December 6, 2018
Contact:
IAA Vice President, Communications & Marketing Herb Perone.
Washington, D.C. (December 6, 2018) – The SEC’s investor testing of the proposed Form CRS relationship summary – a critical component of the Commission’s package of rule proposals relating to standards of conduct for investment advisers and broker-dealers – is substantially flawed and does not provide a reasonable basis for adopting Form CRS as proposed.
But in a comment letter to the SEC, the Investment Adviser Association (IAA) notes that the report on the investor testing conducted by the RAND Corporation does provide valuable insights into investor preferences critical to determining what elements would encourage retail investors to read – and be able to understand – the proposed disclosure form.
“In our August comment letter on the SEC’s proposals, we raised a number of significant concerns regarding Form CRS, including that it may in fact exacerbate the investor confusion it is meant to address,” said IAA President & CEO Karen Barr. “We commend the SEC for following through on its commitment to conduct investor testing and for publishing the results for public comment, as we had requested. The results underscore the need for significant changes to the proposed form to ensure it works as needed.”
The IAA writes that the RAND testing is substantially flawed in three important respects, which inherently limit its usefulness in determining whether proposed Form CRS will work as intended: it did not test for actual comprehension of proposed Form CRS; it tested only for the version of Form CRS applicable to dual registrants and did not test the proposed form for standalone brokers-dealers or investment advisers; and it did not test any alternative content or methods of disclosure.
The RAND testing does provide some valuable insights into how the proposed relationship summary could be improved, the IAA letter says. The underlying results of the RAND testing show that Form CRS should be simplified to enhance investors’ actual understanding and reduce investor confusion; the form should be streamlined to focus only on the most critical aspects of the relationships and services being offered by the broker or adviser to retail customers; and the SEC should leverage, rather than dilute, the robust disclosures currently provided by investment advisers in their Form ADV brochure.
Saying that “it is vital that (Form CRS) be effective,” to empower retail investors, the IAA has offered several mock-up relationship summaries – for standalone investment advisers, brokers and dual registrants – as more effective alternatives to Form CRS as currently proposed.
The IAA’s full comment letter is available here.
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