Will investors actually understand proposed disclosure forms that are supposed to help them comprehend key differences between brokers and investment advisors? Will they understand what conflicts their financial professional may have? What they’ll pay for the services?

No one is certain yet. But the effectiveness of the Securities and Exchange Commission’s proposed new disclosures is so important to consumer and financial planning groups that they’ve hired their own “plain English” expert to test the SEC’s dense four-page customer relationship summary (Form CRS) proposal to see if it actually helps investors make informed choices about which type of professional best meets their needs.

The form is a critical piece of the SEC’s Best Interest proposal, which is supposed to tighten sales standards across the broker-dealer and advisory industries.

The AARP, Consumer Federation of America and the Financial Planning Coalition have hired Susan Kleimann, founder and president of Kleimann Communications Group, to test the Form CRS to see if investors are able to understand the disclosure and what the key differences are between an advisor’s fiduciary duty and a broker’s best interest standards of care.

Kleimann has worked widely with federal regulators including the SEC, the Federal Reserve and the Federal Trade Commission in the past to test and develop consumer education materials.

“We are testing the effectiveness and usability of the SEC’s proposed approach using the SEC’s own mock-ups,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “We expect to release the results in mid-September.”

While the SEC has said it is doing its own testing, it has declined to make results available before the August 7 comment deadline on the proposal. The SEC has also declined to extend the deadline until test results can be made available, although a broad consortium of consumer and planning groups requested the extension.

“The reason why we did our own testing is because it was unclear to us what the SEC is doing,” said Maureen Thompson, the CFP Board’s vice president of public policy. “We heard them say they are doing testing, but it was unclear when results will be available, what the public would know and how we’d be able to evaluate the results in context of the overall rule proposal, since they go hand in hand.”

Form CRS is supposed to clearly communicate to clients whether they are working with a broker-dealer, an advisor or a dual-registrant. The disclosure is also supposed to require an explanation of the principal types of services offered; the legal standards of conduct that apply to the investment advisor, the broker-dealer or dual registrant (whichever relationship applies); the fees a client might pay; and certain conflicts of interest that may exist.

“Because the disclosure is so central to the overall regulatory proposal, we wanted to come together quickly to underwrite credible, data-driven research in a very short time line,” said Cristina Martin Firvida, the AARP’s director of financial security and consumer affairs.

“Given that the chairman has gone out of his way to get real feedback about the forms and has said on the record he would accept comments on the summary disclosure after the deadline, we anticipate the SEC will accept the findings, which we expect to be ready sometime in September.”

Kleimann testified at an SEC Investor Advisory Committee meeting in June and called the SEC’s proposed CRS disclosures “cursed,” but she also talked positively about the fact the regulator seems to recognize its samples were "rough drafts."

“What I’m optimistic about is that they are open to the idea that they will have to test whatever they come up with next with consumers,” Kleimann said at the time.

Her take on the proposed disclosure forms have been echoed by both industry and consumer groups, who have sent hundreds of comment letters to the SEC saying Form CRS could confuse investors or possibly even mislead them into thinking their money is 100 percent safe when they invest with a financial professional.

“The CRS form should be plain but meaningful, building on context and with thoughtful design. Design is critically important,” said Kleimann, who noted that most humans have an attention span of nine seconds and would get turned off by a document that seems hard to read.

SEC Chairman Jay Clayton stressed at an SEC meeting in April that Reg BI should clear up the “misalignment between reasonable investor expectations and actual legal standards, which can cause investor harm,” Clayton said. “For example, retail investors may be harmed if they do not understand when B-Ds and IAs may have conflicting financial interests. In addition, without sufficient clarity, retail investors may be more deferential to, or place greater reliance on, their B-D or IA than they otherwise would.”

The bulk of comment letters that have poured into the SEC on the proposal seem to agree that the disclosure fails to provide that clarity.

“Even an expert would struggle to understand the difference, and a retail customer would surely be confused,” said David Certner, the AARP’s legislative counsel and legislative policy director. “Because of this lack of clarity, AARP is concerned that the forms will further confuse investors, or worse, provide them with a false sense of security.”

For example, under the CRS form’s “Obligations to You” section, the SEC fails to distinguish between the B-D’s new “best interest” standard and the IA’s existing “fiduciary” obligation and defines neither, Certner said.

“The duty of IAs is explained as, ‘We are held to a fiduciary standard that covers our entire investment advisory relationship with you.’ Nowhere in the CRS forms is the term ‘fiduciary standard’ defined,” Certner said.

In contrast, he said, “the B-D’s obligation is illustrated as ‘We must act in your best interest and not place our interest ahead of yours when we recommend an investment strategy involving securities.’ However, the practical definition and application of acting in the ‘best interest’ is not articulated in the stand-alone CRS form for B-Ds.

“This leaves many open questions—particularly, what is the meaning of best interest and how does it differ from a fiduciary standard, if at all?

“If the testing results demonstrate continued investor confusion,” Certner added, “the [SEC] will need to take additional steps to distinguish B-Ds from IAs, including but not limited to possibly making further changes to its proposed forms, developing tighter restrictions on titles and marketing practices, and further minimizing differences between the standards that apply to B-Ds and IAs.”