On June 5, 2019, the Securities and Exchange Commission (SEC) approved the Regulation Best Interest Final Package, the new disclosure requirements that accompany the financial services industry’s new Regulation Best Interest standard of care. In light of the significance of Regulation Best Interest (Reg BI) for the financial services industry, Drinker Biddle & Reath’s Best Interest Compliance Team is publishing a series of articles on the SEC’s finalized “Reg BI Package” of rules and guidance.

One of the four parts of that package is Form CRS − a mandate that broker-dealers and investment advisers with retail investors (natural persons, trusts or entities representing natural persons) provide a two-page relationship summary disclosing information about their firm before a new client enters an investment adviser’s agreement or engages the services of a broker-dealer, or in the case of an existing client when there is any material change in the nature and scope of the relationship.

This disclosure must be concise, direct and made in plain language, taking into consideration the level of financial experience of retail investors. The specifics of the disclosures made to the retail investor are prescribed by CRS Form 17-page Instructions, including what must be disclosed − length, order, and even in some circumstances the wording.

It would be impossible to summarize the lengthy requirements here; suffice it to say there are eight items mandated for coverage:

Item 1: Introduction

Item 2: Relationships and Services

Item 3: Standard of Conduct

Item 4: Summary of Fees and Costs

Item 5: Comparisons to be provided by standalone investment advisers and standalone broker-dealers

Item 6: Conflicts of Interest

Item 7: Additional Information

Item 8: Key Questions to Ask

Also, there are 10 questions, “conversation starters” that the SEC requires be placed in a different font to distinguish them from other information. The Instructions direct that the questions that do not apply to a particular firm should not be used and additional questions that are frequently asked of a particular firm may be included, not to exceed 14 questions. If the Form CRS is presented electronically it may include hyperlinks to information described in the firm’s disclosures; therefore, it is actually larger in scope than it first appears.

The content of the disclosures must be filed on Form CRS through IARD by investment advisers and through EDGAR by broker-dealers. Firms also should note that Form CRS’s disclosure requirements are in addition to, not instead of, firms’ disclosure and reporting obligations under federal and state law and self-regulatory organizations’ rules and procedures.

FINRA reminds its Members of their obligation to meet the Form CRS delivery obligations and provides them with SEC Staff names and telephone numbers for assistance.

NOTE For a more complete discussion of the Form CRS guidance, read “Reg BI, Form CRS: The TARDIS of Disclosure Requirements.”

Read a summary of the Final Package in our article “The Final Reg BI Package: What to Know and What’s Next”