SEC cites deficiencies in Form CRS filings
Initial reviews show disclosures could be ‘clearer or otherwise improved’
Less than a month after the deadline to file a document meant to help clients choose between an investment adviser and broker, the Securities and Exchange Commission warned that some financial firms are falling short on the disclosure requirement.
The document outlines a firm’s services, fees, conflicts of interest, standard of conduct and disciplinary history, among other information. Investment advisers and brokers were supposed to be start delivering it to new and prospective clients and customers on June 30.
The SEC Standards of Conduct Implementation Committee said that firms were generally meeting the Form CRS requirement, but that it also was noticing problems.
“At the same time, the committee’s initial reviews have identified examples that may lack certain disclosures or could be clearer or otherwise improved,” the committee said in its statement. “The committee will engage with firms to share best practices and provide feedback on the filings. Particular firms may need to consider ways to improve their relationship summaries and determine whether any specific amendments, or broader change in their overall approach, would be appropriate.”
The committee plans to host a roundtable in the fall where it will provide more guidance on how firms can improve their Form CRS disclosures. In the meantime, it pointed to online sources of help, such as the instructions for drafting the form and frequently asked questions.
Form CRS was part of an investment advice reform package that centered on Regulation Best Interest, the new broker standard.
The SEC regulates brokers and investment advisers separately, and investment advisers continue to adhere to a fiduciary standard. The relationship summary was meant to help investors decide whether the adviser or brokerage model is better for them.
“Both broker-dealers and investment advisers must provide to retail investors a relationship summary containing plain English disclosures on the same topics under standardized headings in a prescribed order, allowing retail investors to more easily compare different firms’ services, fees, and other important information,” the staff committee stated.
State regulators, Democratic lawmakers and investor advocates criticized the SEC for promulgating Form CRS without doing adequate investor testing.