The Securities and Exchange Commission’s national testing of the proposed customer relationship summary (CRS) is flawed and underscores the need for the forms to be shortened and rewritten, the Investment Adviser Association told the SEC in a comment letter today.
IAA President & CEO Karen Barr told the SEC’s its consumer surveys and interviews are “substantially flawed,” a troubling assessment of the national testing the SEC hired the RAND Corporation to conduct to determine if the proposed Best Interest summary it has designed actually works. The proposed summary -- there are actually three, one each for investment advisors, brokers and dually-registered reps -- is supposed to inform consumers of the costs, services and conflicts of interests that impact their bottom line when they work with an investment professional. The summary is part of the SEC’s Best Interest package of rule proposals, designed to raise broker standards of conduct. The IAA represents the interests of more than 650 investment advisors who manage over $25 trillion in assets.
Barr, who commended the SEC on following through on its commitment to conduct consumer testing and publishing the findings, said, however, “the results underscore the need for significant changes to the proposed forms to ensure it works as needed.”
The IAA said the RAND testing is flawed in three important respects, which inherently limit its usefulness in determining whether the summary works:
• The testing did not test for actual investor comprehension of the proposed summary.
• It only tested the version of the form applicable to dual registrants and did not tests the summaries that would be required of standalone broker-dealers or investors advisors.
• It did not test any alternative content or methods of disclosure.
The fix, said Barr, requires that the SEC streamline the summary to focus on only the most critical aspects of the relationships and services being offered by the broker and advisor to retail customers.
“The SEC should leverage, rather than dilute, the robust disclosures currently provide by investment advisors to the Form ADV brochure,” Barr said.
She also offered mock-ups of summary forms the IAA asserts will better assist consumers in understanding the costs, services and conflicts involved in their relationship with an advisor (https://www.investmentadviser.org/publications/comment-letters).