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Friday, August 7, 2020

Form CRS is the biggest Reg-BI compliance hurdle for RIAs

RIAs, don’t think Reg-BI doesn’t apply to you

RIAs, don’t think Reg-BI doesn’t apply to you

Reg-BI brings Broker-Dealers into a Fiduciary Standard. Registered Investment Advisors will be challenged to prove they are already putting their clients’ interests first and have processes that ensure ongoing compliance. Form CRS is a crucial hurdle in showing due diligence.

All client-facing financial professionals are required to create a Client Relationship Summary (CRS Form) to disclose details about the relationship between the financial professional and retail investor. June 30, 2020, is approaching quickly and here are some guidelines to get your gears turning about Form CRS.


The SEC is explicit that the CRS Form does not meet this requirement. So, professionals need to do both to be compliant with REG-BI.

Form CRS is, perhaps, the most significant workflow and productivity change required by Reg-BI and many BDs and RIAs remain confused about the requirements. It intends to clarify, though, elements that retail investors were finding confusing – services offered, various fees, conflicts of interest between parties, and the required standard of conduct and differences between BDs and RIAs (Spencer Fane).

It also isn’t a compliance requirement that can be checked off a list and forgotten about forever. It must be updated within 30 days whenever information becomes inaccurate and these changes must be freely communicated to existing clients and customers within 60 days after the updates are made. This news can be delivered either through an abridged form or by providing their clients and customers with the entire revised CRS form.

What’s in the CRS Form?

The summary is intended to be short and only two pages long for either Broker-Dealer or Registered Investment Adviser, and four pages long for dual registrants. Essentially, the two-pages must cover:

  1. the types of client relationships and services being offered;
  2. the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services;
  3. whether the firm and its financial professionals currently have reportable legal or disciplinary history; and
  4. how to obtain additional information about the firm.

If you’re gawking at the amount of information contained within only 2 pages, then you are not alone. The SEC outlined its expectations for the form succinctly in 500 pages and estimates that each advisor will spend an average of 23.77 hours and over $6,000 to build the form.

The SEC has given financial firms some time to come up with their own version of Form CRS It must be written in plain and easy-to-read and understand language using standardized headings in a prescribed order throughout the disclosure and respond to the required items by using a mix of language prescribed in the instructions as well as their own wording in describing their services and offerings. Form CRS must use text features to make the Conversation Starters and Specific References to Additional Information more noticeable and prominent in relation to other discussion text such as by using a larger or different font, a text box around the heading or questions, bolded, italicized, or underlined text are some of the examples.

Form CRS will be an important component of compliance under Reg BI. That’s why we prepared a mini e-book to outline key areas of concern and compliance guidelines. This is in lead up to RiXtrema’s release of a new tool, REGBI – Optimizer, that will help financial professionals to work efficiently in the new legal frame addressing necessary needs presented by the new, soon to be effective Reg BI law including a comprehensive preparation of Form CRS. Stay tuned for updates.

Key Points:

We’d love it if our readers would complete a short survey (click here to take the survey yourself) to learn about their content interests. The responses to the survey are already incredible, so we know that it is on people’s minds. Feel free to drop us a line in the comments section to let us know what you think. Contact the client success team at clientsuccess@rixtrema.com to learn more about our Financial Advising Software Platform or Reg-BI Optimizer.

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