Crunch Time: 10 Tips to Completing Your Form CRS

Crunch Time: 10 Tips to Completing Your Form CRS

Joot’s compliance experts have completed nearly two dozen Form CRSs for our clients. Based on that experience, here are 10 things to keep in mind.

1. Content

Focus on account monitoring, fees, and conflicts of interest. Fees include costs related to custodian fees, mutual fund fees and expenses, variable annuity charges, and any other transaction or product fee. Be sure your advisory agreements align with the Form ADV and Form CRS disclosure.

2. Formatting

Plan English, plain English, plain English. Use the active voice so you don’t say in 20 words what you can say with 10. And don’t hedge every statement. Be direct.

3. Delivery

So, you’ve drafted your Form CRS and you’re ready to file it. Now what? How are you going to deliver it to existing clients? You have until June 30, 2020 to file your Form CRS and until July 30, 2020 to deliver it. There are a few key considerations that you should incorporate into your plans.

Existing Clients

  • Electronic delivery: Hopefully, most of your clients have provided you with consent to electronically deliver documents such as Form ADV. If so, leverage your email tools to create a campaign that tells your clients about Form CRS and why you are delivering it to them.
  • Non-electronic delivery: If you don’t have permission to electronically deliver documents, now may be a good time to get it. Otherwise, consider adding Form CRS to your next delivery of account statements. (NOTE: Form CRS must “take precedence” if mailed with other documents.) If neither of these options is viable, use snail mail.
  • You also must deliver the relationship summary to a retail investor within 30 days upon the retail investor’s request.

New Clients For new retail clients, you need to deliver the Form CRS before or at the time of the following events (whichever occurs first).

  • Opening a new advisory or brokerage account
  • Rollover recommendation into a new or existing account
  • New service or account recommendations, including recommendations on variable annuities or other insurance policies
  • Entering into a new advisory agreement
  • Securities recommendation by broker-dealers

4. Policies and Procedures

Whatever method you use to deliver the document, make sure it is consistent with your compliance policies and procedures. Not only are you required to update your manuals with procedures to address the delivery, you must also address, among other things, training (reps, operations, supervisors and compliance), risk assessment and testing.

5. Form Updates

While you’re updating your policies and procedures to document how you deliver this new form and its deadlines, go ahead and add policies on updating the form. You need to update it within 30 days of a material change and deliver it within 60 days of that change (not your update). Think about how you will highlight changes. Changes must be delivered and uploaded with the revised Form CRS.

6. Posting

If you have a public website, you must prominently post the current version of the relationship summary in a location and format that is easily accessible for retail investors.

7. Record-Keeping

Update your record-keeping policy to align with your delivery requirements and how you will track that delivery.

8. Affiliated Broker-Dealers and Registered Representatives

Depending on your relationship with any affiliated or outside brokerage firms, your broker-dealer may require language in your Form CRS. Affiliated entities should think about having one combined Form CRS. Also, if you need to change your name or title, do it ASAP!

9. Ongoing Reg BI Requirements for Dual Registrants

The four component obligations contained in the regulation must be addressed.

  • Disclosure obligation: regular review of disclosures being made to clients and conflicts that may be present in product offerings. What updates to ADV 2A and Form CRS are required?
  • Care obligation: ongoing review of suitability information that clients provide, a review of products offered to determine suitability and a review of Best Execution are part of this overall obligation
  • Conflicts obligation: similar to disclosure obligation, but conflicts must be addressed along business lines as well as product offerings. Once identified, is the firm going to eliminate or mitigate and disclose the conflict? Is your firm setting up a Conflicts Committee to stay on top of this??
  • Compliance obligation: Execution of your training, testing, etc. Is covered in this obligation and it all must be documented along with the updates to your supervisory procedures to conform to the new best interest standard.

10. Are you “Exam Ready”?

The SEC and FINRA have both publicly stated that they’re looking for “reasonable efforts” to comply in their initial round of firm examinations. Does your firm’s “Good Faith Effort” include the following?

  • Documentation of compliance efforts and resources allocated to Reg BI and Form CRS implementation
  • Documentation of issues due to the pandemic. Document these issues that arise as a result of various “Stay At Home” restrictions
  • Can training be done, and documented, by the June 30 deadline? If not and you’re finding it difficult to gather all employees for training, consider “training in writing” initially and follow up with in-person training when possible.
  • Do not overpromise! Don’t draft your policies and procedures more than what is required by the rule. There is not an expectation that firm document each and every recommendation, only that the firm can demonstrate that the recommendation was in the client’s best interest.

We hope these tips help. What other challenges or recommendations do you have for Form CRS? Let us know with a comment or reach out to us!