In June 2019, the U.S. Securities and Exchange Commission (“SEC”) adopted a new rule requiring SEC registered investment adviser firms to prepare and deliver an easily accessible and understandable Consumer Relationship Summary, also known as the Form CRS or Form ADV Part 3, to retail investor clients. An SEC registered investment adviser’s initial Form CRS/Form ADV Part 3 must be filed with the SEC by June 30, 2020 and delivered to existing clients no later than July 30, 2020. Click here to read our recent blog on the SEC’s decision to maintain the original June 30, 2020 filing deadline.
This is the second blog in our three-part series: “Drafting Tips for Form ADV Part 3.” To read Part 1 – “Preparing to Draft Your Form ADV Part 3”, click here.
Drafting Tips for SEC Investment Adviser Firms
Once an SEC registered investment adviser firm has gathered the necessary information and studied the instructions and guidance available for the Form CRS/ Form ADV Part 3, the investment adviser is ready to begin drafting the Form CRS/Form ADV Part 3.
One of the most important aspects of the brochure is its content. The SEC will be scrutinizing the content of the disclosure to make sure it conveys clear and accurate information to the investment adviser’s retail investor clients. An SEC registered investment adviser firm, which has determined that it has “retail investors” as investment advisory clients, can use the following tips when drafting the content of the investment adviser firm’s Form ADV Part 3/Form CRS.
Ensure the content is true, does not omit any material fact, and provides balanced descriptions that will help retail investors evaluate the SEC registered investment adviser firm’s services. If possible, have at least one person other than the individual drafting review the draft to make sure it does not include exaggerated or unsubstantiated claims, vague and imprecise “boilerplate” explanations, or disproportionate emphasis on possible investments or activities that are not offered to retail investors.
Only prepare one Form CRS/Form ADV Part 3. The investment adviser must discuss all services available to retail investors in a single brochure and cannot use multiple versions of the brochure at the same time. An investment adviser does not need to include within the Form CRS/Form ADV Part 3 those services which are not available to retail investors.
Respond to each item and provide responses in the same order as the items appear in the Form ADV instructions. Only include in the disclosure the specific information asked or required in the instructions. The strict page limit will be a challenge to most investment advisers, even those not including extraneous information.
Use the required headings and statements provided in the SEC’s instructions. As required and applicable to your investment adviser, include the SEC’s “Conversation Starters”. You do not need to include answers to the “Conversation Starters” but make sure investment adviser representatives can competently discuss and answer questions from retail investors related to the “Conversation Starters.”
Use references to the SEC registered investment adviser firm’s other disclosures, such as the Form ADV Part 2A, in order to provide robust disclosure within the two-page limitation provided by the SEC.
If using the services of a compliance professional or other third party, carefully review any disclosures drafted by the third party to ensure they are complete, accurate, and tailored to the investment adviser firm.
For help determining whether your investment adviser firm is required to deliver a Form ADV Part 3/Form CRS or for more information on the Form ADV Part 3/Client Relationship Summary, you can review the SEC’s Form ADV Part 3 instructions here or visit our Form ADV Part 3 FAQs website page here. You can also watch RCC’s recent complimentary compliance training webinar detailing the Form ADV Part 3/Form CRS by clicking here. The complimentary webinar slides are available here.
If your investment adviser firm is an existing client of RIA Compliance Consultants and has questions about the Form ADV Part 3/ Form CRS Relationship Summary, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.
Posted by Bryan Hill