The Financial Services Institute was pleased last month when the Securities and Exchange Commission passed Regulation Best Interest, a vital new rule that establishes a best-interest standard of care for all advisers on both the broker-dealer and registered investment adviser sides of the industry.
We are on record as having strongly supported such a common-sense uniform standard — to be developed and overseen by the SEC — since 2009, before Dodd-Frank became law. We applaud the SEC's leadership in establishing a principles-based approach to protecting investors while at the same time preserving investors' access to financial advice.
Another part of the rules package that was approved on June 5 has received somewhat less attention, but also represents a major step forward on a related and crucial investor protection issue — namely, making disclosure more effective.
The outmoded "kitchen sink" model of disclosure has not served investors' interests effectively in the past because it buried them under an avalanche of legalese. With busy day-to-day schedules, Main Street Americans lack time to devote to studying long, difficult-to-understand disclosures and often believe the financial professional they are paying should help them understand it.
We believe that effective disclosure must start with engaging investors by speaking their language and by connecting with them through the communications channels they prefer. Our comments to the SEC spelled out this view in clear terms — and we are happy to report that the final rule largely comports with this bold new vision.
Form CRS establishes a simplified approach to helping clients more fully understand the terms of their relationships with advisers and firms; details of the various products, services and accounts being offered; and expected standards of conduct. Highlights of the final rule include:
• Firms will be able to provide Form CRS to clients electronically, matching the way the majority of investors now communicate and consume information.
• The document is short in length and written in plain language, encouraging dialogue between advisers and their clients.
• The form will incorporate subject matter headings to ensure information is included that will allow investors to compare and contrast firms.
• Firms will be able to communicate key information under these headings in ways that make the most sense for their clients, including infographics, videos, charts and other means.
• Under the SEC's "layered disclosure" approach, Form CRS can provide hyperlinks and other cross-references to more detailed information to enable investors to obtain more in-depth perspective if they would like.
• The SEC also mandated that Form CRS be as reader-friendly as possible when provided in written form, specifying that the printed document be no more than two pages; be written in "plain English" ; and incorporate white space to ensure easy readability.
• Disclosure timing has also been made more flexible to better suit the needs of clients, advisers and firms.
FSI commends the SEC for the important steps it has taken on Reg BI and Form CRS. These measures represent significant progress toward a regulatory framework that will serve investors' best interests while at the same time protecting their access to advice — a true win-win for all sides.
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Dale Brown is president and CEO of the Financial Services Institute.
