Regulation Best Interest and Form CRS
Regulation Best Interest and Accompanying Legislation Require Broker-Dealers and Registered Investment
In June 2019, the SEC adopted Regulation Best Interest under the Securities Exchange Act of 1934 which establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities. As part of the legislation, the SEC also adopted new rules and forms to require broker-dealers and registered investment advisers to provide a brief client relationship summary or Form CRS to retail investors.
The SEC, in its adopting release, explained that it is “adopting a new set of disclosure requirements designed to reduce retail investor confusion in the marketplace for brokerage and investment advisory services and to assist retail investors with the process of deciding whether to engage, or to continue to engage, a particular firm or financial professional and whether to establish or to continue to maintain, an investment advisory or brokerage relationship.”
The SEC now requires that firms must deliver Form CRS to all retail clients that provide, among other things, a succinct summary of the firm’s services, fees, certain conflicts and disciplinary history. Form CRS must be limited to two pages for firms registered as either a broker-dealer or a registered investment adviser and to four pages for dual registrants. The deadline to deliver Form CRS to retail clients is June 30, 2020.