The rules and form implementing Form CRS became effective on September 10, 2019, and investment advisers and broker-dealers are currently in the early stages of preparing and developing internal procedures to comply with the rule and the form. By June 30, 2020, investment advisers registered with the U.S. Securities and Exchange Commission and broker-dealers will need to file their initial copy of Form CRS. This post is intended to highlight some of the less known formatting, delivery and logistical issues arising from Form CRS and its rules.
Formatting
- It must be written in plain English. The instructions state that firms must (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) avoid multiple negatives. You must write your response to each item as if you are speaking to the retail investor, using “you,” “us,” “our firm,” etc.
- It can be prepared and delivered in other languages, but an English version must accompany a version in a language other than English.
- You must file Form CRS using a text-searchable format with machine-readable headings. Not sure how to do this? The staff of the Division of Investment Management helpful instructions at https://www.sec.gov/investment/form-crs-faq.
Filing and Delivery
- Investment advisers must deliver a relationship summary to each retail investor before or at the time they enter into an investment advisory contract with the retail investor.
- Investment advisers must electronically file their initial relationship summary beginning on May 1, 2020 and by no later than June 30, 2020. It should be done as part of (1) an other than-annual amendment or (2) part of their initial application or annual updating amendment.
- New and Prospective Client Delivery. By June 30, 2020, investment advisers must begin to deliver their relationship summary to new and prospective clients and customers who are retail investors.
- Existing Client Delivery. By July 30, 2020, investment advisers must deliver their relationship summary to existing clients who are retail investors. See my earlier post discussing this issue.
- Ongoing Delivery. Investment advisers must deliver the most recent relationship summary to a retail investor who is an existing client or customer before or at the time they: (i) open a new account that is different from the retail investor’s existing account(s); (ii) recommend that the retail investor roll over assets from a retirement account into a new or existing account or investment; or (iii) recommend or provide a new brokerage or investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account.
- Website Posting. If an investment adviser has a website, it must post a copy of its relationship summary on it.