Investment Advisers and Broker Dealers: Thought You Finished Your Form CRS? Think Again

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Many investment advisers and broker dealers recently filed the now-required Form Client Relationship Summary (CRS) with the SEC and began delivering the form to their clients and prospects.  The Form CRS is required by the SEC as part of new conduct rules and interpretations for broker dealers and investment advisers set forth in Reg BI, which requires investment advisers and broker dealers to distribute the Form CRS to their “retail investors.”  The form provides information about the financial service provider and is meant to be a guide in “plain English” that helps “Main Street” investors evaluate their financial service providers and easily compare services and fees among providers.  Affected investment advisers and broker dealers were required to file the form with the SEC and to start using the it with prospective clients by June 30, 2020, as well as distribute it to their existing clients within 30 days of that date.

On July 27, 2020, the Staff Standards of Conduct Implementation Committee (Committee) issued a statement regarding Form CRS that reiterated the purpose of the form and stated that the Committee has been reviewing those submitted. While the Forms CRS under review “generally reflect an effort to meet the content and format requirements,” others lack required disclosures, and “could be clearer or otherwise improved.” 

Although the Committee states it will provide feedback to firms and host a roundtable later this year to share information about their review, the Committee encourages firms to reacquaint themselves with Form CRS requirements, citing resources such as: the instructions to Form CRS, the Form CRS Adopting Release, the FAQs on Form CRS and the Small Entity Compliance Guide.  Firms also can review the Risk Alert issued by OCIE in April: Examinations that Focus on Compliance with Form CRS, and as well as email questions to the Committee at IABDQuestions@sec.gov

This statement appears to be a reminder to investment advisers and broker dealers to carefully review their Form CRS again, considering all guidance published by the SEC.  Although the statement focuses on the Form CRS content, investment advisers and broker dealers should also have procedures in place for ongoing delivery of the Form CRS, including publishing it on their website. 

COVID-19 may have posed difficulties for some firms during the three months leading up to the June 30 deadline, however the SEC did not extend the deadline for Form CRS or compliance with Reg BI, though the commission has stated that its initial exams will focus on a “good faith effort” to comply with Reg BI.  Now that the deadline has been passed, firms are  invited to continue their internal review and examine their level of compliance with Reg BI and Form CRS.  It might be helpful if the SEC could provide examples of one or more Form CRS that they believe has met the content and format requirements, as guidance.  However, as the Form CRS must be customized, it is up to each firm to re-evaluate and determine if their disclosures are accurate, clear and complete, unless and until they receive specific feedback from the regulators. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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