Form CRS (Client Relationship Summary) and Regulation Best Interest (Reg BI), new regulations adopted by the Securities and Exchange Commission (SEC) a little over a year ago, became effective June 30, 2020. SEC-registered Broker dealers and investment advisors must deliver Form CRS to retail prospects and existing retail clients when a new investment recommendation is made. Form CRS details specific information regarding the services provided and nature of the proposed relationship, costs and fees, conflicts of interest, and the firm’s standard of conduct.
Reg BI created a new standard of conduct for broker-dealers, requiring that they act in a retail client’s best interest when recommending securities and investment strategies to them. Prior to the approval of Reg BI, broker-dealers were held only to a suitability standard. The suitability standard gives brokers the most leeway, simply requiring that investment products recommended by them fit a client’s investment objectives and time horizon. This meant that brokers could earn money on commissions from various financial products and even promote products with higher commissions, rather than recommend what is in their clients’ best interests, irrespective of the broker’s interests.
You may be wondering, “Is my advisor acting in my best interest?”. While not subject to Reg BI, chances are, your advisor is already meeting and existing “fiduciary” standard, requiring that they act in your best interest, placing your interest’s above their own. Advisors have a “duty of care” to disclose conflicts of interest and monitor your investments in light of your financial situation.
How do you know whether your advisor is acting as a fiduciary? Ask them! A period of economic volatility, like the one we are in currently, can have significant, long-term impacts on your financial plans. Now is a good time to evaluate your current financial advisor and determine if they and their firm are a good match for you. Form CRS should provide you with question prompts to ask your advisor to ensure they are acting in your best interest.
Check out Manning & Napier’s Form CRS for more information, and conversation starters for you and your advisor.
Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
