SEC may limit ‘fiduciary’ descriptors in guidance form CRS
Guidance from the Securities and Exchange Commission late last month may limit RIAs’ ability to define themselves in their Form CRS, according to the Institute for the Fiduciary Standards.
in one Frequently asked questions posted on March 30The SEC clarifies that a firm may use the term “anticipatory” or “candidate fee” in its Form CRS, but “only to the extent permitted” by the Commission’s instructions, and where there is prescribed language, the firm may not include this term. can do all.
For points where some language is mandatory, the SEC warned advisors against using the word “credible” when it would be “extraneous and unresponsive”, or in any case where the use of the term could be inaccurate or misleading. .
“For example, in the view of employees, embellishing factual statements about the competence or services of an investment professional or firm with phrases such as ‘an investment advisor who is held to a fiduciary standard,’ likely to be inappropriate.” is,” the guide read. “Similarly, employees bond against describing fiduciary duty to a ‘high standard’ or ‘highest standard’.”
While the first sentence of the guidance suggests that the use of the word “betrayal” in their disclosure form is not outright prohibited, Knut Rostad, founder of the Institute for the Fiduciary Standard, argued that the rest of the text “essentially shut the door.” on including it.
“Its language is clear,” he said. “We believe this leaves no practical and meaningful way for an investment advisor to tell investors the truth about their fiduciary position.”
Form CRS went into effect in the summer of 2020 in conjunction with the SEC’s Regulation Best Interest Rule and is a two-page document intended to provide clients with an accessible description of the advisor’s services, conduct, and conflicts. Rostad and Jeff Lang, an investment management attorney with Stark & Stark, said they previously believed advisors could use the word ‘trustworthy’ as a means of describing their practice on the form (and in doing so, brokers). separate himself from).
But with the new guidance, Lang argued, advisors will not be able to describe themselves as a trustworthy standard, even if the term is accurate. He wanted the SEC to clarify how the term could be used in the context of the prescribed language of the form.
“What idiom leads us to the legal truism that (RIA) has to act as fiduciary?” Lang asked. “What set of words can they live under (in) the legal liability clause that says, ‘Yes, we operate under a fiduciary standard?'”
Rostad and Lang were concerned that the RIA would completely opt out of describing themselves as fiduciary so as to avoid SEC enforcement as part of the sweep. Although RIAs may describe themselves as trustees in marketing materials and on their website, Rosted stresses that they should not be limited in doing so on Form CRS, assuming that customers associate the term as a positive. Huh.
“They won’t be able to tell you like a first-term law class what that means, but they know it’s something they should look at,” Rosted said.
Rostad said the institute had reached out to SEC President Gary Gensler for a meeting about their concerns, but questioned what kind of explanation the commission could offer that would enable the RIA to describe itself more accurately. Will be
“The importance of what they said here should not be underestimated, because they are clearly discouraging it,” Rostad said.