What You Need To Know About Form CRS

Understanding the Customer Relationship Summary Form

Senior couple seated at a table, shaking hands with an advisor
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Form CRS—short for client or customer relationship summary—is a mandatory written disclosure that broker-dealers and registered investment advisors (RIAs) must provide to clients that discloses key information about the broker-dealer’s background and practices. It is part of the Securities and Exchange Commission’s (SEC) ongoing efforts to protect investors by establishing rules on how broker-dealers can operate.

The point of Form CRS, which started being given to investment clients in mid-2020, is to give individual investors information about the broker-dealer firm’s background and any past legal and disciplinary problems, and to detail fees, commissions, and other information that can be used to evaluate and compare potential investment managers.

Key Takeaways

  • Advisors are required to give new clients Form CRS.
  • Form CRS discloses advisor services, relationships, payments, potential conflicts of interest, and past disciplinary issues.
  • Form CRS also gives clients suggested questions to start a discussion about how their money will be handled.
  • Investors can use Form CRS to compare potential financial managers.

How Does Form CRS Work?

The SEC’s Regulation Best Interest rule requires that broker-dealers and registered investment advisors provide clients with the Form CRS.

The relationship summary includes the following information:

  • The relationships the firm maintains and what services it offers;
  • The fees, costs, potential conflicts of interest, and the standard of conduct for advisors;
  • The reported disciplinary and legal history of the firm and its individual advisors;
  • Ways to get more information about the firm and its investment advisors, questions investors should ask about working with an advisor, and an SEC link with additional client resources. 

An investor can review a firm’s Form CRS to get an overview of what services the broker-dealer or advisory firm provides and what other firms it’s involved with, such as custodians who hold investments. 

The form also discloses the types of fees that are charged, including asset management fees or commissions, and whether potential conflicts of interest exist, such as when an advisor might receive a commission for recommending specific investments. 

The form also must describe the rules and regulations that apply to the advisors. Form CRS further discloses whether any disciplinary or legal actions have been taken against the firm and its advisors under SEC rules or by other financial regulators, and tells investors where to find disclosures of those events.

Finally, the form will suggest questions to guide an investor in evaluating a potential advisor, such as, “How much would I pay per year for an advisory account?”

Form CRS must be presented before placing an order for an individual investor or before opening a brokerage account for an investor. And the firm must issue an updated Form CRS when any information changes materially.

The form can’t be longer than two printed pages, must be written in plain English, and must be presented to clients or potential clients before recommending any type of account, transaction, or investment advice involving securities. 

For example, here’s a Form CRS from T. Rowe Price Investment Services:  

Instructions for Form CRS

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Instructions for Form CRS pG 2

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Similar Disclosure Documents for Investors

Form CRS isn’t the only advisor disclosure document available to investors. 

  • Form ADV, which is available on the SEC’s Investment Adviser Public Disclosure (IAPD) website, includes information about the advisor’s business, firm ownership, clients, employees, business practices, affiliations, any disciplinary events, and more.
  • Additional registration forms filed by advisors include Forms U4 and U5, which are used, respectively, to register or terminate individual advisors. Information from those forms is compiled at the BrokerCheck website maintained by the Financial Industry Regulatory Authority (FINRA).

Limitations of Form CRS

Form CRS is helpful, but doesn’t give investors everything they need to know about an investment advisor. Even the SEC stresses that the form is simply a starting point for investors, who are encouraged to check regulatory actions and follow up with specific questions. While the form might disclose that conflicts of interest exist, it isn’t required to explicitly describe them.

The SEC itself has found many Form CRS submissions to be inadequate, pointing out that some were confusing, poorly written or lacked some disclosures. 

By the middle of 2021, the SEC had penalized more than two dozen firms for failing to file Form CRS, assessing penalties of more than $97,000 in some cases.

The Consumer Federation of America has complained that Form CRS, “does more to obscure than to clarify important differences between brokers and advisers and thus does not support an informed selection among different types of investment professionals.”

Alternatives to Form CRS

There are some other ways to check out a financial advisor beyond Form CRS. 

  • Investors can search the SEC’s Investment Adviser Public Disclosure database, which contains registration documents filed by investment advisor firms via the Investment Adviser Registration Depository (IARD).  
  • The Department of Labor (DOL) publishes its own list of questions that investors should ask when considering an advisor for retirement accounts. The DOL also offers a guide to understanding retirement plan fee disclosures.
  • Brokers who manage less than $110 million in client assets aren’t required to register with the SEC but must register with their state’s regulatory agency. Contact information for state regulators is published by the North American Securities Administrators Association.

Article Sources

  1. U.S. Securities and Exchange Commission. “Form CRS.”

  2. FINRA. “SEC Regulation Best Interest and Form CRS: What You Need to Know.”

  3. U.S. Securities and Exchange Commission. “Form CRS Relationship Summary; Amendments to Form ADV.”

  4. U.S. Securities and Exchange Commission. “Statement by the Staff Standards of Conduct Implementation Committee Regarding New Form CRS Disclosures.”

  5. U.S. Securities and Exchange Commission. “SEC Charges 27 Financial Firms for Form CRS Filing and Delivery Failures.”

  6. Consumer Federation of America. “April 19, 2021, Letter to SEC Chairman Gary Gensler.”

  7. FINRA. “Investment Advisers.”