What Is a Form CRS? The Two-Page Summary Every Adviser Must Give You

What is a Form CRS, and why does an adviser have to give you one?

A Form CRS is a short summary, usually two pages, that SEC-registered investment advisers and broker-dealers that serve retail investors must hand you before you become a client. CRS stands for Client Relationship Summary. The SEC adopted the rule in 2019 and firms had to comply by June 30, 2020, because the full disclosure documents had grown so long that almost nobody read them. The summary was meant to be the part you actually read.

The rule is strict about what goes in it. The firm does not get to choose its own headings. Every Form CRS has to answer the same questions in the same order: what services the firm offers, what you will pay, how the firm and its people make money, what conflicts of interest that creates, and whether the firm or its people have a legal or disciplinary history. It also has to include a set of questions the SEC wrote for you to ask, called conversation starters.

Because every firm answers the same questions, a Form CRS is the one document that lets you compare two firms side by side. That is its whole purpose. A summary that skips a section, or buries the answer in legal language, has defeated the point of the rule.

What has to be in it?

The SEC lists the required sections, and the order is fixed. If a section is short or absent, it is worth asking the firm about, because the rule asks every firm to complete each one.

• What investment services and advice can you provide me? The types of accounts, whether the firm monitors your investments, whether it can trade without asking you first, and any account minimums.
• What fees will I pay? The main fee, how it is charged, and the other costs that come on top, like fund expenses and trading costs. The summary must say plainly that fees reduce the money you keep.
• What are your legal obligations to me when acting as my investment adviser? How does your firm make money and what conflicts of interest do you have? The firm has to name the ways it is paid besides your fee and say how that can pull on its advice.
• How do your financial professionals make money? Salary, a share of your fee, commissions, bonuses for bringing in clients.
• Do you or your financial professionals have legal or disciplinary history? A yes or no, and where to look it up.
• Conversation starters. Set questions the SEC wrote for you, printed in the summary so you can ask them in the first meeting.

How do you read one in five minutes?

Start with the fee section and look for a number you can turn into dollars. A summary that says fees are 'based on assets' without a rate, or 'negotiable' without a range, has told you nothing you can use. Then read the conflicts section and count how many ways the firm says it gets paid besides your fee. Commissions, payments from product companies, free research from brokers, and referral fees are the common ones. Each one is a reason the advice could tilt away from you, and the summary is supposed to say so in plain words.

Then check the disciplinary answer. A 'yes' is not the end of the conversation, but it means you should read the longer filing before you sign. Finally, look at the conversation starters and pick two. Asking them is the point; the SEC put them there because firms answer differently in person than on paper.

What does Fidelon check in a Form CRS?

On every investment adviser's page, Fidelon scores the firm's Form CRS on its own, separately from the firm's main score, and shows the numbers without a grade word. We check four things: whether it includes everything the SEC requires, whether it explains how the firm's conflicts affect you, whether you can tell what you would pay, and whether it is written in plain English. Each is a number out of 100.

A Form CRS can only add to a firm's main score, never subtract. Every investment adviser is graded on the same measurements, Form ADV Part 1 and the brochure, and that number cannot go above 90. A Form CRS is the one extra measurement: when the four numbers average over 60 it adds points, up to 10 for a perfect summary, so a firm that explains itself well to clients can reach 100. A firm with no Form CRS stays at 90 or below, and a firm that gives us its summary is scored on the same yardstick as everyone else. Under each number that comes in under 60, the page tells you what to ask the advisor so the gap becomes a question for your first meeting, not a mystery.

Where can you get a firm's Form CRS?

A firm that serves retail investors must give it to you before or at the time you open an account, and must post it on its website if it has one. It is also filed with the SEC as Part 3 of Form ADV, and anyone can read it for free. State-registered advisers, and firms with no retail clients, are not required to file one, which is why some firm pages on Fidelon say the summary is not required rather than showing numbers.

If a firm with retail clients cannot produce its Form CRS when you ask, ask when it will be available; the rule requires the firm to have one.