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Regulation and Compliance > Federal Regulation > SEC

SEC Releases Investor Testing Report on Form CRS

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The Securities and Exchange Commission released Wednesday the results of its investor testing on the agency proposed Form CRS Relationship Summary, part of the agency’s advice standards package.

Researchers at the RAND Corp. conducted a nationwide survey — the Relationship Summary Survey — of households to gather feedback on a sample Relationship Summary.

In particular, the 122-page report explains, the RAND team “designed and fielded the Relationship Summary Survey through RAND’s nationally representative American Life Panel (ALP) to collect information on the opinions, preferences, attitudes and level of self-assessed comprehension of the U.S. adult population with regard to a sample Relationship Summary.”

The SEC sampled the 1,816 panel members who previously completed the survey on the Retail Market for Investment Advice that was released in mid-October.

The investor report released Wednesday found, for instance, that more than half of respondents believe the Relationship Summary is “too long,” with almost all of the remainder reporting that the length is “about right.”

Another finding: The “Conflicts of Interest” section of the form is second only to the “Fees and Costs” section in terms of reported difficulty. One-third of respondents found the “Conflicts of Interest” section to be difficult or very difficult to understand.

Barbara Roper, director of investor protection for the Consumer Federation of America, told ThinkAdvisor on Wednesday after a quick review of the report that she believes it’s ”a very positive step that the commission engaged in the sort of qualitative testing we’ve been advocating.”

However, she continued, “I hope the commission won’t take away the wrong lesson from its findings. Investors who tell interviewers that the difficulty level is ‘just right’ apparently can’t describe the important distinctions they are meant to take away from the disclosures.”

For example, “apparently 45% said they found the difficult level of the ‘Types of Relationships and Services’ section ‘just right,’ but there’s no indication from the report that they were able to draw a clear distinction between the types of services offered in a brokerage account and the types of services offered in an advisory account,” she said. “That’s the key point they need to understand to make an informed choice.”

Roper’s quick take: “This testing confirms what we and others had previously concluded — that there’s still a lot of work to be done before the Form CRS can fulfill its intended purpose of enabling investors to make an informed choice among different types of accounts and services.”

SEC Chairman Jay Clayton said Wednesday during a meeting of the SEC’s Investor Advisory Committee that a “more detailed study” specifically on the SEC’s proposed Form Customer Relationship Summary, or Form CRS, will be entered into the public comment file.

Addressing the committee during their Wednesday afternoon meeting, held via telephone, Clayton also said that he appreciated the “granularity” of the committee’s recommendation to the securities regulator the same day on ways to change the agency’s proposed Regulation Best Interest and Form CRS, stating that he looked forward to mulling the proposal with SEC staff.

The SEC’s Office of the Investor Advocate and the RAND Corp. released in mid-October research that aims to help the SEC craft its advice-standards package for brokers and advisors, which includes Reg BI and Form CRS.

The 156-page research report, The Retail Market for Investment Advice, was undertaken prior to, and is separate from, the SEC’s release of the proposed standards of conduct rulemaking package.

However, the think tank and the Investor Advocate’s office stated in mid-October that because the research provides data that may be relevant to the commission’s consideration in the rulemaking, they submitted it to the public comment file.

Roper, a member of the committee, stated on the call that the recommendation “recognizes that Reg BI is intended to raise the standard of conduct” for brokers, and that the “recommendation is intended to build on and strengthen” Reg BI, “not send the commission down a different path.”

The Investor Advisory Committee approved the recommendation as put forth by the Investor as Purchaser Subcommittee, which offered the following four improvements:

  • The standard for broker-dealers and investment advisors alike should be clarified with regard to the obligation to act in customers’ best interests.
  • Expand the best interest obligation to cover rollover recommendations and recommendations by dual registrant firms regarding account types.
  • 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.
  • 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.


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