Many of our previous blog posts covering the new Form CRS ("ADV Part 3") requirement for registered investment adviser ("RIA") firms have focused on the key considerations when creating the new Form CRS including the five required items. However, as the risk alert issued on April 7, 2020 by the Securities and Exchange Commission ("SEC") Office of Compliance Inspections and Examinations ("OCIE") highlights, drafting the new Form CRS is only the initial step of the new regulatory requirement. SEC-registered RIA firms that serve retail investors which are subject to this new regulatory requirement also need to focus on the filing, posting, and delivery of the new Form CRS as well as new bookkeeping requirements that may require advisory firms to make significant changes to their compliance programs.
How to File, Post, and Deliver the Form CRS
- Where to File
- Website Posting
- Electronic Delivery
According to the Form CRS instructions, "If the relationship summary is delivered electronically, it must be presented prominently in the electronic medium, for example, as a direct link or in the body of an email or message, and must be easily accessible for retail investors.” In addition, "you must provide a means of facilitating access to any information that is referenced in the relationship summary if the information is available online, including, for example, hyperlinks to fee schedules, conflicts disclosures, the firm’s narrative brochure required by Part 2A of Form ADV, or other regulatory disclosures."
- Paper Delivery
On the other hand, according to the Form CRS instructions, "If the relationship summary is delivered in paper format as part of a package of documents, you must ensure that the relationship summary is the first among any documents that are delivered at that time."
New Recordkeeping Requirements
As part of the new Form CRS requirement, Rule (204)-2, the "Books and Records" rule has bee amended to include a new section related to the Form CRS which reads:
“(14)(i) A copy of each brochure, brochure supplement and Form CRS, and each amendment or revision to the brochure, brochure supplement and Form CRS, that satisfies the requirements of Part 2 or Part 3 of Form ADV, as applicable [17 CFR 279.1]; any summary of material changes that satisfies the requirements of Part 2 of Form ADV but is not contained in the brochure; and a record of the dates that each brochure, brochure supplement and Form CRS, each amendment or revision thereto, and each summary of material changes not contained in a brochure given to any client or to any prospective client who subsequently becomes a client."
Investment advisory firms subject to the new Form CRS requirement need to ensure that relevant policies and procedures are updated to meet these changes to the Books and Record Rule. Firms may also need to utilize existing technology such as the firm's customer relationship management ("CRM"), document storage, and compliance software systems to ensure the new recordkeeping requirements are met.
Updates to Policies and Procedures and other Documents
- Policies and Procedures Manual
Investment advisory firms subject to the new Form CRS requirement may need to create a new section in the firm's policies and procedures manual as it relates to:
- Who: Defining what type of clients served by the firm need to receive the Form CRS
- Initial delivery: Defining when relevant clients need to receive the Form CRS and how this is documented
- Ongoing delivery: Defining when an updated Form CRS needs to be delivered
- Method of delivery: How to properly deliver in paper and/or electronic format
- Posting: If relevant, ensuring the Form CRS is properly posted on the firm's website.
In addition, RIA firms may want to consider updating existing sections of the firm's policies and procedures manual as it relates to: opening new accounts, when to file other-than-annual Form ADV amendments, and other relevant sections impacted by the new Form CRS creation, filing, delivery, posting, and updating requirements.
- Investment Advisory Contract
At RIA in a Box, we assist all MyRIACompliance subscribers with the creation of the new Form CRS and updates to relevant policies and procedures for no additional charge via our automated online Form CRS creation tool. In addition, we have a dedicated resource page accessible to the public which shares an overview of Form CRS submission requirements and relevant checklists and links. The resource page will continue to be updated with resources and details as they become available.
Be sure to check back soon as we continue to provide updates on the new Form CRS requirement and other relevant RIA regulatory compliance focus areas.