{"id":6535,"date":"2020-06-04T11:52:21","date_gmt":"2020-06-04T16:52:21","guid":{"rendered":"https:\/\/rixtrema.com\/blog\/?p=6535"},"modified":"2020-06-09T14:34:59","modified_gmt":"2020-06-09T19:34:59","slug":"the-sec-reg-bi-guidance-for-small-businesses","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/the-sec-reg-bi-guidance-for-small-businesses\/","title":{"rendered":"The SEC Reg-BI Guidance For Small Businesses"},"content":{"rendered":"\n
<\/div>\n\n\n\n
  1. CRS Form:<\/a><\/li>
  2. First, what is the CRS Form?<\/a><\/li>
  3. Ok, but what\u2019s in the thing?<\/a><\/li>
  4. Don\u2019t forget lovely formatting<\/a><\/li>
  5. Delivering the CRS Form<\/a><\/li>
  6. When do BDs provide a CRS Form?<\/a><\/li>
  7. What about delivery for firms?<\/a><\/li>
  8. Don\u2019t forget about filing<\/a><\/li>
  9. Then, there\u2019s Recordkeeping<\/a><\/li>
  10. RIXTREMA\u2019S REG-BI OPTIMIZER is the fastest way to show a \u201cGood Faith Effort\u201d<\/strong><\/a><\/li><\/ol>\n\n\n\n
    <\/div>\n\n\n\n

    Two things have become more worrying during my Reg-BI research.<\/p>\n

    First, the CRS Form is not cheap to build. Each advisor may well spend<\/a><\/u> an average of 23.77 hours and over $6,000 to build the form<\/strong>.<\/p>\n

    But, the second, more worrying realization is that small firms are not as prepared as larger firms. As a Deloitte survey study found<\/a><\/u>, small financial services businesses lag behind larger firms in their efforts to become compliant with Regulation best-interest.<\/p>\n\n\n\n

    \"\"
    Figure 1: Small businesses lag behind large firms in most efforts<\/figcaption><\/figure>\n\n\n\n

    The SEC though outlined the most important steps that Small entities can make to show a \u201cgood faith effort\u201d at reaching compliance with the CRS Form component of Regulation Best Interest. This article will outline those findings but there is a wealth of information on our blog<\/a><\/u> and in the compliance guide<\/a><\/u>. <\/p>\n

    Read more about what a \u201cbest interest\u201d recommendation is HERE.<\/a><\/u><\/p>\n\n\n\n

    CRS Form:<\/strong><\/h2>\n\n\n\n

    I wrote before about why the CRS Form may be the most challenging compliance requirement for small RIA firms<\/a><\/u> because they do not have an internal compliance department to defer costs. Nonetheless, it is a requirement and every firm that offers services to a retail investor must file a CRS form with the Commission and deliver it to each investor.<\/p>\n\n\n\n

    First, what is the CRS Form?<\/strong><\/h2>\n\n\n\n

    The CRS Form is in addition to current disclosure and reporting requirements but does not replace any of Reg-BI\u2019s other requirements. 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.<\/p>\n\n\n\n

    Ok, but what\u2019s in the thing?<\/strong><\/h2>\n\n\n\n

    The SEC\u2019s Small Business Guide<\/a><\/u> makes note of the following topics:<\/p>\n

      \n
    1. An introduction to the firm and the point of the form;<\/li>\n
    2. Relationships and Services offered by the firm;<\/li>\n
    3. Fees, Costs, Conflicts, and Standard of Conduct with part 2;<\/li>\n
    4. Disciplinary History; and<\/li>\n
    5. How the reader can find more information about the firm.<\/li>\n<\/ol>\n

      Firms can use their own wording but are not allowed to include other disclosures in the CRS form. Only those that are permitted or required by the CRS form instructions.<\/p>\n\n\n\n

      Don\u2019t forget lovely formatting<\/strong><\/h2>\n\n\n\n

      The formatting also has to be carefully crafted and in 2 pages (4 for dual registrants). Dual registrants or affiliates must prepare a single CRS form or two (one for brokerage and one for investment advisory services) Not exceed four pages. Regardless of length, the form must be composed in plain English (no legal jargon!) and must consider the investor’s level of financial experience. Consult “A Plain English Handbook<\/a><\/u>” to learn more.<\/p>\n\n\n\n

      Delivering the CRS Form<\/strong><\/h2>\n\n\n\n

      The CRS forms must be delivered electronically to a retail investor and prominently displayed on the firm\u2019s website, if they have one. If delivered in paper form, then it must be among the first documents provided and delivered when or before an investor enters into an advisory contract – even if the agreement is oral.<\/p>\n\n\n\n

      When do BDs provide a CRS Form?<\/strong><\/h2>\n\n\n\n

      Broker-dealers (BDs) must deliver a relationship summary to each retail investor before or at the time of making any:<\/p>\n