Form CRS: Our 5th and Final Installment
Welcome back!
To wrap this up, we will discuss the final three Items that go on the ADV Part 3 aka Form CRS aka the “Not More Paperwork” form.
We left off at Item 6 titled “Conflicts of Interest.” Under this heading you will need to include the phrase, “We benefit from the advisory services that we provide to you” followed by a brief description of those conflicts that may apply to you, such as sharing revenue with a third party or acting as a principal.
Following the Conflicts of Interest section is Item 7, “Additional Information.” Under the title, you will be required to state, “We encourage you to seek out additional information.” If there is any IAR that has a reportable event on their U4 or Form ADV, you will be required to state, “We have legal and disciplinary events”. Regardless if there is a reportable event or not, you must provide the customer guidance as to how they can research your firm and report problems. This includes providing the phone number of the SEC as well as your firm’s web address and phone number. You will also be required to direct clients to the IAPD website in order to receive the most current version of your Form ADV brochure.
Item 8 (“Key Questions to Ask”) is very unique and helps the client know what questions to ask and clarifications that may be needed. After the title, you are to prompt client inquiries by stating the following: “Ask our financial professionals these key questions about our investment services and accounts.” The SEC provides guidance on what questions should be included, and they allow you to edit or omit as needed. Some of the following questions are:
Given my financial situation, why should I choose an advisory account?
What additional costs should I expect in connection with my account?
How often will you monitor my account’s performance and offer investment advice?
You can include up to fourteen frequently asked questions, provided you have space.
This concludes our initial overview of the proposed Form CRS. If you have been following this series in our blog, you are probably asking how you will be able to fit all of this information on only four pages. Our answer: keep it simple. The key will be to make these disclosures in simple, plain language and get straight to the point.
This new form might seem like a hassle in an industry that is already heavily regulated, but we believe the subject matter covered will help protect you and your business by mitigating potential complaints that are typically filed against RIA’s. With a little help, producing one of these forms should not pose a challenge.
So, now what?
This requirement is currently going through the review process at the SEC. Of course, we will keep you up to date as more information becomes available.
Until next time…..
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