An Important Point About Form CRS and SEC’s Reg BI

Under the SEC’s final regulations, Form CRS requires less prescribed wording relative to the proposed version, meaning firms may generally use their own wording to address required topics and will have more flexibility to provide information to investors.

In written commentary provided to PLANADVISER, Herb Perone, vice president of communications and marketing for the Investment Adviser Association, emphasizes that, contrary to some recent financial industry press reports, advisers are in fact permitted to use the word “fiduciary” in their SEC-required disclosures, including in the new Form CRS.

Earlier this month, the U.S. Securities and Exchange Commission (SEC) voted in favor of adopting a final amended version of the Regulation Best Interest rulemaking package. In addition to Regulation Best Interest itself, the Commission voted to approve an updated interpretation of the fiduciary duty prescribed by the Adviser’s Act, as well as a new required disclosure form called the Customer Relationship Summary Form, or Form CRS.

According to Perone, there has been some confusion about what the final Form CRS requires, stressing that advisers are permitted to use the word “fiduciary” in their disclosures, including new Form CRS, “contrary to recent press reports that seem to imply otherwise.” According to Perone, the Investment Adviser Association received this confirmation directly from senior staff in the SEC’s Division of Investment Management.

“The final instructions to Form CRS require investment advisers, broker/dealers, and dual-registrants to include a brief statement of the applicable standard of conduct,” Perone explains. “Firms are required to use the exact language specified in the form’s instructions, which does not include the word ‘fiduciary.’”

According to the adopting release, the final language around Form CRS was modified from the proposal in an effort to use “simplified wording that is short, plain language … but still describes the key components of a broker/dealer’s or investment adviser’s standard of conduct when providing recommendations or advice.”

As Perone explains, the SEC opted to focus on the term “best interest” in Form CRS, and eliminated the word “fiduciary” from the prescribed statement to be provided by advisers.

However, as noted in the adopting release and now confirmed by SEC staff, final Form CRS requires less prescribed wording overall, so that firms may generally use their own wording to address required topics and will have more flexibility to provide accurate information to investors. Accordingly, Perone says, advisers may still use the term “fiduciary” in Form CRS to further elaborate on the duties owed to their clients, for example, when discussing their conflicts of interest.

Registered advisers will have from May 1, 2020, until June 30, 2020, to file their initial Form CRS with the SEC.