OK, so remember last June when we discussed registering your firm? If you do, you may recall that the principal adviser registration document, Form ADV, is divided into two parts: Part 1 (a check-the-box form that is mostly for use by the regulator) and Part 2 (a narrative brochure that is the principal client disclosure document).

Well, for advisers registered with the SEC, as many robo-advisers are, there will soon be a new disclosure document to contend with. New Form CRS (client relationship summary) is designed to give investors easily digestible information about their relationship with their investment adviser. The form, which may not exceed two pages, provides information such as types of services offered, fees charged, conflicts of interest, and disciplinary history, covering many of the same topics that are discussed in detail in Form ADV Parts 1 and 2. Form CRS also includes sample questions or “conversation starters,” which clients can use to get additional information directly from their financial representatives.

Importantly, Form CRS is required only for advisers whose clients are “retail investors,” meaning natural persons seeking services primarily for personal or family purposes. This means that investment advisers that don’t serve retail investors need not worry about Form CRS. That said, because most robo-advisers have retail investor clients, most robo-advisers will need to complete, file and deliver the form.

When does this all start, you ask? Advisers currently registered with the SEC will need to file their initial Form CRS through IARD between May 1 and June 30 of this year. Importantly, you may not file the form prior to May 1, 2020. This means that for an adviser with a calendar fiscal-year end, the initial Form CRS must be filed as an other-than-annual amendment; it cannot be filed as part of the adviser’s annual Form ADV update due March 30, 2020.

Once you’ve filed Form CRS, you’ll need to start delivering the initial Form CRS no later than June 30, 2020 for new clients and July 30, 2020 for current clients. In addition, if any information in your Form CRS becomes materially inaccurate, you’ll need to file an amendment within 30 days and notify clients within 90 days.   Unlike Form ADV Parts 1 and 2, Form CRS does not have an annual filing requirement. Instead, once you’ve filed the form, you just need to make sure it stays accurate and notify clients if anything changes.

Speaking of notifying clients, let’s talk about how to actually deliver Form CRS. As a robo-adviser, chances are you will send Form CRS electronically. When you do, be sure to follow the form’s instructions, which require that the relationship summary be (i) presented prominently in the electronic medium, like a direct link or in the body of an email or message, and (ii) easily accessible. And of course, don’t forget to implement the tips we shared in our previous post on electronic communications.

Finally, just a brief word on recordkeeping. When they adopted Form CRS, the SEC also adopted corresponding amendments to Advisers Act Rule 204-2 (the recordkeeping rule). Those amendments, broadly speaking, require advisers to keep current and historical copies of Form CRS (including amendments) and records of the dates that the form is filed and delivered to clients.

Even though Form CRS need not be filed until June, we still recommend that advisers with retail investor clients take the time now to:

  • draft and finalize the initial Form CRS, consulting with counsel as necessary;
  • develop and update policies and procedures to ensure that on an ongoing basis, Form CRS is filed, delivered and updated appropriately; and
  • update recordkeeping portions of their compliance manual as needed to account for Form CRS.

That’s all for this time! Be sure to come back for our next post, where Josh will kick off a new chapter of our blog focused on compliance concerns related to the heart of your business – portfolio management and trading.