Five Things to Know About Your Customer Relationship Summary - Your CRS

Retirement Daily Guest Contributor

by Duane Thompson, AIFA

Editor's note: Did you just receive a CRS, a customer relationship summary, from your financial institution? Might you be wondering what, if anything, you need to know about it? Duane Thompson, AIFA, president of Potomac Strategies to shares below the top five things investors need to know.

Background from the SEC

On June 5, 2019, the Securities and Exchange Commission adopted a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940.

Individually and collectively, these actions are designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made.

Top Five Things to Know about Form CRS

1. Form CRS is just a starting point to asking additional questions before hiring an adviser. Use it to compare the two basic business models regulated by the SEC – brokerage firms charge commissions, and investment advisory firms charge fees. Of course, Form CRS also can be used to compare individual firms, but its major purpose is to compare differences between the business models.

CRS from Fidelity Investments

2. Form CRS disclosures of different firms may look similar at first. That’s because the SEC requires boilerplate language in certain sections. Key in on the “non-boilerplate” stuff to identify differences.

3. The legal obligations of stockbrokers and investment advisers to their clients may look similar – both are required to state that they must act in your best interest. However, most legal experts and consumer groups agree that the fiduciary standard for investment advisers is a much higher legal obligation than the new ‘best interest’ requirement for brokers.

4. If you receive a four-page Form CRS, that’s because the firm is registered as both a brokerage and advisory firm. Or a firm may offer you two Form CRS’s for each business. In fact, the majority of financial advisers are dually registered. Make sure you ask how and when your adviser will disclose which ‘hat’ s/he is wearing when providing advice.

5. Only SEC-registered advisory firms – typically firms managing more than $100 million in client portfolios – are required to give you a copy of Form CRS. The SEC rule doesn’t apply to state-registered advisory firms. However, both SEC and state-registered advisory firms must provide you with a more detailed disclosure document, called Form ADV Part 2. To make things more confusing, a tiny minority of advisers may be state-registered but affiliated with a broker-dealer. In that situation, the adviser is only required to provide you with the brokerage firm’s Form CRS.

Read Regulation Best Interest, Form CRS and Related Interpretations.

About the author - Duane Thompson, AIFA

Duane Thompson, AIFA, president, Potomac Strategies LLC, was the recipient of the David Honorable Distinction Award. He was recognized for his article, “Five Traps for the Unwary: Due Diligence and the DOL Fiduciary Rule,” published in the September/October 2017 issue of Investments & Wealth Monitor.


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