SEC headquarters in Washington. (Photo: AP)
The Securities and Exchange Commission's recent stance that advisors and broker-dealers can only use one Form CRS when offering multiple products and services will "ultimately confuse investors," according to the Investment Adviser Association in Washington.
Industry groups and compliance pros are weighing in on the SEC's recently released FAQ on the agency's Customer Relationship Summary, or Form CRS, which is part of the securities regulator's advice-standards package.
"We are disappointed that SEC staff did not agree to the IAA's request that advisors be allowed to prepare separate relationship summaries for substantially different types of services they may offer to retail investors," Gail Bernstein, IAA's general counsel, told ThinkAdvisor in a Tuesday email.
The agency's Divisions of Trading and Markets and Investment Management concluded in the FAQ that each advisor or broker "must prepare a single Form CRS, summarizing all of the principal relationships and services it offers to retail investors within the required two-page limit," Bernstein added. "We think this will reduce the value of Form CRS and ultimately confuse investors."
Separate forms "for substantially different types of services would give a retail investor interested in a particular service more information — and more useful information — that otherwise could not be provided in the required two pages," IAA stated.
IAA hopes SEC staff will reconsider, Bernstein said, "and address this question again in future iterations of the FAQs."
Beginning in July 2020, Form CRS will require RIAs and BDs to provide retail customers with a description of the relationship including fees, services, standard of conduct and firm information.
The SEC said to expect more updates as questions come in.
Cipperman Compliance Services added in a Tuesday brief that the FAQ states that firms "cannot deliver a separate CRS for each service but must prepare a comprehensive form including all services."
However, a dual registrant can prepare a separate Form CRS for its advisory and broker-dealer services, Cipperman explained.
Private fund sponsors, meanwhile, "need not deliver a Form CRS to retail investors in the funds," according to Cipperman.
Also notable: "delivery of the Form CRS can be included with other document delivery so long as the Form CRS is, the FAQ states, 'the first among any documents delivered…at that time' or are 'presented prominently in the electronic medium,'" Cipperman said.
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
