By now, many SEC-registered advisors(whoarecalendar-year filers) have completed their
ADV Annual Amendment filing. If you
reviewed and updated your Disclosure
Brochure, be sure your service descriptions and related costs and fees are clear
and correct and that you have identified
and disclosed all conflicts of interest.
Now it is time to focus on the new
Form CRS. SEC advisors have until June
30, 2020, to make their initial Form CRS
filing. Yes, yet another document.
For some time I have felt that Form
ADV is both way too long and complicated, resulting in a disclosure document that is read by few retail investors.
Form CRS is intended to be a succinct
(no more than two pages for most RIAs)
disclosure document relaying important
information about a firm to perspective
and current individual clients.
Your task with the document is to simply and effectively communicate to your
clients. This includes ( 1) services you offer
as well as the associated costs and fees,
( 2) legal obligations to your client when
you serve them as an advisor, ( 3) conflicts
of interest, which may impact the way
you can meet these legal obligations, ( 4)
disciplinary history for your advisory firm
or any of your financial professionals, ( 5)
an explanation as to how your financial
professionals are compensated, and ( 6) a
source for your clients should they wish
to seek out additional information about
your firm or your financial professionals.
The good news is the work you have put
into your 2020 annual amended Disclosure
Brochure will pay dividends as you flesh
out your initial Form CRS. The bad news
is it can be incredibly difficult to distill
the necessary information into a two-page
document. Worse, Form CRS has required
headings, “conversation starter” questions
and other content that can make it more
difficult to stay within the page limit.
Filing windows for the Form CRS will
open through the Investment Adviser
Registration Depository for advisors on
May 1, 2020. All federally registered
firms generally will be required to file the
initial Form CRS by June 30, 2020. With
respect to investment advisors applying
for registration, the SEC has stated that
it “will not accept any initial application
that does not include a [Form CRS]” on
or after June 30, 2020.
As to timing, investment advisors must
deliver Form CRS to new retail investor
clients no later than when the advisor
and the client enter into a contractual
engagement. Delivery to existing clients
will depend upon other factors, such as:
• First delivery to existing clients
no more than 30 days from the initial
date of filing. If you file May 1, you are
required to deliver by May 31.
• Additional deliveries to clients
prior to an existing client opening a new
type of account: If they have a discretionary account with planning engagement, and the client wants to engage
the firm to provide a limited consulting
service, you must redeliver the CRS.
• Once the CRS has been filed, new
clients must receive it with the Form
ADV. Let’s say you file on May 1, and a
new client comes on May 2, the new cli-
ent gets the CRS along with the Parts 2A
and 2B (this could mean new clients get
it before existing clients).
• Form CRS must be updated and
filed within 30 days of it becoming materially inaccurate. Clients must be notified
of the material changes in the CRS within 60 days of the filing requirement, 90
days total from the date of the material
change causing the CRS to be inaccurate.
Although you have until June 30,
2020, to file your initial Form CRS filing,
I encourage you to begin the drafting
process as soon as possible.
[Note: The SEC said in mid-March that
RIAs with filing deadlines before April
30 can request an extra 45 days to file an
amendment to Form ADV or file reports
on Form ADV part 1A; an extension is
not guaranteed. In addition, it may cause
the firm to be treated as a higher-risk
firm, since it couldn’t prepare an Annual
Amendment on time. Unless absolutely
necessary, we are advising firms not to
request this extension.]
Thomas D. Giachetti is chair of Stark & Stark’s
Investment Management and Securities Practice
and is available at email@example.com.
THE COMPLIANCE COACH
By Thomas D. Giachetti
Now It’s Time to Focus on Form CRS
You may have completed your ADV Annual Amendment filing, but there’s more.