A key component of the SEC’s proposal designed to address investor confusion about their advisory relationships is the Form CRS Relationship Summary – and it contains a list of “key questions” for investors to pose.
In its proposal, the SEC acknowledges that the information required by the relationship summary is generally already provided in greater detail for investment advisers by Form ADV Part 2, but it notes that “the relationship summary would provide in one place, for the first time, summary information about the services, fees, conflicts, and disciplinary history for broker-dealers.”
As for the “Key Questions” section, under the proposal, firms would be required to include 10 questions, as applicable to their particular business:
- Given my financial situation, why should I choose an advisory account? Why should I choose a brokerage account?
- Do the math for me. How much would I pay per year for an advisory account? How much for a typical brokerage account? What would make those fees more or less? What services will I receive for those fees?
- What additional costs should I expect in connection with my account?
- Tell me how you and your firm make money in connection with my account. Do you or your firm receive any payments from anyone besides me in connection with my investments?
- What are the most common conflicts of interest in your advisory and brokerage accounts? Explain how you will address those conflicts when providing services to my account.
- How will you choose investments to recommend for my account?
- How often will you monitor my account’s performance and offer investment advice?
- Do you or your firm have a disciplinary history? For what type of conduct?
- What is your relevant experience, including your licenses, education, and other qualifications? Please explain what the abbreviations in your licenses are and what they mean.
- Who is the primary contact person for my account, and is he or she a representative of an investment adviser or a broker-dealer? What can you tell me about his or her legal obligations to me? If I have concerns about how this person is treating me, who can I talk to?
The SEC notes that they are proposing to allow firms to modify or omit portions of these questions, as applicable to their business, and that they are also proposing to require a standalone broker-dealer and a standalone investment adviser, to modify the questions to reflect the type of account they offer to retail investors (e.g., advisory or brokerage account).
Additionally, they are proposing that firms could include any other frequently asked questions they receive following these questions, though they would not be permitted to exceed 14 questions in total “in order to limit the length of the relationship summary.” The SEC acknowledges that including “Key Questions to Ask” would result in some firms creating policies and procedures, including supervision and compliance reviews, relating to how their financial professionals respond to the questions.
The proposal also acknowledges that “robo-advisers” and online-only broker-dealers may employ business models that offer varying levels of interaction or no interaction with a financial professional, and that they are therefore proposing to require advisers providing automated advice or broker-dealers providing online-only services without a particular individual with whom a retail investor can discuss these questions to include a section or page on their website that answers each of the above questions, and provide a hyperlink in the relationship summary to that section or page.
There are additional questions regarding the “key questions” beginning on page 130, and running through page 133.
About This Series
This is the fourth in our ongoing series of posts analyzing the Form CRS. The other installment in the series are:
- Part 1: overview
- Part 2: fees and expenses; third-party payments
- Part 3: conflicts of interest; additional information
- Part 5: delivery
Next up: delivering the CRS.