By Seth Gaudreau and Patrice Maloney-Knauff
On June 30, 2020, the Securities and Exchange Commission’s (“SEC”) new “relationship summary,” known as Form CRS, took effect. Form CRS — which broker-dealers and SEC-registered investment advisers (“RIA”) are required to provide to their retail investors — is designed to provide retail investors with the tools to better understand and navigate their relationships with financial professionals and make informed choices about the type of relationship for their needs and circumstances. Below are the basics that retail investors need to know about this relationship summary. Unless otherwise indicated, there should be no action required by you, and there will be no changes to your accounts as a result of Form CRS.
What is Form CRS?
Form CRS contains important information about broker-dealers and RIA firms, including disclosures about key information that can help you, the retail investor, decide if a firm is right for you. Form CRS will be delivered to you as required under the rule that the SEC adopted called Regulation Best Interest, which includes requirements that broker-dealers and RIA’s must act in your best interest and not put its interest ahead of yours when providing you with recommendations on your account. Form CRS is designed to disclose and reduce confusion regarding the firm’s offered investment services, fees, conflicts of interest and standards of conduct. Form CRS also provides retail investors a plain English, standardized, concise and direct way to compare information about different firms.
Form CRS is designed to provide retail investors with information about:
- whether the firm is registered with the SEC as a broker-dealer, investment advisor, or both;
- the type of relationship and services offered;
- fees, costs, and conflicts of interest, and standard of conduct associated with those services;
- whether the firm and its investment professionals have reportable legal or disciplinary history; and
- where the retail investor can find more information about the firm.
Form CRS also includes SEC specific language that it calls “conversation starters” to help clients and prospective clients pose questions to their broker or advisor. In addition, Form CRS will provide a link to the SEC's webpage that has information specifically tailored to educate retail investors about different types of investment professionals and what they can offer you.
When Will I Receive Form CRS?
This is dependent on your current relationship with either a broker-deal or RIA. If you are currently working with a broker-deal or RIA, you should receive a relationship summary by July 30, 2020.
If you are considering engaging a new broker dealer or RIA, there are separate requirements. A broker-dealer must provide Form CRS before or at the earliest of:
- a recommendation of account type, security or investment strategy;
- placing an order for the retail investor; or
- opening a brokerage account.
RIAs must provide the relationship summary to each new or prospective client who is a retail investor before or at the time of entering into an advisory agreement.
There are also ongoing requirements for firms to deliver Form CRS at various times, for example, if they recommend that you roll over assets from a retirement account into a new or existing account or investment. Firms also have an obligation to update Form CRS within 30 days from when it becomes materially inaccurate.
How Will I Receive Form CRS?
By July 30, 2020, you can expect to receive Form CRS in paper or electronic form, depending on how you have chosen to receive disclosures from your firm. Broker-dealers and RIA’s that maintain a website are also required to post the most up-to-date version of Form CRS on their website.
What Should I Do with Form CRS?
As noted above, Form CRS does not require any immediate action by you and there will be no changes to your accounts as a result of Form CRS. As an investor, you should pay close attention to the information provided on Form CRS and make sure it is consistent with your understanding of the services provided by your financial professional. As Form CRS is designed to spur comments and questions, you should make sure that you address these with your financial professional. Investors should certainly ask their financial professionals to explain anything they do not understand or feel is inconsistent. As an investor, you should also take the opportunity to review other firms Form CRS and see how they compare with your current relationship.
You can also find additional information regarding investment professionals and their firms on the SEC's and websites, as well as FINRA's .
About the authors: Seth Gaudreau, an Associate in The Wagner Law Group’s Washington, D.C. office, concentrates his practice in ERISA business litigation, and investment management law. He has significant experience advising investment managers and other clients on key provisions within ERISA Title I and in negotiating other ERISA issues related to investment management services.
Patrice Maloney-Knauff, of Counsel in The Wagner Law Group’s Chicago office, concentrates her practice in the areas of ERISA and Investment Management Law. She is a seasoned corporate attorney with more than 25 years of experience advising insurance companies and investment managers on pension plans, ERISA-based plan investing, derivatives, and asset management.