Home News SEC Releases Investor Testing Report on Proposed Form CRS Relationship Summary

SEC Releases Investor Testing Report on Proposed Form CRS Relationship Summary

To help address investor confusion about the nature of their relationships with investment advisers and broker-dealers, the SEC’s Office of the Investor Advocate has released a report on a nationwide survey of investors conducted by the RAND Corporation in order to gather feedback on the agency’s proposed Form CRS Relationship Summary.

To help address investor confusion about the nature of their relationships with investment advisers and broker-dealers, the SEC’s Office of the Investor Advocate has released a report on a nationwide survey of investors conducted by the RAND Corporation in order to gather feedback on the agency’s proposed Form CRS Relationship Summary. Separately, the SEC’s Investor Advisory Committee conducted a public call to discuss Regulation Best Interest and Form CRS Relationship Summary.

Earlier this year, the SEC voted to propose a package of rules intended to improve the quality and transparency of relationships that retail investors have with investment advisors and broker-dealers.

As part of those proposed rules, the SEC would require investment advisors and broker-dealers to provide a relationship summary to clients and customers on Form CRS, to inform them about the relationships and services their firms offer, the standard of conduct, the fees and costs associated with those services, and conflicts of interest the firms may have.

RAND Corporation’s investor testing consisted of a nationwide online survey of more than 1,800 individuals, as well as interviews conducted in Denver and Pittsburgh fielded using independent market research firms.

“Based on my discussions with many retail investors over the last several months, it is clear to me that too many retail investors are not aware of the material aspects of their relationships with their investment professionals,” said SEC Chairman Jay Clayton.

“The results of RAND Corporation’s investor testing support our efforts to provide retail investors with a clear and concise relationship summary to help them make important decisions about choosing to work with an investment professional. The SEC staff is carefully reviewing RAND Corporation’s investor testing report as well as other information related to the proposed relationship summary that is available in the comment file.”

According to RAND’s findings, 56.9 percent of respondents felt that the relationship summary was “too long”, 41.2 percent thought it was “about right,” and 1.8 percent “too short.”

Additional highlights from the report are below:

More than half of respondents (52 percent) selected the “types of relationships and services” section as one of the most informative for deciding which types of investment accounts and services are right for them.

While the “fees and costs” section appears to be considered the most informative, it is also the section for which the largest share of respondents suggest adding more detail and the largest share find it to be either difficult or very difficult to understand.

The “conflicts of interest” section is also second only to the “fees and costs” section in terms of reported difficulty. About one-third of respondents found the “conflicts of interest” section to be difficult or very difficult to understand.

Also on Wednesday, the SEC’s Investor Advisory Committee hosted a public call to discuss the agency’s proposed Regulation Best Interest and Form CRS Relationship Summary.

The committee previously recommended that “all personalized investment advice to retail customers be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker-dealer.”

“In order to further the underlying goals of the SEC proposals, a majority of the committee believes that more can and should be done to strengthen and clarify these proposals,” the members said in a statement prior to the call.

Specifically, a majority of the SEC’s Investor Advisory Committee:

  • Believes the standard for broker-dealers and investment advisers alike should be clarified with regard to the obligation to act in customers’ best interests.
  • Supports expanding the best interest obligation to cover rollover recommendations and recommendations by dual registrant firms regarding account types.
  • Believes that the best interest standard is, and should be characterized explicitly as, a fiduciary duty, while making clear that the specific obligations that flow from that duty will vary based on differences in business models.
  • Believes that, before adopting the disclosure obligations, the Commission should conduct usability testing of the proposed Form CRS disclosures and, if necessary, revise them to ensure that they enable investors to make an informed choice among different types of providers and accounts.

The Investor Advisory Committee was established to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. Members represent a variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions.

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