After filing Form CRS ahead of the June 30 2020 deadline, many investment advisers breathed a sigh of relief. However, advisers must remain vigilant as the June 30 deadline was the beginning of a new set of compliance efforts which firms must meet on a going-forward basis. In an effort to keep firms on track, we have summarized these ongoing obligations.
1) Initial Delivery. Advisory firms must make an initial delivery of Form CRS to all current retail investor clients within 30 days of the regulatory filing deadline. Additionally, firms must deliver the relationship summary to any new retail investor client before or at the time they enter into an investment advisory contract with the retail investor client. This delivery requirement also extends to oral agreements. Firms may satisfy this by integrating Form CRS into their onboarding process by adding it to the collection of other account-opening documents. However, it is important—if Form CRS is delivered like this in paper format—for it to be the first document in the package. If delivering it electronically, firms must ensure it is presented prominently in the electronic medium, such as a direct link or in the body of an email or message. Firms must also post their Form CRS prominently on their public website in an easily accessible format.
2) Updating Requirements. Firms must update and refile their Form CRS with the SEC within 30 days of it becoming materially inaccurate and must notify current retail investor clients within 60 days after the updates are required to be made. Delivery of the amended Form CRS should include an attached exhibit that highlights the most recent changes.
3) Subsequent Delivery. Firms must also deliver a relationship summary to an existing retail investor client before or at the time the firm:
Opens a new account that is different from the retail investor client’s existing account(s);
Recommends that a retail investor client roll over assets from a retirement account into a new or existing account or investment; and
Recommends or provides a new brokerage or investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account, such as the first-time purchase of a direct sold mutual fund, insurance product or variable annuity.
There is an exception to these delivery requirements. If a firm delivers a relationship summary to a retail investor client, and within 30 days delivery is triggered again, the firm does not need to make a second delivery. However, firms must deliver a relationship summary within 30 days upon request, regardless of prior delivery.
4) Recordkeeping Requirements. Generally speaking, firms should make a practice of integrating the relationship summary into their compliance program, including policies and procedures, supervisory controls, testing, tracking, training, and recordkeeping. According to amended Rule 204-2(a)(14)(i) of the Investment Advisers Act of 1940, firms must make and keep a record of the dates that each Form CRS, and each amendment or revision was given to any retail investor client or prospective retail investor client who subsequently becomes a client. These records must be maintained for a minimum of five years.