Regulation Best Interest (Reg BI) is the Securities and Exchange Commission’s (SEC) most recent regulation adopted to protect investors. One of the primary components of this regulation is the Client Relationship Summary (CRS). Reg BI lists specific requirements for information that must be included in your CRS. This post provides a high level view that information.
Your introduction must include your name and registration status with the SEC as a broker-dealer, investment adviser, or both and it needs to describe the differences between brokerage and investment advisory services and stress the importance of knowing the difference. It is recommended that you provide a link to the tools available for research of firms and other financial professionals at
www.investor.gov/crs.
There needs to be a section that describes the services offered to retail investors (e.g., brokerage services, investment advisory services, or both). It should summarize the primary services, accounts, and investments offered to retail investors, and any information that is material to those services. The requirements state that:
- Broker-Dealers should provide the types of brokerage services they offer retail investors (e.g., buying and selling securities or other recommendations offered)
- Investment advisers should describe the advisory services they offer to retail investors (e.g., financial planning or wrap fee programs).
In a description of services offered, you must disclose certain information including whether monitoring of investments is provided. any investment authority that may be granted to an investment advisor, or whether investment advice concerning proprietary products will be offered with a complete description of those limitations and describe any minimum account size or investment amounts you may have that apply to retail investors. List detailed information about services offered to retail investors subject to Reg BI.
The SEC provides questions that should be provided to retail investors to ask their financial professional to start a conversation about relationships and services. Those questions include:
- If you are a broker-dealer and not a dual registrant, include: “Given my financial situation, should I choose a brokerage service? Why or why not?
- If you are an investment adviser and not a dual registrant, include: “Given my financial situation, should I choose an investment advisory service? Why or why not?
- If you are a dual registrant, include: “Given my financial situation, should I choose an investment advisory service? Should I choose a brokerage service? Should I choose both types of services? Why or why not?
- How will you choose investments to recommend to me?
- What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?
With regard to what fees and costs investors may incur, your CRS should:
- Describe principal fees and costs that retail investors may incur for brokerage or investment advisory services.
- Describe transaction-based fees if you are a broker-dealer.
- Describe ongoing asset-based fees, fixed fees, wrap fees, etc. if you are an investment adviser.
The SEC provides questions that should be provided to retail investors to ask their financial professional to start a conversation about the impact of fees and costs on investments including:
- Help me understand how these fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?
- How do your financial professionals make money? You should also summarize how your financial professionals are compensated, including cash and non-cash compensation, and the conflicts of interest those payments create.
In any description of fees and costs, Reg BI requires that you include, if applicable, whether the compensation of financial professionals is based on factors such as:
- the amount of client assets they service;
- the time and complexity required to meet a client’s needs;
- products sold (i.e., differential compensation);
- product sales commissions; or
- revenue the firm earns from the financial professional’s advisory services or recommendations.
You must disclose whether you or your financial professionals have a legal or disciplinary history. You must include a link to
Investor.gov/CRS so retail customers can research financial professionals.
Under disciplinary history, you should provide information on where a retail investor can find additional information about your brokerage or investment advisory services and request a copy of the CRS. This information should be disclosed prominently at the end of the CRS.
Finally, to assist you in preparation of the required Form CRS, the SEC has created three hypothetical
mock-up forms for your reference. You can view each of these forms on their website.
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