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The Case to Fix Form CRS Disclosure

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Introduction

The rulemaking package of June 5, 2019 has two “overarching objectives” according to then SEC Chair Jay Clayton. First, to bring the conduct standards and the “related mandated disclosures in line with reasonable investor expectations”. Second, to “preserve retail investor access” – regarding choice and cost – to investment services and products.

Behind these objectives is the often-stated urgency that drives much thinking on retail investors. The urgency is investor “confusion”. It is an influencer in the rulemaking that is hard to overstate. Chair Clayton cited investor confusion in two of three reasons for the “Need for action” for rulemaking. The Form CRS Release states CRS exists “to reduce retail investor confusion in the market-place for brokerage and investment advisory services” and research continues to show that investors are confused by “the differences” between broker-dealers and investment advisers. Clayton said CRS provides “succinct information about the relationships and services”. “Material information” must be disclosed.

This backdrop sets out what the rulemaking and Form CRS seek to do. Form CRS seeks to bridge the gap between professional reps and ordinary investors — through plain language words that inform and matter. The Institute reviewed 29 BD / IA and 12 RIA CRS forms. This paper reports our findings. The Plain Language Group report reviewing six CRS forms for readability and best practices is attached.

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Download the full paper here or below.

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture