------

    Our rule and form amendments will not affect most advisers that are
small entities (``small advisers'') because they are generally
registered with one or more state securities authorities and not with
us. Under section 203A of the Advisers Act, most small advisers are
prohibited from registering with the Commission and are regulated by
state regulators.\398\ The Commission estimates that as of May 3, 2010,
of the 11,658 registered with us, there were approximately 708 that
were small entities that would be affected by the amendments.\399\
---------------------------------------------------------------------------

    \398\ National Securities Markets Improvement Act of 1996 (Pub.
L. 104-290, 110 Stat. 3438) (1996) (``NSMIA''). As a result of
NSMIA, advisers with less than $25 million of assets under
management generally are regulated by one or more state securities
authority, while the Commission generally regulates those advisers
with at least $25 million of assets under management. See section
203A of the Advisers Act [15 USC 80b-3a].
    \399\ This estimate is based on information advisers have filed
with the Commission on Part 1A of Form ADV as of May 3, 2010.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

    The rule and form amendments impose certain reporting and
compliance requirements on small advisers, requiring them to create and
update narrative brochures containing certain information regarding
their advisory business. The amendments also require advisers to
deliver their brochures to clients and to file them electronically
through the IARD. The amendments also impose new recordkeeping
requirements. These requirements and the burdens on small advisers are
discussed below.\400\
---------------------------------------------------------------------------

    \400\ Sections I through IV of this Release describe these
requirements in more detail.
---------------------------------------------------------------------------

1. Amendments to Part 2 of Form ADV
    The amendments to Part 2, because they require registered advisers
to prepare and disseminate narrative brochures, impose additional costs
on all registered advisers, including small advisers. We assume that
all small advisers previously distributed Part 2 of Form ADV and did
not draft the optional narrative brochure. If our assumption is
correct, these advisers would have to redraft their brochures
completely to comply with the new format, although a lot of information
in the previous Part 2 will be transferable to the new narrative
brochures.
    The costs associated with preparing the new brochures will depend
on the size of the adviser, the complexity of its operations, and the
extent to which its operations present conflicts of interest with
clients. Many of the new items imposing the most rigorous disclosure
requirements may not apply to certain small advisers because, for
example, those advisers may not have soft dollar or directed brokerage
arrangements, or may not have custody of client assets. However,
certain of the brochure compliance costs may be fixed and thus impose a
disproportionate impact on small advisers. To the extent that some of
the new disclosure burdens would apply to small advisers, these
advisers are already obligated to make the disclosures to clients under
the Advisers Act's antifraud provisions, although the disclosure
currently is not required to be in the firm's written brochure.
    For the first time, advisers also will be required to prepare and
disseminate brochure supplements for certain supervised persons of
their firm. To reduce the burdens on small advisers, however, we have
drafted the new supplement rules so that firms with few employees would
be permitted to include supplement information in their firm brochures
and may choose to avoid preparing and distributing separate brochure
supplements. We believe many small advisers would take advantage of
this option and reduce their compliance burden. We also note that small
advisers are unlikely to have many supervised persons for whom a
brochure supplement is required, so the supplement should impose a
proportionately smaller burden on small advisers. The rule amendments
may increase compliance costs for investment advisers. Certain of these
increased compliance costs attributable to supplements may be fixed and
thus impose a disproportionate impact on small advisers.
2. Updating and Delivery Requirements
    The amended rules, like the prior rules, require advisers to update
their brochures and supplements whenever information in them becomes
materially inaccurate. In updating its brochure and supplements on an
interim basis, an adviser may minimize its burden by delivering a
statement describing this updated information instead of reprinting its
entire brochure or supplement.
    The amendments require advisers to deliver an updated brochure or a
summary of material changes in the adviser's brochure to clients
annually and to deliver interim updates of the brochure and supplements
to clients to disclose new or revised disciplinary information. To
minimize the burden of delivery, advisers are permitted with client
consent to deliver brochures, supplements and the summary of material
changes, as well as updates, electronically.\401\ To the extent that
small advisers are more likely to have

fewer advisory clients than larger advisers, the delivery requirements
should impose lower costs on small advisers than on larger firms.
---------------------------------------------------------------------------

    \401\ See supra notes 196-198.
---------------------------------------------------------------------------

3. Recordkeeping Requirements
    The amendments impose new recordkeeping requirements on advisers,
including small advisers. As under the previous rules, advisers will be
required to maintain copies of their brochures. The amendments also
require all advisers to maintain copies of their brochure supplements.
Advisers will be required to maintain a copy of any summary of material
changes in their brochure that is separate from the brochure. In
addition, the amendments require advisers, including small advisers, to
maintain certain records if they determine that a disciplinary event
that is presumptively material does not have to be disclosed, or if
they calculate their managed assets for purpose of their brochures
differently than in Part 1A of Form ADV.

E. Agency Action To Minimize Effect on Small Entities

    We have considered various alternatives in connection with the rule
and form amendments that might minimize their effect on small advisers,
including: (i) Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small advisers; (ii) clarifying, consolidating, or
simplifying compliance and reporting requirements under the proposed
amendments for small advisers; (iii) using performance rather than
design standards; and (iv) exempting small advisers from coverage of
all or part of the proposed amendments.
    Regarding the first alternative, the Commission believes that
establishing different compliance or reporting requirements for small
advisers would be inappropriate under these circumstances. The
amendments are designed to improve the quality and timeliness of
critically important disclosure that advisory clients receive from
their advisers. To establish different disclosure requirements for
small entities would diminish this investor protection for clients of
small advisers. We note, however, that small advisers, by the nature of
their business, likely would spend fewer resources in completing their
brochures and any brochure supplements. Small advisers have few
supervised persons providing investment advice, so they will need to
prepare few brochure supplements. Moreover, certain rule and form
amendments were designed specifically to reduce the burden on small
advisers. For example, the Part 2 instructions give advisers the
flexibility to incorporate required information about their supervised
persons into their firm brochures rather than presenting it in separate
brochure supplements, thereby saving additional printing and mailing
costs.
    Regarding the second alternative, the amendments clarify
requirements for all advisers, including small advisers. The amended
Part 2 instructions are designed to present requirements for advisers'
brochures and supplements clearly and simply to all advisers, including
small entities.
    Regarding the third alternative, the Commission believes that the
amendments already appropriately use performance rather than design
standards in many instances. The amendments permit advisers flexibility
in designing their brochures and supplements so as best to communicate
the required information to clients. In preparing brochure supplements,
advisers also have the flexibility of adapting the format of the
supplements to best suit their firm. An adviser may: (i) Prepare a
separate supplement for each supervised person; (ii) prepare a single
supplement containing the required information for all of its
supervised persons; (iii) prepare multiple supplements for groups of
supervised persons (e.g., all supervised persons in a particular office
or work group); or (iv) include all information about supervised
persons in the firm brochure and prepare no separate supplements.\402\
The amendments clarify that advisers may, with client consent, deliver
their brochures and supplements, along with any updates, to clients
electronically.\403\ Advisers may incorporate their supplements into
the brochure or provide them separately.
---------------------------------------------------------------------------

    \402\ See Section II.B of this Release. A brochure supplement,
however, must be organized in the same order, and use the same
headings, as the items appear in the form, whether incorporated in a
brochure or provided separately. See Instruction 1 of General
Instructions for Part 2 of Form ADV.
    \403\ See supra notes 196-198.
---------------------------------------------------------------------------

    Regarding the fourth alternative, it would be inconsistent with the
purposes of the Advisers Act to exempt small advisers from the rule and
form amendments. The information in an adviser's brochure is necessary
for the client to evaluate the adviser's services, fees, and business
practices, and to apprise the client of potential conflicts of interest
and, when necessary, of the adviser's financial condition. Since we
view the protections of the Advisers Act to apply equally to clients of
both large and small advisers, it would be inconsistent with the
purposes of the Act to specify different requirements for small
entities.

IX. Efficiency, Competition, and Capital Formation

    Section 23(a)(2) of the Exchange Act requires the Commission, in
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.\404\ Section 3(f) of the Exchange Act requires the Commission,
when engaging in rulemaking that requires it to consider or determine
whether an action is necessary or appropriate in the public interest to
consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital
formation.\405\ Section 202(c) of the Advisers Act requires the
Commission, when engaging in rulemaking that requires it to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and capital
formation.\406\
---------------------------------------------------------------------------

    \404\ 15 U.S.C. 78w(a)(2).
    \405\ 15 U.S.C. 78c(f).
    \406\ 15 U.S.C. 80b-2(c).
---------------------------------------------------------------------------

    In the Proposing Release, we solicited comment on whether, if
adopted, the proposed rule and form amendments would promote
efficiency, competition and capital formation. We further encouraged
commenters to provide empirical data to support their views on any
burdens on efficiency, competition or capital formation that might
result from adoption of the proposed amendments. We did not receive any
empirical data in this regard concerning the proposed amendments. We
received one comment stating that the proposed amendments would not
promote efficiency, competition, and capital formation, but the
commenter did not state why.\407\ Accordingly, since the

adopted rule and form amendments are similar to the proposed rule and
amendments, we continue to believe the amendments will contribute to
efficiency, competition and capital formation.
---------------------------------------------------------------------------

    \407\ Jackson Letter. Another commenter stated that the
requirement to disclose the amount of assets under management in the
brochure would discriminate against smaller firms because of a
perceived notion that a larger company does a better job. See
Verbeck Letter. As discussed at supra 181 and accompanying text,
assets under management is an objective measure that provides
important information to clients. Clients have different preferences
and some, for example, may view a smaller adviser as being more
likely to provide more personal service. In addition, the NAPFA
Letter stated that Item 8's requirement that advisers primarily
using a particular strategy discuss the risks involved in its
strategy discriminates against smaller firms who are less likely to
be multi-strategy firms. As discussed at supra notes 72-75 and
accompanying text, we disagree.
---------------------------------------------------------------------------

    Today the Commission is adopting amendments to Part 2 of Form ADV
and related Advisers Act rules that would require investment advisers
registered with us to deliver to clients and prospective clients
brochures and brochure supplements written in plain English. We believe
that the rule and form amendments that we are adopting today are likely
to promote efficiency and competition in the marketplace for advisory
services provided by advisers registered with us by improving the
disclosure that they must provide to clients.\408\ These amendments are
designed to require advisers to provide clients and prospective clients
with clear, current, and more meaningful disclosure of the business
practices, conflicts of interest, and background of investment advisers
and the advisory personnel on whom clients rely for investment advice.
As a result, we believe that advisory clients will be provided with
improved disclosure from advisers that will allow them to select an
adviser based on a clearer and more thorough understanding of the
business practices, conflicts of interest, and disciplinary information
than exists with the check-the-box format of the current brochure.
While advisers currently have the option of providing a narrative
brochure, few do so. Absent the actions we are taking today, based on
our experience with administering the Advisers Act brochure requirement
and inefficiencies in the marketplace, we do not believe that advisers
have adequate incentives to produce clear and understandable brochures.
We expect the amendments we are adopting today, by requiring clearer
and more understandable brochures, are likely to increase competition
among advisers.
---------------------------------------------------------------------------

    \408\ Along with the brochure amendments, the Commission also is
adopting conforming amendments to the General Instructions and
Glossary of Form ADV to include instructions regarding brochure
filing requirements and to add glossary terms and definitions that
are used in Part 2. Additionally, the Commission also is adopting
conforming amendments to the Advisers Act books and records rule.
These amendments require advisers to maintain copies of their
brochures, brochure supplements, amendments, and summaries of
material changes, and are intended to update the books and records
rule in light of our changes to Part 2. None of these conforming
amendments are expected to have an independent impact on efficiency,
competition, or capital formation. To the extent that they
facilitate the purposes of the amendments, the conforming amendments
may, however, contribute to the expected effects on efficiency,
competition and capital formation that would stem from the
amendments and which are discussed below.
---------------------------------------------------------------------------

    Advisers will file their brochures with us electronically, and we
will make them available to the public through our website. Today,
while advisers' brochures are ``deemed'' filed with us, it is difficult
for the public to obtain them unless the adviser provides a brochure
upon request or makes it available on its own website, which also makes
it very difficult for prospective clients to compare more than a few
investment advisers. With the public availability through our website
of more thorough and current disclosure of advisers' services, fees,
business practices and conflicts of interests, investors will be able
to make more informed decisions about whether to hire or retain a
particular adviser and will have an easier time comparing investment
advisers. The supplements will allow clients and prospective clients to
compare the qualifications and conflicts not only of the advisory firm
but also of the personnel that will be providing investment advice to
them. By having more information about the individuals and firms
providing investment advice to them, as well as the ability to compare
advisory firms, a client may be more likely to select initially an
appropriate investment adviser for that client, promoting competition
on the basis of improved disclosure of conflicts of interest and
business practices and avoiding the burdens and costs associated with
switching advisers or supervised persons at a later date, and thereby
potentially creating efficiency gains in the marketplace. The
availability of this information about advisers and their personnel
also may enhance competition if, for example, firms and personnel with
better disciplinary records outcompete those with worse records.
Secondarily, the electronic filing requirements are expected to
expedite and simplify the process of filing firm brochures and
amendments for the advisory firms, thus improving the efficiency of
advisers that are required to file and update the brochure.
    A few commenters stated that certain information required to be
disclosed in the brochure is duplicative of information required to be
reported in Part 1A of Form ADV and that such information should only
be required disclosure in one place in Form ADV.\409\ While we are
conscious of these commenters' goal of generating efficiency by
eliminating duplicative disclosure in Form ADV, we do not believe that
it is appropriate to allow disclosure in Part 1A to satisfy disclosure
obligations in Part 2B, or vice versa, because, these parts serve
different functions and clients and prospective clients access these
documents in different ways. Part 1A is used for regulatory purposes
and thus the information it collects is that which our examination
staff has identified as important for us to have for our examination
program and other regulatory functions. While an adviser's responses to
Part 1A of Form ADV generally are available to the public through our
website, they are not delivered to clients or prospective clients and
they are not written in a manner designed to be meaningful to clients
or prospective clients--rather they are largely a series of ``check-
the-box'' responses. Part 2A of Form ADV, on the other hand, is
disclosure aimed at and delivered to clients and prospective clients.
Accordingly, while certain topics of disclosure may be covered by both
parts, we believe the different functions of, and delivery methods for,
these two parts justifies the replication of disclosure topics.
---------------------------------------------------------------------------

    \409\ See, e.g., ACLI Letter; IAA Letter.
---------------------------------------------------------------------------

    On the other hand, the amendments we are adopting today are
designed to generate efficiencies and reduce duplicative disclosure by
allowing an adviser who sends supplements electronically, and whose
supervised persons have disciplinary disclosure available on FINRA's
BrokerCheck system or the IAPD system, to respond to those portions of
Item 3 of the brochure supplement by including in the brochure
supplement (i) a statement that the supervised person has a
disciplinary history, the details of which can be found on FINRA's
BrokerCheck system or the IAPD, and (ii) a hyperlink to the relevant
system with a brief explanation of how the client can access the
disciplinary history. In this instance, we believe that permitting
cross-referencing is appropriate since it will only be allowed if the
supplement is delivered electronically and the disclosure is
duplicative. The BrokerCheck and IAPD systems are aimed at investor
disclosure and are designed to be user-friendly, and clients will still
receive delivery of a supplement which contains the other information
(e.g., educational background and other business activities) about that
supervised person.
    In addition to the competitive impact mentioned above, we believe
that the rule amendments may have certain other impacts on competition.
The brochure supplement may impose greater costs on larger advisers
that have

to create systems to track appropriate delivery of supplements that
smaller advisers would not need. To the extent these costs are passed
on to clients, a client's choice of investment advisers may be
impacted. As we noted in the Cost-Benefit Analysis section above,
however, many of these systems costs should be mitigated by systems
that large advisers already have in place to track Form U4 information
for their investment advisory representatives and broker-dealer
registered representatives, which these firms should be able to
leverage for use in the brochure supplement context. The rule
amendments also may increase compliance costs for investment advisers.
Certain of these increased compliance costs may be fixed and thus
impose a disproportionate impact on small advisers, which may have
anticompetitive impacts on small advisers.
    The competitive impacts discussed previously primarily focused on
the impact of the rule amendments on investment advisers that are
registered with us. We acknowledge that there may also be competitive
impacts as a result of the amendments between those persons providing
investment advice that are, and those that are not, registered with us
as investment advisers. For example, banks, insurance companies,
broker-dealers, and exempt advisers provide financial services that may
compete, in some cases, for the same clients that would retain SEC-
registered investment advisers. We have carefully considered the
potential competitive implications of these rule amendments and do not
believe that they will put advisers registered with us at a significant
competitive disadvantage. Moreover, notwithstanding the potential
competitive effect, we believe that the concerns that the amendments
are designed to address justify adoption of the rule amendments.
Pursuant to Section 23(a)(2) of the Exchange Act, the Commission does
not believe that the amendments to Form ADV impose a burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
    As stated previously, the rule amendments are designed to provide
advisory clients with clearer, more concise and understandable
information regarding the business practices and conflicts of interest
of investment advisers. Improved disclosure by SEC-registered
investment advisers could result in enhanced efficiencies for clients
in selecting an investment adviser and improved allocation of client
assets among investment advisers. To a more limited extent, if better
disclosure increases clients' and prospective clients' trust in
investment advisers, it may encourage them to seek professional
investment advice and encourage them to invest their financial assets.
This also may enhance capital formation by making more funds available
for investment and enhancing the allocation of capital generally. On
the other hand, if the rule amendments increase costs at investment
advisers and these costs increases are passed on to clients, this may
deter clients from seeking professional investment advice and investing
their financial assets. This may result in inefficiencies in the market
for advisory services and hinder capital formation.

X. Statutory Authority

    We are adopting amendments to rule 203-1 under sections 203(c)(1),
204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-
3(c)(1), 80b-4, and 80b-11(a)].
    We are adopting amendments to rule 204-1 under sections 203(c)(1)
and 204 of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1)
and 80b-4].
    We are adopting amendments to rule 204-2 under sections 204 and
206(4) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-4 and 80b-
6(4)].
    We are adopting amendments to rule 204-3 under sections 204,
206(4), and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C.
80b-4, 80b-6(4), and 80b-11(a)].
    We are adopting amendments to rule 279.1, Form ADV, under section
19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a)
and 28(e)(2) of the Securities Exchange Act of 1934 [15 U.S.C. 78w(a)
and 78bb(e)(2)], section 319(a) of the Trust Indenture Act of 1939 [15
U.S.C. 77sss(a)], section 38(a) of the Investment Company Act of 1940
[15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the
Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)].
    We are removing and reserving rule 206(4)-4 under section 206(4) of
the Investment Advisers Act of 1940 [15 U.S.C. 80b-6(4)].

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

Text of Rule and Form Amendments

0
For the reasons set out in the preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended as follows:

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The general authority citation for Part 275 continues to read as
follows:

    Authority:  15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(17), 80b-3, 80b-
4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise noted.

* * * * *

0
2. Section 275.203-1 is amended by revising paragraphs (a) and (b) to
read as follows:

Sec.  275.203-1  Application for investment adviser registration.

    (a) Form ADV. Subject to paragraph (b), to apply for registration
with the Commission as an investment adviser, you must complete Form
ADV [17 CFR 279.1] by following the instructions in the form and you
must file Part 1A of Form ADV and the firm brochure(s) required by Part
2A of Form ADV electronically with the Investment Adviser Registration
Depository (IARD) unless you have received a hardship exemption under
Sec.  275.203-3. You are not required to file with the Commission the
brochure supplements required by Part 2B of Form ADV.
    (b) Transition to electronic filing. If you apply for registration
after January 1, 2011, you must file a brochure(s) that satisfies the
requirements of Part 2A of Form ADV electronically with the IARD,
unless you have received a continuing hardship exemption under Sec.
275.203-3.
    Note to paragraphs (a) and (b): Information on how to file with the
IARD is available on the Commission's Web site at http://www.sec.gov/
iard. If you are not required to deliver a brochure to any clients, you
are not required to prepare or file a brochure with the Commission. If
you are not required to deliver a brochure supplement to any clients
for any particular supervised person, you are not required to prepare a
brochure supplement for that supervised person.
* * * * *

0
3. Section 275.204-1 is amended by removing the notes to paragraphs (a)
and (c) and revising paragraphs (b) and (c) to read as follows:

Sec.  275.204-1  Amendments to application for registration.

* * * * *
    (b) Electronic filing of amendments. (1) Subject to paragraph (c),
you must file all amendments to Part 1A of Form ADV and Part 2A of Form
ADV electronically with the IARD, unless you have received a continuing
hardship exemption under Sec.  275.203-3. You are not required to file
with the Commission amendments to brochure

supplements required by Part 2B of Form ADV.
    (2) If you have received a continuing hardship exemption under
Sec.  275.203-3, you must, when you are required to amend your Form
ADV, file a completed Part 1A and Part 2A of Form ADV on paper with the
SEC by mailing it to FINRA.
    Note to paragraphs (a) and (b): Information on how to file with the
IARD is available on our Web site at http://www.sec.gov/iard. For the
annual updating amendment: summaries of material changes that are not
included in the adviser's brochure must be filed with the Commission as
an exhibit to Part 2A in the same electronic file; and if you are not
required to prepare a summary of material changes or an annual updating
amendment to your brochure, you are not required to file them with the
Commission. See the instructions for Part 2A of Form ADV.
    (c) Transition to electronic filing. If your fiscal year ends on or
after December 31, 2010, you must amend your Form ADV by electronically
filing with the IARD one or more brochures that satisfy the
requirements of Part 2A of Form ADV (as amended effective October 12,
2010) as part of the next annual updating amendment that you are
required to file.
* * * * *

0
4. Section 275.204-2is amended by revising paragraph (a)(14) to read as
follows:

Sec.  275.204-2  Books and records to be maintained by investment
advisers.

    (a) * * *
    (14)(i) A copy of each brochure and brochure supplement, and each
amendment or revision to the brochure and brochure supplement, that
satisfies the requirements of Part 2 of Form ADV [17 CFR 279.1]; any
summary of material changes that satisfies the requirements of Part 2
of Form ADV but is not contained in the brochure; and a record of the
dates that each brochure and brochure supplement, each amendment or
revision thereto, and each summary of material changes not contained in
a brochure was given to any client or to any prospective client who
subsequently becomes a client.
    (ii) Documentation describing the method used to compute managed
assets for purposes of Item 4.E of Part 2A of Form ADV, if the method
differs from the method used to compute assets under management in Item
5.F of Part 1A of Form ADV.
    (iii) A memorandum describing any legal or disciplinary event
listed in Item 9 of Part 2A or Item 3 of Part 2B (Disciplinary
Information) and presumed to be material, if the event involved the
investment adviser or any of its supervised persons and is not
disclosed in the brochure or brochure supplement described in paragraph
(a)(14)(i) of this section. The memorandum must explain the investment
adviser's determination that the presumption of materiality is
overcome, and must discuss the factors described in Item 9 of Part 2A
of Form ADV or Item 3 of Part 2B of Form ADV.
* * * * *

0
5. Section 275.204-3 is revised to read as follows:

Sec.  275.204-3  Delivery of brochures and brochure supplements.

    (a) General requirements. If you are registered under the Act as an
investment adviser, you must deliver a brochure and one or more
brochure supplements to each client or prospective client that contains
all information required by Part 2 of Form ADV [17 CFR 279.1].
    (b) Delivery requirements. Subject to paragraph (g), you (or a
supervised person acting on your behalf) must:
    (1) Deliver to a client or prospective client your current brochure
before or at the time you enter into an investment advisory contract
with that client.
    (2) Deliver to each client, annually within 120 days after the end
of your fiscal year and without charge, if there are material changes
in your brochure since your last annual updating amendment:
    (i) A current brochure, or
    (ii) The summary of material changes to the brochure as required by
Item 2 of Form ADV, Part 2A that offers to provide your current
brochure without charge, accompanied by the Web site address (if
available) and an e-mail address (if available) and telephone number by
which a client may obtain the current brochure from you, and the Web
site address for obtaining information about you through the Investment
Adviser Public Disclosure (IAPD) system.
    (3) Deliver to each client or prospective client a current brochure
supplement for a supervised person before or at the time that
supervised person begins to provide advisory services to the client;
provided, however, that if investment advice for a client is provided
by a team comprised of more than five supervised persons, a current
brochure supplement need only be delivered to that client for the five
supervised persons with the most significant responsibility for the
day-to-day advice provided to that client. For purposes of this
section, a supervised person will provide advisory services to a client
if that supervised person will:
    (i) Formulate investment advice for the client and have direct
client contact; or
    (ii) Make discretionary investment decisions for the client, even
if the supervised person will have no direct client contact.
    (4) Deliver the following to each client promptly after you create
an amended brochure or brochure supplement, as applicable, if the
amendment adds disclosure of an event, or materially revises
information already disclosed about an event, in response to Item 9 of
Part 2A of Form ADV or Item 3 of Part 2B of Form ADV (Disciplinary
Information), respectively, (i) the amended brochure or brochure
supplement, as applicable, along with a statement describing the
material facts relating to the change in disciplinary information, or
(ii) a statement describing the material facts relating to the change
in disciplinary information.
    (c) Exceptions to delivery requirement. (1) You are not required to
deliver a brochure to a client:
    (i) That is an investment company registered under the Investment
Company Act of 1940 [15 U.S.C. 80a-1 to 80a-64] or a business
development company as defined in that Act, provided that the advisory
contract with that client meets the requirements of section 15(c) of
that Act [15 U.S.C. 80a-15(c)]; or
    (ii) Who receives only impersonal investment advice for which you
charge less than $500 per year.
    (2) You are not required to deliver a brochure supplement to a
client:
    (i) To whom you are not required to deliver a brochure under
subparagraph (c)(1) of this section;
    (ii) Who receives only impersonal investment advice; or
    (iii) Who is an officer, employee, or other person related to the
adviser that would be a ``qualified client'' of your firm under Sec.
275.205-3(d)(1)(iii).
    (d) Wrap fee program brochures. (1) If you are a sponsor of a wrap
fee program, then the brochure that paragraph (b) of this section
requires you to deliver to a client or prospective client of the wrap
fee program must be a wrap fee program brochure containing all the
information required by Part 2A, Appendix 1 of Form ADV. Any additional
information in a wrap fee program brochure must be limited to
information applicable to wrap fee programs that you sponsor.
    (2) You do not have to deliver a wrap fee program brochure if
another sponsor of the wrap fee program delivers, to the client or
prospective client of the wrap fee program, a wrap fee program

brochure containing all the information required by Part 2A, Appendix 1
of Form ADV.
    Note to paragraph (d): A wrap fee program brochure does not take
the place of any brochure supplements that you are required to deliver
under paragraph (b) of this section.
    (e) Multiple brochures. If you provide substantially different
advisory services to different clients, you may provide them with
different brochures, so long as each client receives all information
about the services and fees that are applicable to that client. The
brochure you deliver to a client may omit any information required by
Part 2A of Form ADV if the information does not apply to the advisory
services or fees that you will provide or charge, or that you propose
to provide or charge, to that client.
    (f) Other disclosure obligations. Delivering a brochure or brochure
supplement in compliance with this section does not relieve you of any
other disclosure obligations you have to your advisory clients or
prospective clients under any federal or state laws or regulations.
    (g) Transition rule. (1) Within 60 days after the date by which you
are first required by Sec.  275.204-1(c) to electronically file your
brochure(s) with the Commission, you must deliver to each of your
existing clients your current brochure and all current brochure
supplements as required by Part 2 of Form ADV.
    (2) As of the date by which you are first required to
electronically file your brochure(s) with the Commission, you must
begin using your current brochure and current brochure supplements as
required by Part 2 of Form ADV to comply with the requirements of this
section pertaining to initial delivery to new and prospective clients.
    (h) Definitions. For purposes of this section:
    (1) Impersonal investment advice means investment advisory services
that do not purport to meet the objectives or needs of specific
individuals or accounts.
    (2) Current brochure and current brochure supplement mean the most
recent revision of the brochure or brochure supplement, including all
amendments to date.
    (3) Sponsor of a wrap fee program means an investment adviser that
is compensated under a wrap fee program for sponsoring, organizing, or
administering the program, or for selecting, or providing advice to
clients regarding the selection of, other investment advisers in the
program.
    (4) Supervised person means any of your officers, partners or
directors (or other persons occupying a similar status or performing
similar functions) or employees, or any other person who provides
investment advice on your behalf.
    (5) Wrap fee program means an advisory program under which a
specified fee or fees not based directly upon transactions in a
client's account is charged for investment advisory services (which may
include portfolio management or advice concerning the selection of
other investment advisers) and the execution of client transactions.

Sec.  275.206(4)-4  [Removed and Reserved]

0
6. Section 275.206(4)-4 is removed and reserved.

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF
1940

0
7. The authority citation for Part 279 continues to read as follows:

    Authority:  15 U.S.C. 80b-1, et seq.

0
8. Form ADV [referenced in Sec.  279.1] is amended by:
0
a. In the instructions to the form, revising the section entitled
``Form ADV: General Instructions.'' The revised version of Form ADV:
General Instructions is attached as Appendix A;
0
b. In the instructions to the form, revising the section entitled
``Glossary of Terms.'' The revised version of Glossary of Terms is
attached as Appendix B; and
0
c. Removing Form ADV, Part II, and adding Form ADV, Part 2. Form ADV,
Part 2 is attached as Appendix C.

    Note:  The amendments to and text of Form ADV will not appear in
the Code of Federal Regulations.

* * * * *
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    Dated: July 28, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-19617 Filed 8-11-10; 8:45 am]
BILLING CODE 8011-01-C