Please note that this newsletter addresses only investment adviser requirements. See the last page of this newsletter for helpful Form CRS resources available to advisers and broker-dealers.
Despite the industry’s hopes for a delay in the implementation of Form CRS (Form ADV Part 3 Customer Relationship Summary) requirements, the SEC is moving forward with its original timeframe.
In fact, the IARD system is ready to accept investment advisers’ Form CRS today.
Who Must Comply?
In accordance with Rule 204-5 under the Investment Advisers Act of 1940, investment advisers registered under section 203 of the Advisers Act (i.e., federally registered advisers) are required to deliver Form CRS to retail investors. There is no exception from the Form CRS delivery requirement for retail investors based on high net worth or other factors indicating investor sophistication.
If you do not have any retail investors to whom you must deliver Form CRS, you are not required to prepare or file one. For example, advisers who sponsor private funds and have no separate account relationship with a retail investor do not have to prepare or file Form CRS.
Timing Reminders – Initial Filing and Web Posting
If you are already registered or have an application for registration pending with the SEC as an investment adviser before June 30, 2020 you may electronically file your initial relationship summary beginning NOW but no later than June 30, 2020 either as: (1) an other-than-annual amendment or (2) part of your initial application or annual updating amendment. See Advisers Act Rules 203-1 and 204-1.
If you file an application for registration with the SEC as an investment adviser on or after June 30, 2020, the Commission will not accept any initial application that does not include a relationship summary. See Advisers Act Rule 203-1.
You must also post Form CRS on your public website if you have one.
Initial Delivery – New and Prospective Clients
As of the date by which you are first required to electronically file your relationship summary with the SEC (i.e., no later than June 30, 2020), investment advisers must deliver a relationship summary to each retail investor before or at the time you enter into an investment advisory contract with the retail investor. You must deliver the relationship summary even if your agreement with the retail investor is oral.
Initial Delivery – Existing Clients
No later than July 30, 2020, investment advisers must deliver, on an initial one-time basis, their Forms CRS to existing clients who are retail investors. Thereafter, the delivery requirements described below will apply.
Additional Delivery Requirements – Existing Clients
You must deliver the most recent relationship summary to a retail investor who is an existing client before or at the time you:
- open a new account that is different from the retail investor’s existing account(s);
- recommend that the retail investor roll over assets from a retirement account into a new or existing account or investment; or
- recommend or provide a new investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account, for example, the first-time purchase of a direct-sold mutual fund that is a security through a “check and application” process, i.e., not held directly within an account.
Delivery Upon Request
You must deliver the relationship summary to a retail investor within 30 days upon the retail investor’s request.
New Form CRS Risk Alert
On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a new Risk Alert entitled “Examinations that Focus on Compliance with Form CRS” to inform registrants about the scope and content of initial examinations to commence after the compliance date. The purpose of these examinations is to assess whether firms have made a good faith effort to implement Form CRS.
According to the Risk Alert, examinations of firms with retail investors conducted after June 30, 2020 are likely to include an assessment relating to Form CRS. Examples of the areas the staff evaluate are highlighted below:
- Compliance with delivery and filing requirements for new and existing retail clients
- Compliance with content requirements – following instructions and making accurate representations
- Compliance with format requirements
- Policy and procedure alignment with Form CRS rules
- Record retention (records of the date on which each Form CRS was provided to a retail investor, copies of each Form CRS and each amendment thereto)
New Form CRS FAQs
The Commission maintains a Form CRS FAQs page that is very informative. The most recent FAQs posted on April 6, 2020 cover the following topics:
- Timing and availability of IARD access for Form CRS filings — it is ready for your filing today!
- Mechanics of filing
- Affiliate filings
- Form CRS FAQs: https://www.sec.gov/investment/form-crs-faq
- Form CRS checklist and template: https://www.investmentadviser.org/resources/new-conduct-rules-resources/form-crs-sample
- Form CRS Risk Alert “Examinations that Focus on Compliance with Form CRS” (4-7-20): https://www.sec.gov/files/Risk%20Alert%20-%20Form%20CRS%20Exams.pdf