Now that the Securities and Exchange Commission has made poring over client relationship summaries (Form CRS) a 2020 examination priority, advisors should be doubling down on how they describe their conflicts of interest and compensation in the mandated disclosure for retail clients.
That’s according to veteran securities attorney and compliance expert Kelli A. Haugh, managing director for Foreside, a broker-dealer consultancy based in Del Ray, Fla.
“The purpose of Form CRS is to reduce confusion for retail investors regarding advisory and brokerage services and to help them decide whether to establish an investment advisory relationship, engage a particular firm or financial professional, or terminate or switch a relationship or specific service,” Haugh said in a blog the Investment Adviser Association sent to all of its members earlier this month.
In fact, “advisers should evaluate conflicts as perceived from a retail investor’s perspective, even if the firm believes the conflicts are mitigated,” Haugh said.
The heat is on. Advisor firms must file the new disclosure with the SEC or Finra by June 30, 2020 and must deliver the disclosure to their existing retail investor clients by July 30, 2020. However, firms must start delivering Form CRS to new and prospective clients before, or at the time of, entering into a new investment contract.
In short, the brief, standardized format of Form CRS (two or four pages total depending on firm type) is designed to help retail investors readily size up a firm and investment professional and compare and contrast him or her to competitors with different types of registrations.
For instance, according to Haugh, dual registrants must provide a side-by-side comparison of the services provided in advisory accounts versus services provided in brokerage accounts and must inform prospective retail investors that:
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