• SEC Proposed Rule Would Require New Client Relationship Summary of Registered Investment Advisers and Broker-Dealers
  • June 8, 2018 | Author: J. Andrew Gipson
  • Law Firm: Jones Walker LLP - Jackson Office
  • On April 18, 2018, the Securities and Exchange Commission (“SEC”) issued a proposed rule to require certain additional disclosures by registered investment advisers and registered broker-dealers. The proposed rule would require a “brief relationship summary to retail investors to inform them about the relationships and services the firm offers, the standard of conduct and the fees and costs associated with those services, specified conflicts of interest, and whether the firm and its financial professionals currently have reportable legal or disciplinary events.” The proposed rule is available here: https://www.sec.gov/rules/proposed/2018/34-83063.pdf.

    As proposed, the new relationship summary disclosures would be subject to SEC filing and recordkeeping requirements applicable to registered RIA and broker-dealer firms. The disclosures would be provided at the beginning of the relationship with a firm, and would be updated upon the occurrence of a material change.

    In making the proposals, the SEC stated:

    Broker-dealers, investment advisers and dually registered firms all provide important services for individuals who invest in the markets. Studies show that retail investors are confused about the differences among them. . . . These differences include the scope and nature of the services they provide, the fees and costs associated with those services, conflicts of interest, and the applicable legal standards and duties to investors.
    SEC Release No. 34-83063; IA-4888; File No. S7-08-18, Page 8, Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles (April 18, 2018)
    The studies cited by the SEC included the 913 Study and a study conducted by the Consumer Federation of America. These findings prompted the SEC to “agree that it is important to ensure that retail investors receive the information they need to understand the services, fees, conflicts, and disciplinary history of firms and financial professionals they are considering.” The SEC added that the information should be reasonably concise, leading to the proposal of a customer or client relationship summary (“Form CRS”). Form CRS would be required by Form ADV Part 3 and rule 204-5 of the Investment Advisers Act for investment advisers, and by Form CRS and rule 17a-14 of the Securities Exchange Act for broker-dealers.

    Comments from the public are due within 90 days of publication of the proposed rule in the Federal Register. As of press time, the Federal Register publication had not yet been made.