SEC Form CRS Findings – December 2021

The Securities and Exchange Commission (“SEC”) advised brokerage and investment advisory firms to clearly disclose their fees and explain their conflicts of interest more thoroughly on the Form Customer Relationship Summary (“Form CRS”).  The SEC required the implementation of the Form CRS in June 2020 as part of the disclosure requirement for Regulation Best Interest.

The Form CRS serves as a disclosure document for retail investors designed to outline a firm’s services, fees, conflicts of interest, disciplinary history and other pertinent information. The Form CRS must be filed with the SEC and also posted on a firm’s website. The Form CRS is designed to help investors compare firms to decide where to do business.

When evaluating firms’ Form CRS, the SEC found firms were not meeting the content and format requirements. The SEC committee advised that some fee descriptions were vague and failed to address fee frequency, billing (e.g., quarterly or annually) and how fees are calculated (e.g., whether the fee is based on the client’s total assets). The SEC also noted that firms failed to properly explain potential incentives an associated person could have that may cause a conflict of interest. Instead of explaining how the Firm mitigates the potential conflicts of interests, the SEC wants firms to provide concrete examples of incentives an associated person can have (e.g. incentives associated with cash sweeps).

The SEC additionally warns firms to avoid using legal jargon and highly technical business terms unless clearly explained. The goal of the Form CRS is to ensure that investors with limited financial experience can understand the information being disclosed. The SEC also re-enforced the Form CRS must be uploaded on the firm’s website. The SEC and FINRA will continue to assess compliance with the Form CRS requirements on upcoming examinations. Asgard recommends re-evaluating your firm’s Form CRS to ensure the content satisfies all SEC requirements.

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