On April 6, 2020, the Securities and Exchange Commission ("SEC") updated their frequently asked questions (FAQs) on the new Form CRS (ADV Part 3) requirement to provide guidance on filing and delivery requirements for the Form CRS. In particular, the SEC also highlighted that the SEC was now able to accept early filings of the form as of April 6, 2020. The new Form CRS rule requires certain SEC-registered investment adviser ("RIA") and broker dealer firms to provide a brief relationship summary to new and existing retail investors known as the Form CRS. The new disclosure document is a somewhat prescriptive two page document with five mandated sections. Investment advisers subject to the new requirement need to file the Form CRS no later than June 30, 2020 using the Investment Adviser Registration Depository (“IARD”) system. One of the notable additional requirements is that RIA firms must post the new Form CRS in a readily accessible location on their firm's website.
The Form CRS FAQs addresses questions under the following categories:
- Retail Investors (Posted February 11, 2020)
- Relationship Summary Format (Posted November 26, 2019)
- Filing Requirements (Posted April 6, 2020)
- Delivery requirements (Originally Posted November 26, 2019 and Additions Posted April 6, 2020)
- Amendments to the relationship summary (Posted February 11, 2020)
- Disciplinary History (Posted February 11, 2020)
- Plain English; Fair disclosure (Posted February 11, 2020)
Form CRS Filing Requirements
The SEC added a new filing requirements section the FAQs on April 6, 2020. The new section addresses: when will the Investment Adviser Registration Depository (“IARD”) and the Central Registration Depository (“Web CRD®”) systems begin accepting filings of the relationship summary? To which the SEC staff responded with, "Firms may now begin filing through IARD and Web CRD®".
In addition, the SEC staff addressed on which regulatory filing system investment advisers must file the Form CRS:
"If you are an investment adviser and are required to deliver a relationship summary to a retail investor, you must file Form ADV, Part 3 electronically through IARD. Your relationship summary will be publicly disseminated through the Investment Adviser Public Database (“IAPD”)."
Form CRS Delivery Requirements
In addition to the original questions and answers addressed in the "delivery requirements" section, the SEC added additional questions and answers addressing whether a firm may deliver its relationship summary in advance of the compliance date for Form CRS. To which the SEC staff responds with:
"Yes. In the staff’s view, a firm may deliver its relationship summary to new or existing retail investors before the compliance date. If a firm chooses to deliver a relationship summary to retail investors in advance of the compliance date, the firm generally should: (i) post the relationship summary on the firm’s public website as described in General Instruction 10 to Form CRS; (ii) comply with the updating and related delivery requirements of General Instructions 8 and 9 to Form CRS; and (iii) file its relationship summary with the SEC.
The staff reminds firms that all information in their relationship summaries must be true and may not omit any material facts necessary in order to make the disclosures, in light of the circumstances under which they were made, not misleading. Accordingly, to the extent dually registered or affiliated firms choose to deliver and/or file a relationship summary describing both advisory and brokerage business, all disclosures, including those concerning standard of conduct, must be true as of the time they are made."
Remember the Form CRS Must Be Filed with Machine Readable Headings
We've seen many RIA firms fail to address that the new Form CRS must be filed publicly with machine readable headings. A previous SEC FAQ posted addresses this topic directly and provides valuable detailed instructions:
You should consult with the specifications and instructions provided by the software provider of the application that you are using to create the PDF of your relationship summary in order to determine how to make the headings machine readable. If, for example, you are using Microsoft Word and Adobe, you would complete the following steps:
- Enter the text that will become the machine readable heading (e.g. “”What investment services and advice can you provide me?” per Item 2.A of the Instructions to Form CRS). Highlight this text and on the Home tab, Styles pane, select a Heading Type (e.g. Heading 1). This highlighted text is now captured as a heading in Microsoft Word. Repeat this process for each additional heading that is required, as applicable, in the Instructions to Form CRS.
- Enter your disclosure responses to the relevant instruction under each heading, as applicable, that was created in Step 1 above.
- Save the Microsoft Word file as a PDF file by clicking File/Save as Adobe PDF. Once saved as a PDF, view the Headings by clicking/expanding the left Bookmarks icon. Each heading created in the initial Microsoft Word document (Step 1 above) will be displayed as a Bookmark in the PDF. These PDF Bookmarks comply with the machine readable heading format required by the Instructions to Form CRS.
At RIA in a Box, we assist all MyRIACompliance subscribers with the creation of the new Form CRS 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.
RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.