Julie Jason: Form CRS helpful for investors.
The COVID-19 pandemic in 2020 brought a halt to numerous activities, but it did not prevent a surge of both new and experienced individual investors from getting involved in the stock market, according to a recent FINRA study. FINRA, the Financial Industry Regulatory Authority, regulates brokerage firms.
However, the study pinpointed a problem to solve: Improvement is needed in investment knowledge.
FINRA Investor Education Foundation’s president, Gerri Walsh, said, “(L)ow levels of investment knowledge among all types of investors in the sample — new and experienced — underscore the importance of educating investors about risk and reward, costs and fees, tax consequences of investing and other key concepts.”
As a proponent of financial literacy education, I see this as an opportunity to spread the word about educational resources.
For example, I am a strong supporter of Form CRS, a new Securities and Exchange Commission disclosure document. As of June 30, 2020, the SEC requires brokerage firms and registered investment advisers to provide retail investors with a two-page (or four-page) customer relationship summary, known as Form CRS.
The FINRA survey addressed Form CRS by asking: “In 2020, your brokerage firm sent you a short document describing the firm’s services, fees, costs, conflicts of interest, disciplinary history, standard of conduct and other information. Which of the following statements most accurately describes what you did with this document?”
“I read everything carefully”
“I read most but not all of it”
“I skimmed it quickly” “I didn’t read any of it” “I don’t remember receiving it”
A plurality of all investors (33% of “New Investors,” 37% of “Experienced Entrants” and 40% of “Holdover Account Owners”) reported they skimmed Form CRS.
New Investors were defined as those who opened at least one nonretirement investment account in 2020 and did not own a taxable investment account before that year.
Experienced Entrants opened a taxable investment account during 2020 and also owned one before 2020, while Holdover Account Owners continued a taxable investment account that was opened before 2020, but did not open a new one during 2020.
According to the study, when it came to the CRS: “(A) greater percentage of Experienced Entrants (18%) and New Investors (17%) reported reading everything carefully when compared to Holdover Account Owners (14%). Interestingly, 14% of Holdover Account Owners reported not reading any of the form, while just 8% of both New Investors and Experienced Entrants reported not reading any of it.”
The study also had a comparison of the level of attention investors gave to Form CRS with how much they gave to investment disclosures. About a third of all the groups (33% of New Investors, 30% of Experienced Entrants and 29% of Holdover Account Owners) said they “either always or often reviewed disclosure information about specific investments prior to making a purchase. By comparison, 39% of New Investors, 43% of Experienced Entrants, and 34% of Holdover Account Owners reported they either read everything carefully or read most (but not all) of Form CRS.”
At this point, if you have not read Form CRS for the brokerage firm or investment adviser you do business with, now is the time. It will take you all of 10 minutes to read it. If you don’t have the CRS, log onto the firm’s website for a copy and email me if you can’t find it (readers@juliejason.com).
Another educational resource is FINRA itself at tinyurl.com/rp3uken.
To read FINRA’s report on the survey, “Investing 2020: New Accounts and the People Who Opened Them,” go to tinyurl.com/ z5ispko3.
Finally, I have a favor to ask. I’m wondering if you have read your firm’s CRS. Share your experience by taking my survey here: tinyurl.com/y6bbuo8a. 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 2020 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.