Investment Adviser Workshop: the New Form ADV Part 2, New Rules, and the IA Switch

Rewriting the ADV in Plain English Richard Jaramillo Examiner

Rewriting in Plain English Effective Communication Effective Communication Level of Financial Sophistication Level of Financial Sophistication Use Short Sentences Use Short Sentences Definite, concrete, everyday words Definite, concrete, everyday words Active Voice Active Voice Tables or Bullet Lists for Complex Material Tables or Bullet Lists for Complex Material Avoid Legal Jargon or Highly Technical Terms Avoid Legal Jargon or Highly Technical Terms Avoid Multiple Negatives Avoid Multiple Negatives ADV Guidelines

Rewriting in Plain English A Plain English Handbook A Plain English Handbook Plain English ≠ deleting complex information Plain English ≠ deleting complex information Analyze and Organize before drafting Analyze and Organize before drafting Use words economically Use words economically Know your audience Know your audience Multiple Brochures, if needed Multiple Brochures, if needed SEC Guidelines

Rewriting in Plain English WORKING FROM OLD ADV Read & Outline the old document ( Schedule F ) Read & Outline the old document ( Schedule F ) Question whether clients will understand Question whether clients will understand Meet to resolve questions if outsourcing Meet to resolve questions if outsourcing Cannot outsource understanding Cannot outsource understanding Identify any defined terms or references Identify any defined terms or references Use sparingly but consistently Use sparingly but consistently SEC Guidelines

Rewriting in Plain English COMMON PROBLEMS Long Sentences Long Sentences Passive Voice Passive Voice Weak Verbs Weak Verbs Superfluous Words Superfluous Words Legal and Financial Jargon Legal and Financial Jargon Abstract Words Abstract Words Unneccessary Details Unneccessary Details Unreadable Design and Layout Unreadable Design and Layout SEC Guidelines SEC Guidelines

Rewriting in Plain English WRITING THE NEW DOCUMENT The instructions give the broad organization The instructions give the broad organization and headings to be used and headings to be used May still need subheadings and organization May still need subheadings and organization within a given Item on Form ADV Part 2 within a given Item on Form ADV Part 2 Item 4 – Advisory Business Item 4 – Advisory Business Item 5 – Fees and Compensation Item 5 – Fees and Compensation Item 8 – Methods of Analysis, Investment Strategies, and Risk of Loss Item 8 – Methods of Analysis, Investment Strategies, and Risk of Loss Item 10 – Other Financial Industry Activities and Affiliations Item 10 – Other Financial Industry Activities and Affiliations Item 12 – Brokerage Practices Item 12 – Brokerage Practices Division Guidelines Division Guidelines

Rewriting in Plain English WRITING THE NEW DOCUMENT Make the paragraph the unit of composition Make the paragraph the unit of composition Length should determine whether to divide Length should determine whether to divide into separate topics / paragraphs into separate topics / paragraphs Use definite, specific, concrete language Use definite, specific, concrete language Consistent tense of verbs Consistent tense of verbs Simple tense Simple tense Past, Present, Future tense Past, Present, Future tense Division Guidelines Division Guidelines

Rewriting in Plain English Division Guidelines Division Guidelines MOST CONCERNING DISCLOSURES Item 4 – Advisory Business Item 4 – Advisory Business Clearly describing what the Adviser does Clearly describing what the Adviser does Touting and puffery Touting and puffery Item 5 – Fees and Compensation Item 5 – Fees and Compensation Complicated compensation formulas Complicated compensation formulas Understanding “reasonable” advisory fees Understanding “reasonable” advisory fees

Rewriting in Plain English Division Guidelines Division Guidelines MOST CONCERNING DISCLOSURES Item 8 – Methods of Analysis, Investment Item 8 – Methods of Analysis, Investment Strategies, and Risk of Loss Strategies, and Risk of Loss Don’t be afraid to disclose risk Don’t be afraid to disclose risk Item 10 – Other Financial Industry Activities Item 10 – Other Financial Industry Activities and Affiliations and Affiliations Other, Outside, or Affiliated businesses Other, Outside, or Affiliated businesses Describe the relationships or arrangements Describe the relationships or arrangements Conflicts need to be disclosed Conflicts need to be disclosed

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