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No, RIAs Aren't Banned From Saying 'Fiduciary' on Form CRS

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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.”

SEC-registered advisors will have from May 1, 2020 until June 30, 2020 to file their initial Form CRS with the SEC.

G.J. King, president of RIA in a Box, told ThinkAdvisor on Thursday that “We need to be careful to not get too focused on one detail of the broader Form CRS. The embedded ‘conversation starter’ questions in the required Form CRS format will perhaps provide RIA firms with a more natural opportunity than ever before to discuss their fiduciary obligation to clients.”

He points to Form CRS’ standard of conduct section for investment advisors, which “requires a heading which includes ‘What are your legal obligations to me when acting as my investment adviser?’”

This, King argued, “should provide a great opening for an RIA firm to further discuss their fiduciary responsibility as established by the Investment Advisers Act of 1940.”

He says that since RIAs are allowed to discuss fiduciary duties on different parts of the form, the wording change is “unlikely to have a significant impact on how RIA firms more broadly market and position themselves.”

John Baker, a partner at Stradley Ronon in Washington, added that while advisors “optionally can describe themselves as fiduciaries in their Form CRS relationship summaries, it may be difficult for them to do so and to provide the necessary plain English explanation in the space available.”

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