In April 2018, the SEC released its proposed rules on Form CRS Relationship Summary1 ("Form CRS"), which would assist retail investors in choosing investment firms, professionals and account types, and provide clarity on the nature of retail investors' relationships with investment professionals. Each investment professional registered as an investment adviser, a broker-dealer or both is required to deliver its Form CRS to any retail investor regardless of the latter's net worth. An investment adviser has to deliver its Form CRS on or before it enters into an investment advisory agreement with the retail investor; for a broker-dealer, on or before the retail investor engages its services. A dually registered investment adviser and broker-dealer has to deliver its Form CRS at the earlier of (i) entering into an investment advisory agreement with the retail investor or (ii) a retail investor engaging its services.
Form CRS is an additional report that investment professionals must generate as required by Form ADV Part 3 and Rule 204-5 of the Advisers Act for investment advisers, and by Form CRS and Rule 17a-14 of the Exchange Act for broker-dealers. It has a four-page limit and must contain a mix of tabular and narrative information in short sentences. Investment professionals have to use plain English, active voice and everyday words; and address the retail investor, using "you," "us," or "our firm." The Form CRS is divided into the following sections:
- the relationships and services the investment professional offers to retail investors,
- the standard of conduct applicable to those services,
- fees and costs the retail investors will pay,
- comparisons of brokerage and investment advisory services (for standalone broker-dealers and investment advisers),
- conflicts of interest,
- where to find additional information, including whether the firm and its financial professionals currently have reportable legal or disciplinary events and who to contact about complaints, and
- key questions for retail investors to ask the firm's financial professional.
The proposed rules on Form CRS also provide instructions2 for preparing one, and some mock-ups for investment advisers,3 broker-dealers,4 and dual registrants.5 Below, we present a sample Form CRS for structured products. Since structured product offerings involve firms registered as both investment advisers and broker-dealers, our sample is patterned after the proposed rule's dual-registrants' mock-up.
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1 Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles, SEC Proposed Rules (Release No. 34-83063, April 18, 2018), available at https://goo.gl/ZR19uZ.
2 Id., Appendix B, available at https://goo.gl/6DV4HE.
3 Id., Appendix E, available at https://goo.gl/ycDQo2.
4 Id., Appendix D, available at https://goo.gl/JBtX9R.
5 Id., Appendix C, available at https://goo.gl/ghAkXq.
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Originally published in REVERSEinquiries: Volume 1, Issue
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