“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.