On June 5, 2019, the U.S. Securities and Exchange Commission (“SEC”) approved a rule requiring investment adviser firms registered with the SEC to provide investment advisory clients who meet the definition of “retail investors” with a Consumer Relationship Summary, also known as the Form CRS or Form ADV Part 3. Despite the impact of COVID-19, the SEC has declined to extend the deadline for investment advisers registered with the SEC to file and deliver the new Form ADV Part 3/Form CRS. Click here to read our recent blog on the SEC’s decision to maintain the original June 30, 2020 filing deadline.
This quickly approaching deadline means investment adviser firms covered by the rule must act now to ensure compliance with the rule. 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 investment adviser firm’s Form ADV Part 3/Form CRS.
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.
Drafting Tips for SEC Investment Adviser Firms
The Form ADV Part 3/Form CRS is strictly limited to two pages, which can pose a challenge to investment adviser firms who must make the Form ADV Part 3 disclosure brochure clear, concise, and complete. This three-part blog series will give tips on preparation, content, and style for the Form ADV Part 3/Form CRS.
Preparing for Drafting
- Before beginning to draft the Form ADV Part 3/Form CRS, the investment adviser firm needs to verify that the investment adviser’s Form ADV Part 2A is accurate and up to date. Inaccurate disclosures in the Form ADV Part 2A will lead to inaccuracies in the Form ADV Part 3.
- Check the investment adviser’s service descriptions and fee disclosures.
- Cross-reference the Form ADV Part 2A with the investment adviser’s client agreements and the firm’s actual practices.
- Review whether all the investment adviser’s conflicts of interest are identified and adequately disclosed in the Form ADV Part 2A.
- Review and confirm that any disciplinary history of supervised persons has been disclosed to the firm and properly reported in the Form ADV Part 2B and Form U4.
- Make sure to understand the spirit and letter of the rule. Carefully review the Form CRS instructions, as well as other SEC and industry guidance.
- SEC Guidance:
- Industry Guidance:
- RIA Compliance Consultants – FAQs on Form ADV Part 3
- RIA Compliance Consultants – Webinar on Form ADV Part 3/Form CRS (April 22, 2020) and Webinar Slides
- If needed, enlist help from a compliance professional.
Next, the investment adviser will need to focus on content, style and format. Stay tuned for Parts 2 and 3 of this blog series: “Drafting Tips for Form ADV Part 3/Form CRS”.
If your investment adviser firm is an existing client of RIA Compliance Consultants and has questions about the 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.
Click here to purchase this Form ADV Part 3 Drafting & Filing Service.