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June 20, 2019 at 02:17 PM
A change in the final version of the Securities and Exchange Commission’s 1,000-page advice standards package has sparked debate as to whether the newly adopted Customer Relationship Summary, or Form CRS, forbids an RIA firm from using the term “fiduciary” when describing their standard of care owed to the client.
The proposed version of the form that RIAs will be required to give to clients stated, “We are held to a fiduciary standard that covers our entire investment advisory relationship with you.”
The final version states, “When we act as your investment adviser, we have to act in your best interest and not put our interest ahead of yours.”
Karen Barr, president and CEO of the Investment Adviser Association, reached out to the SEC. On Wednesday, Barr said staff in the agency’s Division of Investment Management clarified to IAA that as noted in the agency’s adopting release, the final Form CRS “requires less prescribed wording overall, so that firms may generally use their own wording to address required topics and will have more flexibility to provide accurate information to investors.”
Accordingly, Barr said, “advisors may still use the term ‘fiduciary’ in Form CRS to further elaborate on the duties owed to their clients, for example, when discussing their conflicts of interest.”
Barr maintains that advisors “are permitted to use the word ‘fiduciary’ in their disclosures, including new Form CRS, contrary to recent press reports that seem to imply otherwise.” This includes when describing their “standard of care owed” to clients, as confirmed by SEC IM staff.
According to the adopting release, Barr explained, “the final language was modified from the proposal in an effort to use ‘simplified wording that is short, plain language … but still describes the key components of a broker-dealer’s or investment advisor’s standard of conduct when providing recommendations or advice.’”
The SEC opted, Barr continued, “to focus on the term ‘best interest,’ and eliminated the word ‘fiduciary’ from the prescribed statement to be provided by advisors.”
