Updates to the Massachusetts Investment Adviser Disclosure Rule

The states continue to be busy with new rule-making! On June 14, 2019 the Massachusetts Securities Division (the ‘Division’) adopted amendments to 950 Massachusetts Code of Regulations 12.205(8). The amendments, applicable to Massachusetts registered advisers, includes two elements, but the key one that we’ll focus on here is the requirement for Massachusetts registered investment advisers to provide current and prospective clients with a fee table for their offered advisory services.

Summary of Disclosure Requirements

An investment adviser must provide each current or prospective client with the following disclosures at least 48 hours before entering into a contract or, if the investment adviser provides disclosures to the client at the time of entering in the contract, the investment adviser must give the client the option to cancel the contract within five business days:

  1. A disclosure statement, which may be a copy of Form ADV, Part 2 or another written document containing the equivalent information. Alternatively, a document that is not Form ADV, Part 2 must be filed with the Division before its first use;
  2. A standalone Table of Fees for services in a Division-approved format that is prepared in accordance with specific instructions;
  3. Any additional information required to be disclosed under the Investment Advisers Act of 1940; and
  4. A notice that any disciplinary history for the investment adviser and employed/associated investment adviser representatives can be obtained from the Division.*

An investment adviser must annually, without charge, deliver (or offer in writing to deliver) the above disclosures to respective advisory clients upon their written request. Any disclosures that an advisory client requests in writing must be sent to the client within seven days of the adviser’s receiving the client’s request.

*This disclosure is to be included within Item 9 of the Form ADV Part 2A.

The Massachusetts Securities Act’s disclosure obligations are considered met if the investment adviser complies with the above four-part requirement.

The adopted amendments to 950 CMR 12.205.(8) will be enforced as of January 1, 2020.

Required Table of Fees

The required Table of Fees must be available and easily accessible on any website the investment adviser maintains for the adviser’s clients and/or for the public.

The Table of Fees must be a one-page, stand-alone document based on information that is already in each investment adviser’s Form ADV Part 2A. The Table of Fees must be prepared on the Securities Division-approved form and in accordance with the guidance and instructions for preparing the required fee disclosure.

Updates and delivery of the Table of Fees must be done consistently with the existing requirements to Form ADV. The purpose of the Table of Fees is to increase transparency of advisory fees and costs, aid comprehension of advisory fees and costs, and enable investors to make more informed decisions when choosing their investment advisers. The Table of Fees achieves this goal by clarifying the information about fees and services from the investment adviser’s brochure into a simple, easily understandable format to enable a side-by-side comparison of investment advisers and promote more informed questions and conversations about services and fees.

The Table of Fees must be annually updated as of the date the investment adviser is required to file any annual Form ADV amendments.

Need more guidance? The Massachusetts Securities Division will be conducting an in-person training session to assist investment advisory firms with their preparation of the document. The training session will be held on October 29, 2019 at the Best Western Hotel in Marlborough, MA, and information is available here. A copy of the presentation will be available to those who cannot attend the in-person training. CSS, through its Ascendant compliance services division, can also help. Check out our services and contact us.

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