New SEC Rule Requires Form CRS by June 30th

June 09, 2020

Form CRS Describes “Best Interest”

Despite being labelled the “Best Interests Rule”, the final SEC rule does little to reduce the confusion over whether or not your advisor is working in your best interests. In fact, it just further stirs up the already muddy waters. The term “Best Interests” is used to describe the responsibilities of both Registered Investment Advisors (RIA) and broker dealers but the fiduciary standard only applies to the RIA. We previously wrote about the SEC’s new “Best Interests Rule” here and would like to revisit the subject. As we approach the new rule’s upcoming implementation date of June 30th, it seems as though our low expectations addressed our earlier post on the subject have been met. 

securities and exchange commission

Form CRS Notice

You will be receiving a notice from your broker or financial advisor (including us) in the next few weeks. The notice will contain a newly required disclosure form which the SEC has labeled a “Customer Relationship Summary” or “Form CRS.” The form is a distillation of the information which you have previously received about how your broker/advisor does business, including their responsibilities with respect to the advice they provide and the investment products they recommend. Here’s a link to Horizon’s Form CRS. With a nod to brevity, forms for SEC registered advisors are limited to two pages, while broker/dealers are limited to four pages, allowing for more disclosure. 

All Form CRS’s must include a section about the legal obligations of providing advice or products to the firm’s clients or customers, along with a description of any conflicts of interest that the advisor may have by providing their advice and products. When reviewing the Form CRS, it is important to read the fine print and understand the conflicts that may exist. For example, the amount of compensation an advisor receives for a recommendation can cause a conflict of interest.

Unfortunately, this attempt at clarification is likely to create additional confusion for many investors. It remains incumbent upon investors seeking advice to make sure that they understand what they are getting. Please be aware that “Best Interests” does not equal fiduciary obligation, although it certainly sounds like it.

Benefits of Fiduciary Advice

A fiduciary standard means that an advisor must act in the best interest of their clients. Fiduciaries are not allowed to place their own interests ahead of their clients. At Horizon (or one of our SEC registered brethren), you can expect to receive nothing less than fiduciary advice. How do you make sure that you are receiving fiduciary advice? Just ask! 

We have adopted and endorse the fiduciary practices recommended by the Institute for the Fiduciary Standard, an organization that provides information to educate both investors and advisors on what the fiduciary standard really means.

Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.