Form CRS is one of the latest Reg BI requirements for wealth management firms, and it’s not going anywhere anytime soon. But what are the latest updates to Form CRS, and how can firms prepare for a successfully compliant year in 2022?
Below, we’ll dive into the history of Form CRS, recently clarified requirements from the SEC, and common Form CRS mistakes to avoid.
A Brief History of Form CRS
Form CRS (Customer or Client Relationship Summary) is a relationship summary disclosure between broker-dealers, financial advisors, and their customers. Its main purpose? To provide retail investors with “simple, easy-to-understand information about the nature of their relationship with their financial professional.”
Among other information, the form requires firm registration information, a description of all services offered, a summary of the firm’s disciplinary history, and “conversation starters” for customers’ point of contact. Form CRS can be delivered electronically or on paper, but all firms need to keep proof (and maintain copies of) of what was delivered for audit and traceability purposes.
When the form went into effect on June 30th, 2020, firms were required to retroactively send Form CRS to all existing customers within 30 days, leading to many wealth management companies struggling to stay compliant. Additionally, Form CRS impacted sales prospecting activity among future customers because of the requirement to provide the form prior to recommending investment products. The requirement to keep detailed records of Form CRS delivery for regulatory inquiries also impacted how firms organized their documents and information.
Form CRS Timing & Recent Updates
The SEC has three criteria regarding the timing of when broker-dealers and financial advisors are required to deliver Form CRS to their customers:
- The first recommendation of investment products
- The first order placed for the customer
- The first brokerage account being opened for the customer
Not only are broker-dealers required to deliver Form CRS on the onset of any services, but when any updates to services have been executed, such as opening a different account, recommending a change to client’s accounts (e.g. retirement), or whenever the customer requests it. Again, keeping records of all these transactions is also required for audit purposes.
What are the most recent updates on Form CRS? While Form CRS requirements haven’t changed since the 2020 implementation, the SEC recently updated their FAQ on Form CRS in March 2021 to clarify the scope of requirements and amendments to the relationship summary. Additionally, FINRA released a 2021 report on Risk Monitoring that included a section on Form CRS. The report has a handful of helpful questions for firms to ask themselves about compliance.
Lastly, it’s important to note that a SEC statement released in December 2021 highlighted the myriad ways firms were failing on CRS disclosures. Staying compliant with this new requirement has and continues to be a problem for many wealth management firms.
Common Mistakes to Avoid on Form CRS
If Form CRS continues to be a headache for your firm, you’re not alone. Small errors and the prevalence of the form make it difficult to stay compliant with the new Reg BI requirement, not to mention keeping proof for audibility and traceability. For that reason, Docupace compiled a list of the most common Form CRS mistakes as outlined by the SEC.
If you’re struggling with Form CRS, it may be helpful to check that you’re not making the following common mistakes:
- Including confusing technical language (disclaimers)
- Omitting required information
- Relying on proposed Form CRS instructions rather than the final instructions to Form CRS
- Not keeping organized records of when Form CRS was delivered and to whom
In summary, Form CRS is a relatively new, but all-encompassing SEC requirement that is constantly changing along with the financial services industry. Having an agile, paperless strategy in place to deliver Form CRS, and any required subsequent versions is imperative for wealth management companies to stay compliant and organized.
Docupace provides a centralized, secure cloud-based platform where wealth management firms can store and distribute Form CRS, all while staying Reg BI compliant. To learn more about how Docupace can help your company avoid Form CRS woes with workflow automation, contact us below.
