The SEC staff has added to its frequently asked questions relating to the filing of Form CRS and the relationship summary required of broker-dealers and investment advisers. According to the staff of the Division of Investment Management and the Division of Trading and Markets, filers may not change headings or omit answers because the firm and its professionals have no disciplinary history. The staff also explained that a filer may provide separate responses for the firm itself and its individual financial professionals.
Form CRS. Form CRS requires SEC-registered broker-dealers and investment advisers to deliver to retail investors a brief client relationship summary that provides information about the firm and to file their initial relationship summaries with the Commission. Firms must summarize information about services, fees, and costs; conflicts of interest; the legal standard of conduct; and whether the firm and its financial professionals have disciplinary histories.
The relationship summary is to have a standardized question-and-answer format to promote comparison by retail investors in a way that is distinct from existing disclosures. It also permits the use of layered disclosure so that investors can more easily access additional information.
Disciplinary history. In the new FAQs, the SEC staff stated the Instructions to Item 4 require all firm to include the heading "Do you or your financial professionals have legal or disciplinary history?" and a "Yes" or "No" response even if there no disciplinary history. According to the staff, in adopting the form, the Commission made clear that the legal and disciplinary history of a firm and its financial professionals is important information for retail investors.
The staff also explained that filers may not modify the heading to address only the firm’s or an individual’s history. The heading applies to both a firm (and relevant affiliates) and a firm’s financial professionals. However, the staff stated, a filer may alternatively provide two separate responses regarding the firm and the firm’s professionals. Specifically, according to the FAQs, as an example, the staff would not object if a filer included the one of the following responses:
- "No for our firm. Yes for our financial professionals."
- "Yes for our firm. No for our financial professionals."
The required conversation starter in Form CRS Item 4.D. is designed to encourage a discussion regarding the nature, scope, or severity of any disciplinary history, including any differences between the firm and financial professionals. However, Form CRS does not preclude firms or their financial professionals from providing separately copies of additional regulatory disclosures, according to the staff.
Commissioners’ statement. In a joint statement, SEC Chairman Jay Clayton, Investment Management Director Dalia Blass, and Trading and Markets Director Brett Redfearn noted that the relationship summary is designed to help retail investors make informed choices regarding what type of relationship (brokerage, advisory or a combination) best suits his or her particular needs. This promotes transparency, comparability, and better-informed decisions, they stated. Firms should review their reportable disciplinary history and that of their financial professionals to ensure that their relationship summaries are accurate and complete, the statement explained.
"We remain committed to providing feedback and assistance so that firms can produce relationship summaries that meet the Commission’s goals of reducing retail investor confusion in the marketplace for brokerage and investment advisory services," they concluded.