The Securities and Exchange Commission’s Regulation Best Interest went into effect on June 30, and by now every client of a registered firm has received the new Form CRS relationship summary, a disclosure document mandated as part of the rule-making package.
Form CRS ostensibly offers clients a four-page accessible summary of an advisor’s services, conflicts and other relevant information, along with a series of question prompts designed to help clients clarify the fees and services they received from their advisor. But a new investigation by The Wall Street Journal found that hundreds of firms didn’t properly disclose misdeeds of their financial advisors.
In fact, the publication found that many Forms CRS contradicted information on longer disclosures, including Forms ADV, the uniform form used by investment advisors to register with the SEC and state securities authorities.
The Journal found nearly 1,300 firms failed to disclose misdeeds for any of their current employees. It also found about 2,300 individual employees who had regulatory infractions on their records—70% of which were customer complaints, but their firms failed to report those on the disclosure.
SEC spokeswoman Judith Burns declined to comment on the WSJ investigation.
In late July, the SEC announced it would hold a roundtable in the fall to publicly assess how brokerage and advisory firms have fared in developing and distributing their Form CRS. The agency hasn't yet announced the date and time for the roundtable discussion.
In its initial reviews of the forms, the SEC said it “identified examples that may lack certain disclosures or could be clear or otherwise improved.”
“Particular firms may need to consider ways to improve their relationship summaries and determine whether any specific amendments, or broader change in their overall approach, would be appropriate,” the SEC stated.
Some advisors reported that few clients have asked any questions resulting from the new disclosure document, leading them to wonder if they are reading it at all.
