As you probably know if you work with retail clients, there’s a new disclosure (referred to as Form CRS, ADV Part 3, or the “relationship summary”) SEC registrants will have to start delivering by June of next year (state advisers are so far Unless, of course, that date gets delayed. Which hardly ever happens with complex new requirements…
The SEC actually designed the initial compliance period in a friendly way. Currently, firms that serve retail investors can start submitting the form on May 1, 2020. They must do so by June 30, 2020. For currently-registered investment advisers, most of whom have a December 31 year-end, they already have to file an annual update to their ADV by the end of March. Because there’s a fair amount of overlap between the ADV and the CRS (ADV Part 3), we think it will be relatively straightforward to integrate CRS drafting into the ADV update process.
This will, however, be a new exercise for broker-dealers, especially those without advisory affiliates. It will be important to start thinking now about your conflicts and how you’re paid. We would target an initial rough mock-up of the relationship summary by November/December. You’ll also want to decide whether you’ll create one summary for the broker-dealer and its advisory affiliate, or if you’ll create separate relationship summaries. The instructions encourage, but don’t require, dual-registrants (one firm registered as both a BD and an RIA that provides services to retail investors in both capacities) to prepare a single summary.
We see Form CRS as a new element of the Consultant & Attorney Full-Employment Act (thank you!) Lots of firms will hire folks to help them and the question is when to do that. We think prompt responders will pay for advice that will almost certainly shift as we get closer to the implementation date. Plus, early on, that advice mostly amounts to regurgitating the massive adopting release or expressing outrage over burdensome regulation. Which means you’ll pay now for advice that may not be very useful, then you’ll pay again when it’s closer to the filing date and there’s been more guidance and more industry alignment.
That said, the SEC is encouraging firms to make this readable and attractive. The instructions specifically say, “You are encouraged to use charts, graphs, tables…text features, text colors, and graphical cues…For a relationship summary that is posted on your website or otherwise provided electronically, we encourage online tools that populate information in comparison boxes based on investor selections. You also may include: (i) a means of facilitating access or video or audio messages, or other forms of information…to enhance a retail investor’s understanding of the material…”
We’re skeptical that this will actually prove to be a useful marketing tool, but if you want your communications to be integrated and align with your general branding, you should start thinking about that now. In our view, that means you may want to start thinking about how you’ll present the information rather than what, exactly, the disclosure will say.
Here’s a link to the Form CRS instructions, if you’d like to take a peek.