The US Securities & Exchange Commission requires broker dealers and investment advisors to complete a two-page form, Form CRS in a June 2019 rulemaking. CRS, which is a companion to the Reg BI rule and became effective in June 2020, is intended to tell investors the difference between BDs and RIAs. 

The Institute for the Fiduciary Standard, along with the Plain Language Group, reviewed samples of CRS forms, from August through October, to assess if CRS achieves its objective. It concluded that it does not. It concluded from its review of 41 CRS that CRS fails investors and confuses RIAs. The primary report is here. 

One of the most glaring findings is that most RIAs do not cite and describe their fiduciary status on CRS. Broker-dealers are not held to a fiduciary standard. This omission matters to investors as fiduciary status is the highest advice standard which differentiates BDs and RIAs. 

So, why do so many registered investment advisors omit describing their fiduciary status? Personal conversations with several RIA executives suggest that they were confused by mixed messages from the SEC as to whether they can describe their fiduciary status. They also viewed CRS as designed for BDs with legalese or unclear verbiage that investors ignore or misunderstand CRS. Both points are valid points.   

Yet, CRS can be re-engineered and rewritten in plain language. It can inform investors. Its purpose is important. Its focus needs to be changed. It must focus far more on material information and far less on product and service marketing information.

RIAs can reinvent CRS… CRS can work as SEC Chair Clayton intended. Why?

• CRS is just two pages; its purpose is specific. It is supposed to be more as an accreditation based on factual information and less a disclosure of legalese or unclear information; 
• CRS’ purpose is unique: to illuminate material facts about BDs and RIAs – not products and services. The SEC staff notes it’s not meant to be “marketing material”; 
• CRS has ample space for material facts in a readable form. BD and RIA purposes and differences can be compared like other occupations in the same field are compared. Butchers are compared with nutritionists and farmers with chefs. Consumers understand the basic differences. They can also understand BD and RIA differences.

This plain language for CRS explains what fiduciary means to ordinary investors. This is “sample” language and offered as general information. It is italicized and placed in certain CRS sections. 

ITEM 1. Introduction. (Our firm) is registered with the Securities and Exchange Commission as an investment advisor. As an investment advisor we always act as a fiduciary to you. 

Brokerage and investment advisory services differ and it is important for you to understand the differences. When you work with an investment advisor fiduciary, your interests are always put first.

Fiduciary applies, by law, to “the entire relationship between an adviser and its client.” In contrast, a broker-dealer standard is limited. By law, the broker-dealer is not required to put your interests first. Also, the broker-dealer standard only applies “when the recommendation is made.” 

ITEM 2. What investment services and advice can you provide me? We provide clients with a broad range of investment advisory and financial planning services. We advise as an investment adviser fiduciary. We do not provide brokerage services; other firms we work with do.

ITEM 3.A What fees will I pay? Our firm is a fee-only investment adviser fiduciary, and you pay us a set fee for our advice. We do not make products to sell you. We do not trade or sell securities to you for third parties to earn commissions. We are not paid, directly or indirectly, by third parties for our advice to you. 

RIAs generally snicker at disclosure for good reason. It is typically either not read or not understood. Yet they should not snicker at CRS. 

CRS is different. It is not like a mutual fund prospectus or a quarterly SEC filing written in legalese. It is not even like the ADV. CRS is supposed to be like COVID warning statements or brief, plain language, written statements from our best mechanic or electrician. Brief, clear and relevant. 

CRS can become the most important disclosure investors receive. It is the only regulatory place a small independent RIA can compete head-to-head with a global broker-dealer. Each has two pages. The huge scale advantages of the global BD disappear. ‘David’ gains an equal footing.

CRS can be reconsidered and rewritten based on new guidance or enforcement actions to focus on material facts of core legal and practical differences. It can fulfill its original purpose to help investors understand how broker-dealer and registered investment advisors differ.