The CRS could be a way to address improper standards switching but instead of making things clear, the Commission just makes things worse for the public. The sample documents use the word “fiduciary” to describe the advisory standard but don’t describe what the word means.
Yet, alarmingly, they use language descriptive of fiduciary to describe their newly rebranded suitability standard—the one that is supposed to apply because advice is incidental.
There is also this odd bit of language that suggests it will be cheaper to buy things through a brokerage account as if the difference between an advisory account and a brokerage account were simply the form of payment. That’s more BS.
As stated in the law, B/Ds affect transactions and get paid when a “buy” or “sell” recommendation is executed. A brokerage relationship provides no value to the B/D firm for a “hold” or “avoid” recommendation.
Advisors figure out if transactions are needed at all and get paid when clients pay a fee for that service. In fact, when an advisor implements a recommended transaction, the advisor employs a B/D to execute. That B/D has no fiduciary obligation to the advisor or the advisor’s client nor should it. The advisor is the one looking out for the client through it fiduciary duties including its best execution responsibilities.
What Should The SEC Do?
Given this, below is how I imagine good CRS documents could look. These could be more plain English but I opted to use language from the law and the SEC’s own words for the bulk of this. Instructions are in brackets <>
Dan’s CRS For Advisory Relationships:
We are an investment advisor and provide advisory accounts and services rather than brokerage accounts and services. “Advisory accounts and services” means we, for compensation, are engaged in the business of providing advice to others or issuing reports or analyses regarding securities. “Brokerage accounts and services” are transactional—for facilitating the buying and selling of securities and investment products. If you do not want or need advice about securities, a brokerage account may be more appropriate.
“Advice about securities” means: