Management BlogManagement Blog · RECENT POSTS After Creating the Form CRS: Key RIA Compliance...
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RIA Compliance and Practice RIA Compliance and Practice Management Blog Management Blog SEC Finalizes new RIA Form ADV Part 3 Requirement: the Form CRS Posted by RIA in a Box Jun 6, 2019 9:42:14 AM Yesterday, the Securities and Exchange Commission ("SEC") finalized a new rule that includes a new requirement for SEC-registered investment adviser ("RIA") firms to provide a brief relationship summary to retail investors known as the Form CRS. According to the SEC, the new Form CRS "is intended to inform retail investors about: (i) the types of client and customer relationships and services the firm offers; (ii) the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services; (iii) whether the firm and its financial professionals currently have reportable legal or disciplinary history; and (iv) how to obtain additional information about the firm." The new Form ADV Part 3 ("Form CRS") will be in addition to the currently required Form ADV Part 1 and Part 2 Brochure. Learn More About Form CRS Learn More About Form CRS In addition to a detailed overview discussing the rationale for the new Form CRS, the SEC also released detailed instructions for the Form CRS to help firms meet this new regulatory requirement. When Tweet Share Like 9 Share BLOG RESOURCES LOGIN CONTACT CONTACT ABOUT SOLUTIONS
Transcript of Management BlogManagement Blog · RECENT POSTS After Creating the Form CRS: Key RIA Compliance...
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SEC Finalizes new RIA Form ADV Part 3Requirement: the Form CRSPosted by RIA in a Box
Jun 6, 2019 9:42:14 AM
Yesterday, the Securities and Exchange Commission("SEC") finalized a new rule that includes a new requirement forSEC-registered investment adviser ("RIA") firms to provide abrief relationship summary to retail investors known as the FormCRS. According to the SEC, the new Form CRS "is intended toinform retail investors about: (i) the types of client and customerrelationships and services the firm offers; (ii) the fees, costs,conflicts of interest, and required standard of conductassociated with those relationships and services; (iii) whether
the firm and its financial professionals currently have reportable legal or disciplinary history; and (iv) howto obtain additional information about the firm." The new Form ADV Part 3 ("Form CRS") will be in additionto the currently required Form ADV Part 1 and Part 2 Brochure.
Learn More About Form CRSLearn More About Form CRS
In addition to a detailed overview discussing the rationale for the new Form CRS, the SEC alsoreleased detailed instructions for the Form CRS to help firms meet this new regulatory requirement. When
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introducing the new Form CRS requirement, SEC Chairman, Jay Clayton, stated:
"The relationship summary is designed to help retail investors select or determine whether to remainwith a firm or financial professional by providing better transparency and summarizing in one placeselected information about a particular broker-dealer or investment adviser. Both broker-dealers andinvestment advisers must provide plain English disclosures on the same topics under standardizedheadings in a prescribed order, allowing retail investors to more easily compare services bycomparing different firms’ relationship summaries."
Which RIA firms are impacted by this new rule?
This rule impacts all SEC-registered investment adviser firms that "are required to deliver a relationshipsummary to a retail investor." Thus, this new rule will apply to the vast majority of the 13,270 investmentadvisory firms registered with the SEC as of June 1, 2019.
It's likely that the new Form ADV Part 3 requirement will also ultimately apply to state-registered RIA firms.However, the applicability and timing may vary by state as further information is disseminated.
When do applicable RIA firms need to initially file and deliver the Form CRS to clients?
According to the SEC's general instructions, "if you are already registered or have an application forregistration pending with the SEC as an investment adviser before June 30, 2020 you mustelectronically file, in accordance with Instruction 7.A. above, your initial relationship summarybeginning on May 1, 2020 and by no later than June 30, 2020 either as: (1) an other than-annualamendment or (2) part of your initial application or annual updating amendment."
Within 30 days after the firm is first required to file the Form CRS, applicable RIA firms will need to delivera copy of the firm's Form CRS to all existing clients. Furthermore, beginning on the date the firm isrequired to file the Form CRS, the firm must begin to deliver its Form CRS to "new and prospective clientsand customers who are retail investors." In particular, the Form CRS, must be delivered to "each retailinvestor before or at time you enter into an investment advisory contract with the retail investor."
Also, if the Form CRS is delivered in paper format "as part of a package of documents, you must ensurethat the relationship summary is the first among any documents that are delivered at that time."
When do RIA firms need to update and file the Form CRS?
Much like the Form ADV Part 2, RIA firms also have related updating and delivery requirements (e.g.when information in the Form CRS becomes materially inaccurate it must be updated and filed within 30days). In addition, according to the new Form ADV general instructions, firms "may, but are not required,to submit amended versions" of the Form CRS as part of the firm's annual updating amendment.
Where do applicable RIA firms file and post the Form CRS?
In addition to electronically filing the Form CRS with the Investment Adviser Registration Depository("IARD"), RIA firms "must post the current version of the relationship summary prominently on your publicwebsite, if you have one, in a location and format that is easily accessible for retail investors."
What is the length and format of the Form CRS for RIA firms?
The instructions to the Form CRS note, "In paper format, the relationship summary for broker-dealersand investment advisers must not exceed two pages...You must use reasonable paper size, font size,and margins. If delivered electronically, the relationship summary must not exceed the equivalent of twopages..."
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Furthermore, "You should include white space and implement other design features to make therelationship summary easy to read. The relationship summary should be concise and direct. Specifically:(i) use short sentences and paragraphs; (ii) use definite, concrete, everyday words; (iii) use active voice;(iv) avoid legal jargon or highly technical business terms unless you clearly explain them; and (v) avoidmultiple negatives. You must write your response to each item as if you are speaking to the retail investor,using “you,” “us,” “our firm,” etc."
What items are required in the Form CRS?
The Form CRS requires the following five items:
1. Introduction2. Relationships and Services3. Fees, Costs, Conflicts, and Standard of Conduct4. Disciplinary History5. Additional information
Don't forget to check out our overview of the 5 required Form CRS items for RIA firms and be sure tocheck back soon as we continue to further analyze and provide additional detail on this new investmentadviser regulatory requirement.
Contact RIA in a Box to create your firm's Form CRSContact RIA in a Box to create your firm's Form CRS
Topics: RIA Operations, RIA Compliance
RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or
client. You should always consult your relevant regulatory authorities or legal counsel if applicable.
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