M E M O R A N D U M

TO:	File S7-10-00
FROM:	Marticha Cary
SUBJECT:	Proposed Amendments to Part II of Form ADV
DATE:	February 1, 2001

On January 22, 2001, Robert Plaze, Jennifer Sawin, Jennifer McHugh, and Marticha Cary met with Karen Barr and David Tittsworth of the Investment Counsel Association of America (ICAA) and David Oestreicher of T. Rowe Price Associates, Inc. (T. Rowe Price) to discuss the Commission's April 5, 2000 proposal to amend Part II of Form ADV and related rules. The meeting focused primarily on the proposed brochure supplement, but also covered the proposed brochure delivery and updating requirements and certain proposed brochure disclosure items.

Following is a summary of the issues raised by representatives of ICAA and T. Rowe Price during the two-hour session. ICAA will be submitting a supplemental comment letter further elaborating on the issues below and suggesting workable alternatives.

Brochure Supplement

• ICAA and T. Rowe Price stated that the audience the Commission appears to be trying to reach with the brochure supplement requirement are retail clients more so than institutional clients. They suggested that the Commission consider adopting an exception to the brochure supplement delivery requirement for institutional clients.

• ICAA and T. Rowe Price expressed various concerns about the practical difficulties that would be involved in preparing brochure supplements for the wide range of supervised persons that the Commission has proposed. They suggested not requiring supplements for persons who merely communicate investment advice to clients, but who do not themselves advise or formulate advice for clients.

  SEC staff asked how ICAA and T. Rowe Price would suggest the Commission draw the line between giving or formulating investment advice and simply communicating it. Should there be a presumption that all registered investment adviser representatives provide (and not simply communicate) advice to clients?

• ICAA and T. Rowe Price raised concerns about the practical difficulties involved in ensuring the proper distribution of brochure supplements. When would supplements have to be delivered? If before a supervised person begins to offer investment advice to a client, how would that work when a client calls into a phone bank and is then immediately assigned a representative? Also, who would deliver the supplements? ICAA stated that advisers will be hesitant to give individual representatives the responsibility of fulfilling a legal obligation of the adviser.

• ICAA stated that updating each individual brochure supplement whenever information in the supplement becomes materially inaccurate would be an administrative problem, especially for larger firms. They suggested requiring a sticker only for changes in disciplinary information and allowing all other information to be updated annually.

Brochure

• ICAA described as "difficult" the requirement that advisers use a single brochure to serve both retail and institutional client needs and pointed out that many institutional clients already receive extensive disclosure from advisers separate from Part II disclosure (e.g., RFPs).

  No changes have been proposed to the current rule, which permits multiple brochures only where an adviser offers substantially different advisory services.

• ICAA expressed concern that the brochure updating requirement would inundate clients with unwanted information.

  The current system already requires all material information to be disclosed to clients. Advisers could "manage" the updating process, however; for example, an adviser could plan major changes in advance and provide updated disclosure at that time - or use separate brochures for separate services and send stickers to the relevant clients only.

• ICAA suggested that the Commission consider streamlining the disclosure items in the proposed brochure, particularly those pertaining to policies and procedures but also those requiring a listing of wrap fee programs and periodicals.

  Several commenters made erroneous assumptions about the scope of required disclosure, especially as it relates to policies and procedures. The adopting release will clarify that advisers must describe their policies and procedures in only a general way in perhaps no more than a sentence or two. It also will make clear that advisers need not respond to items that do not apply to their business. Cutting back on some proposed disclosure items (e.g., wrap fee and periodicals listings) also may be considered.