On June 5, 2019 the SEC adopted Regulation Best Interest. The regulation created a new disclosure document: the Client Relationship Summary (Form CRS), a brief narrative which cannot exceed two pages and contains certain details about the adviser’s business, its compensation, and certain conflicts of interest.
Form CRS is required for any registered investment adviser who provides advisory service to “retail investors.” The definition of a retail investor is slightly different from FINRA rules and is far more expansive than how this term is commonly understood. A retail investor includes “a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” For clarity, this will only include clients who are natural persons or legal representatives of those persons. Investment advisers who solely advise private funds, registered funds, or have separate accounts for institutional investors will not need to complete Form CRS. It will also not include natural persons who are investors in private funds.
Wealth managers and advisers who manage separate accounts for natural persons will need to complete Form CRS, as well as make certain policy adjustments. Form CRS is required to be filed through the investment adviser registration depository (IARD) system by June 30, 2020.
Although the Form is not due till June, advisers are encouraged to reach out as soon as possible to begin the process of determining if they are in scope, what policy adjustments may need to be made, and to begin the drafting process.