What you need to know about Form CRS

On June 5, 2019, the Securities and Exchange Commission (SEC) finalized and adopted a series of rules to improve upon the quality and transparency of retail investors’ relationships with both registered investment advisers as well as broker-dealers. These rules became effective on Sept. 10, 2019.  More specifically, the SEC’s intention was to enhance the retail investor’s understanding of the various investment-related services offered by both. Chief among these rule-making actions is a new customer relationship summary (Form CRS). All registered investment advisors and broker-dealers that either offer or currently provide services to retail investors will be required to file Form CRS with the SEC and then distribute copies accordingly to their current and prospective clients and customers. Broker-dealers must also file Form CRS with the Financial Industry Regulatory Authority, Inc. Exempt reporting advisors and those that do not offer services to retail investors are not required to file the relationship summary. 

With an initial filing deadline of June 30, 2020, Form CRS will have five required sections and will be filed as Part 3 of the Form ADV. As noted by the SEC in their recently released Form CRS instruction guide, advisors and broker-dealers alike must address these five key considerations:

1. Introduction to the firm that contains organizational information

2. The relationships and services that the firm provides (i.e., the specific investment advisory services being offered to retail investors, whether discretionary investment authority is offered)

3. The organization’s fee structures, costs, standards of conduct, and potential conflicts of interest

4. The firm and its professionals’ disciplinary history

5. Contact information for primary personnel and how to get additional information about the firm

Each of the above sections will be composed of mandated, standardized headings and lead-in questions for purposes of uniformity across all filings. Advisors and broker-dealers will also need to include a “Conversation Starters” area to the sections that offers further illustration on the firm as well as provide follow-up questions that the retail investor can discuss with the respective firm’s personnel. 

Firms must update and file amendments to Form CRS within 30 days of whenever any information in the relationship summary becomes materially inaccurate. In addition, firms are also required to communicate any changes in the updated relationship summary to existing retail investors within 60 days after the updates were required to be made. Further, dual registrants are permitted (if they so choose) to prepare a single filing for both their advisory and broker-dealer practices, but information pertaining to each must be bifurcated in such a way as to enable the reader to easily discern the differences.