By Paul DiBlasi, Product Development lead
Like those early websites, do-it-yourself distribution of your customer relationship summary (Form CRS) may appear simple, but it’s operationally complex. The SEC acknowledges this in its April 7th Risk Alert, which states it will focus its exams on the operational effectiveness of a broker’s procedures including the process of delivering a Form CRS. The SEC will begin conducting its exams this year. Any break in a firm’s Form CRS distribution process can cause reputational damage, fines and lost business.
Why Form CRS Delivery is Complex
The complexity of Form CRS delivery is due to firms having to support multiple distribution channels, provide proof of delivery and maintain detailed records.
The SEC recommends that Form CRS distribution mirror how each investor requested information about the firm, while preserving investors’ rights to choose the channel they prefer—paper or electronic. When mailing Form CRS, brokers can send it by itself or include it in a package of documents, but it must be the first document in the package. If delivery is electronic, it must be presented “prominently” as a direct link or in the body of an email or message and must be “easily accessible” for investors.
Proof of delivery is required regardless of the distribution method. The challenge for brokers is that the Access Equals Delivery rule does not apply. Evidence to show delivery (and consent to electronic delivery) is required.
The recordkeeping requirements of Form CRS is also complex in addition to costly. Brokers must maintain a:
- Record of every Form CRS each investor received and the date of receipt
- Copy of every Form CRS created by the firm
All this documentation must be retained for six years and therefore, could significantly increase storage costs for brokers with hundreds of thousands or millions of accounts.
Ad Hoc Form CRS Delivery: Heightening Risk
Believe it or not, your initial Form CRS delivery—the one you are working on now—is the simplest one you will do because you are sending the same document to every client by the same date. However, just like developing a website, Form CRS delivery gets more complicated over time.
For example, the ad hoc delivery of Form CRS increases operational, regulatory and business risks. Why? First, the recipients are different. Instead of blasting Form CRS to all clients, it needs to be sent just to specific clients and prospects. Second, and most critical, are the activity-based triggers that require a Form CRS to be sent:
- Recommending an investor roll over assets from a retirement account
- Opening a new account that is different from the client’s existing accounts
- Providing a new brokerage service or investment
- Recommending a type of account (brokerage, advisory)
- Opening an account for an investor
- Placing an order for an investor
Capturing these unpredictable activities is what makes ad hoc delivery risky.
Brokers cannot engage in a variety of new business activities with existing clients and prospects until a Form CRS is delivered. To ensure a broker is complying with these requirements, SEC exams will require brokers to provide a list of all new accounts for each individual, the date it was opened, the type of account, if the assets came from a retirement account and the date the client received Form CRS.
Taking too long to deliver Form CRS can hurt brokers’ revenue, but acting prematurely can damage their greatest asset, their reputation.
Choosing Your Technology Partner
Partnering with a technology company is the best way for brokers to ensure their Form CRS delivery is efficient, compliant and auditable. Tackling distribution on their own is a risk to their top and bottom lines. This is especially true now, as IT is consumed with projects to help firms function in a COVID-19 world.
When selecting a provider, be sure it is accustomed to working in a regulated environment. The core competency of distributing a Form CRS and post-trade documents such as a prospectus are the same: timely delivery of a specific regulatory-mandated document, that was triggered by an event, to a shareholder. So, a technology company with expertise in investor communications is optimal.
Additional tips for identifying the right technology partner:
- Centralized management and end-to-end visibility of delivery. You want a platform that tracks the status of every delivery, manage each investor’s delivery preferences and easily produce proof of delivery for forms distributed both electronically and on paper.
- Technical sophistication to handle the complexities of ad hoc Form CRS distribution. You want a platform that recognizes events that trigger the requirement for a Form CRS, and automatically distributes it via the correct channel. A platform that can easily ingest data from a broker’s systems (CRM, financial planning) and enables the configuration of distribution rules is ideal.
- A flexible and open platform. You want a platform that can distribute Form CRS via multiple delivery channels, as a stand-alone piece or with a package of documents and on a set date or ad hoc basis.
- Proof of delivery electronically and on paper must be just as easy to produce for internal stakeholders as for regulators. You want a platform that can quickly produce a receipt of acceptance from the investor’s server or the audit trail to the investor’s home post office.
- Turn a regulatory obligation into a brand-building activity. Bonus points if your partner’s capabilities include adding your logo to emails and envelopes used to distribute Form CRS.
One final note: Let your advisors know about the technology that gives them visibility into your Form CRS distribution process. Enabling them to verify, in real-time, when a Form CRS was sent to an investor will increase advisor satisfaction and retention.
For more information on how you can execute an efficient, compliant and auditable Client Relationship Summary, download Form CRS Distribution and Management.
Paul DiBlasi leads product management for Mediant. He has also held senior roles in product marketing and product management at firms whose technology helps financial firms succeed including NICE Actimize, Intralinks, IPC and eFront. Paul holds a BA from Clemson University and an MBA from Baruch College.