Julie Jason: New tool for investors is on its way.
While news reports are focused on the pandemic, the economy and important social issues, a silent evolution in the financial services industry is underway. By the end of this month, investors will have available an easy way to distinguish between financial professionals, thanks to the U.S. Securities and Exchange Commission. The SEC regulates the financial services industry. What is this new tool? It’s called the CRS, which stands for “customer relationship summary”; you will be receiving a copy from your “broker” or “adviser” (there is a difference) very soon. If you are in the market for a new broker or adviser, the CRS will help you shop. That’s the intent behind the adoption of the CRS.
Every broker or adviser that you can do business with must provide you with a CRS that follows a recipe: a mandated question-andanswer format presented in a prescribed order.
What’s behind this mandate? The SEC’s goal is to “promote consistency and comparability among different relationship summaries.”
What’s in the document? A summary of fees and costs; a description of ways the firm makes money; conflicts of interest and standards of conduct; financial professionals’ compensation; and whether financial professionals have reportable disciplinary history.
The CRS must also contain mandated “conversation starters,” which are intended to help investors “dialogue with their financial professionals about their individual circumstances.”
Take this example: “Given my financial situation, should I choose a brokerage service (or an investment advisory service)? Why or why not?”
And these examples:
1 “How will you choose investments to recommend to me?”
1 “What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?”
1 “Help me understand how ... fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?”
1 “How might your conflicts of interest affect me, and how will you address them?”
This last question is probably the most difficult for individuals to understand — after all, what is a conflict? The reason to ask the question, and to listen to the answer carefully, is this: The question “underscores for retail investors that investment advisers and brokerdealers have conflicts that may create incentives to put their interests ahead of the interests of their retail clients and customers,” quoting the SEC.
Potential conflicts can be proprietary products, thirdparty payments, revenue sharing, principal trading and the payment of fees to someone to refer clients, to name a few.
There are two more conversation starters:
1 “As a financial professional, do you have any disciplinary history? For what type of conduct?”
1 “Who is my primary contact person? Is he or she a representative of an investment adviser or a brokerdealer? Who can I talk to if I have concerns about how this person is treating me?”
These new disclosure documents will be very important for you to read and discuss with your financial professional. They will likely open up new avenues to explore when considering your needs. And they will help you when you are shopping for a new financial professional, especially in times of transition, such as a divorce, change of a job or approaching retirement.
Finally, getting back to the point that there are differences between investment advisers and brokers, I recommend watching a video posted on the SEC.gov website by SEC Chairman Jay Clayton on that topic, which you will find at .youtube.com/ watch?v=FZNCce1spHQ
You’ll also find details on the CRS at Investor.gov/CRS , a page on the SEC’s investor education website that will offer educational information about investment advisers, broker-dealers and individual financial professionals.
When you receive your CRS from the brokerage firms and advisers you work with, let me know what you think. Are they helpful? Do they raise questions? Write to me at readers@juliejason.com. Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2018 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.