Form CRS, short for “customer or client relationship summary,” was mandated as of June 2020 by the Securities and Exchange Commission (SEC) to protect investors. Investors can gain a more transparent view of the services offered by their financial advisor or broker-dealer with the new Form CRS because it gives information about the provider’s business operations and helps consumers make educated comparisons of similar financial firms and advisors.
If you receive one, it’s important to understand the form and its implications to get the most out of the disclosures. Learn what Form CRS is, why it was established, and how you can obtain one to learn more about financial services firms.
What Is Form CRS?
Form CRS is short for customer or client relationship summary. It’s a brief document, limited to two pages for individual firms, that SEC-registered brokers and financial advisors are now required by law to provide to their retail clients to disclose specific facts about the services they offer. It was mandated by the SEC as of June 2020.
If you’re an investor and your financial advisor recommends a specific portfolio, wouldn’t you want to know the relationships, if any, that your advisor has with the securities in the portfolio and how they are being compensated? Form CRS can help shed light on such details and potential conflicts of interest.
Financial advisory firms are required to provide a Form CRS within 30 days of a client’s request, as well as when other proscribed changes occur to an existing client’s account.
Reviewing a Form CRS can provide significant benefit to clients, who can now compare brokers directly, without relying on advertisements, rumors, or third-party reviewers.
- Acronym: CRS
- Full name: Customer or client relationship summary
How Does Form CRS Work?
According to the SEC, Form CRS was implemented to give clients a clear, direct view of what a potential or existing financial advisor and their firm has to offer. It can also help an investor decide if it may be wise to end an advisory relationship or switch to a new one.
Form CRS helps investors directly compare multiple brokers using accurate information. This data can be hard to find in a single source otherwise—especially when it comes to disclosure of lawsuits and other misconduct a broker has been involved in.
Services provided by brokers and financial advisors differ somewhat. In general, brokers perform transactional and time-specific activities for investors, like stock trades. Advisors are more focused on managing your portfolio over the longer term.
The form is designed to be easy to read, using plain English in recognition of the varied financial knowledge of different retail investors. Form CRS is required to use short sentences and direct explanations that cater to all types of retail investors. The information must be current, and an updated form must be provided to clients whenever a broker changes offerings or information in the form becomes outdated.
All new clients get a client relationship summary when they start with an advisor or broker, but prospective clients can also ask for one before signing up so they can compare advisors and services beforehand. Clients may ask to get the form via email, but financial services firms are required to provide a free paper copy, too.
What Does Form CRS Look Like?
The document should be presented in a question-and-answer format with a standardized set of questions, or “conversation starters,” that all brokerages or financial advisors must answer directly and unambiguously.
The SEC has provided a hypothetical Form CRS mock-up to give the public a better idea of advisor responses they can expect in the form. Sections include:
- Relationships and Services
- Obligations to You
- Fees and Costs
- Compare With Typical Brokerage Accounts
- Conflicts of Interest
- Additional Information
- Key Questions to Ask
Below is a portion of the SEC’s hypothetical mock-up of Form CRS.
Limitations of Form CRS
There are certain details you won’t find on a Form CRS. For example, you won’t see any additional state or federal securities disclosures required on the form.
Moreover, many brokers have found it hard to follow the SEC’s instructions to implement Form CRS as imagined. Even the SEC admits the document “may lack certain disclosures or could be clearer or otherwise improved.” While this drawback may seem of greatest concern to brokers or advisors filling out the form, a lack of standard vocabulary could burden retail investors who use Form CRS to compare different services.
Alternatives to Form CRS
Form CRS is one aspect of the SEC’s Regulation Best Interest, or “Reg BI,” started in 2019 to clarify the standards of conduct for broker-dealers and investment advisors and encourage more consistent investor protections, especially at the point when a recommendation is made.
Reg BI requires broker-dealers to place their client’s interest first and above all else. Broker-dealers are therefore required to only recommend investments that meet such criteria. Part of this process involves providing a Disclosure Obligation, which the SEC says will frequently need to spell out “additional information beyond the summary information” contained in Form CRS.
Retail investors should request all Reg BI–required documentation, including the full Disclosure Obligation. This document, combined with Form CRS, is a good way to learn everything about a financial services provider, both the good and the bad.
Form ADV is another related SEC filing, long used by investment advisors to register with that agency and state securities advisors. It discloses useful operating information from advisors that clients can delve into. Form ADV has two parts. The first part allows investors to look up information about their current or potential financial advisor. It’s in a check-the-box style. The second part has the same information but in a plain-English, narrative brochure section. These can be found at the SEC’s Investment Adviser Public Disclosure (IAPD) website.
- Form CRS is a summary of a broker or financial advisor’s offerings, business activity, and any disciplinary records. It contains detailed information about the broker’s fees, hidden costs, conflicts of interest, legal disputes, and more, all written in easy-to-understand language.
- Form CRS became an additional mandatory disclosure for all brokers and financial advisors in the United States on June 30, 2020.
- All clients can get this form upon request or when signing up with a new advisor, as well as when the provider makes updates. The company issuing a Form CRS can send it via email but is also required to send a paper copy to the client for free, if that’s requested.
- Form CRS helps investors directly compare financial service providers using data that’s often hard to locate in one place.
- Despite its intended purpose of adding clarity, Form CRS is not yet the easiest document for lay investors to read and understand. The SEC announced it will work with financial firms to help them improve their communication with clients on the form.