The SEC’s Dismal Failure with Form CRS
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The SEC’s client relationship summary (form CRS) fails consumers. CRS, meant to inform the public about BDs and RIAs, instead confuses everyone. Investors do not understand CRS. RIAs do not understand they can describe their fiduciary status on CRS.
These are key findings of recent reviews of CRS submissions by my organization, the Institute for the Fiduciary Standard, and The Plain Language Group.
CRS failures should not be dismissed because disclosure typically fails to properly educate consumers. CRS is unique. It performs a duty at the core of the mission of the Investment Advisers Act of 1940. This is to inform investors about investments and advice.
Its complete failure is deeply troubling.
The Institute reviewed 41 CRS forms from among the largest dually registered (29) and independent RIA (12) firms and The Plain Language Group separately reviewed a sample of these firms. The report is here.
The SEC says CRS is meant to reduce investor confusion. SEC Chair Jay Clayton said CRS shows investors how BDs and RIAs help investors in “significantly different ways,” which is material information.
The Institute review suggested material facts about how BDs and RIAs differ are either entirely omitted or overlooked in “crammed” pages of too many words. The key findings from the Institute’s research were the following:
- Among dual-registered BD/RIA CRS forms, many material facts were omitted. None stated that the BD standard is a lesser, more conflicted or more limited standard. They did not state that the BD standard only applies when a recommendation is made or that the BD acts as an agent for and has a duty of loyalty to issuers.
- Among the same 29 dual-registered RIAs, only 12 used the word “fiduciary” and only one firm described fiduciary as a higher or broader standard than is the BD standard.
- Only two firms, among the 12 independent RIAs, cited and described the fiduciary standard as a higher or broader standard.