On November 26, 2019, the staff of the SEC’s Division of Investment Management and Division of Trading and Markets issued guidance in the form of frequently asked questions (FAQs) relating to the requirements of Form CRS, which was adopted on June 5, 2019 in conjunction with Regulation Best Interest.1 Beginning in 2020, registered investment advisers and broker-dealers will be required to file with the SEC, and deliver to retail investor clients, a relationship summary on Form CRS disclosing information about their firm. The published FAQs addressed questions relating to the format of the form and form delivery requirements. The following is a summary of the staff’s guidance:
- Firms Offering Multiple Services Must File a Single Form CRS. Investment advisers and broker-dealers that offer more than one type of service to retail investors must file and deliver a single Form CRS. For example, an investment adviser that offers a wrap fee program, 401(k) plan advice and discretionary asset management for individual clients would file a single Form CRS describing all of those services. Similarly, a broker-dealer that provides self-directed, full-service and employer-sponsored retirement plan options would prepare a single Form CRS. Any firm dually registered as both an investment adviser and broker-dealer may summarize all of its advisory and brokerage services on a single Form CRS or prepare two separate relationship summaries for its investment advisory and brokerage businesses.
- How to Make Machine-Readable Headings. The instructions to Form CRS require investment advisers and broker-dealers to file the form in a text-searchable format with machine-readable headings. The SEC staff provided a three-step approach on how to create a PDF document with machine-readable headings to satisfy this requirement.
- Form CRS May Be Delivered to Clients Together with June 2020 Account Statements. For existing retail investor clients, the SEC staff confirmed that investment advisers and broker-dealers may deliver their Forms CRS either separately or as part of their standard investor correspondence within 30 days of the June 30, 2020 compliance date. If the Form CRS is delivered in paper along with other documents, it must be the first among those documents. If the Form CRS is delivered electronically, it must be presented prominently and easily accessible.
- Forms CRS Need Not Be Delivered to Retail Investors in Pooled Investment Vehicles. Pooled investment vehicles such as hedge funds, private equity funds and venture capital funds are not included under the definition of “retail investors.” Investment advisers are not required to deliver Forms CRS to pooled investment vehicle clients or to individual investors in those vehicles who may themselves be retail investors.
The SEC expects to update the FAQs from time to time to address additional questions.
The FAQs are available here.