Alert July 20, 2010

SEC to Consider New Mutual Fund Distribution Fee Rule and Form ADV Part 2 Amendments at Open Meeting

At its open meeting on Wednesday, July 21, 2010 at 10:00 a.m., the SEC is scheduled to consider whether to propose for public comment a new rule and rule and form amendments under the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, that address the manner in which registered open-end management investment companies (“funds”) pay for distribution.  As described in the notice of the open meeting, “[t]he recommended proposal would provide a new framework for how funds currently use their assets to pay for sales and distribution expenses pursuant to rule 12b-1 under the Investment Company Act, and would revise disclosure requirements for transaction confirmations pursuant to rule 10b-10 under the Securities Exchange Act.” 

The SEC will also consider whether to adopt amendments to Form ADV Part 2, which is part of the registration form for registered advisers and dictates the information about a registered adviser’s services, personnel, business practices, fees and conflicts of interest that must be provided to new clients and made available to existing clients on an annual basis.  The amendments would replace Form ADV Part 2’s current check-the-box approach with a list of disclosure requirements that advisers would follow to produce a narrative brochure in plain English.  The amendments would require advisers to file their brochures electronically with the SEC, which would make them publicly available on its website.  The amendments would complete an overhaul of Form ADV that began in 2000 with the adoption of changes to Form ADV Part 1, which included electronic filing.  The SEC deferred final action on Part 2 amendments, which were most recently re‑proposed in 2008 (as discussed in the April 22, 2008 Alert).