The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide investors information about the customer or client “relationship summary” (also called Form CRS and Form ADV Part 3) that broker-dealers and investment advisers are required to provide when they offer services to retail investors.
Brokers and advisers differ in the types of services they provide and how you pay for them. It is important to make sure your financial professional provides the services you expect. In order to help you, the retail investor, understand the differences between brokers and advisers—including, for example, the services they offer and the fees they charge—SEC rules require them to provide you a “relationship summary.” The relationship summary must be written in plain English, be concise, and provide certain meaningful and accurate information about the firm, its financial professionals and the services it offers retail investor clients and customers.
Investors can learn more about the relationship summary at Investor.gov/CRS.
What can I learn from a relationship summary?
A firm’s relationship summary tells you about:
- The types of services a firm offers. Specifically, whether the firm offers brokerage services, advisory services or both, and additional details on those services. For example, buying and selling securities, providing recommendations, financial planning or wrap fee programs. A discussion of these services should include a description of whether and/or how the firm monitors client investments, a description of the investment authority the firm accepts, a description of limitations on the investments the firm offers, and account minimums or other requirements to establish or maintain a relationship;
- The fees and costs you will have to pay for those services. For example, commissions, ongoing asset-based fees, fixed fees, wrap fee program fees, or other direct fee arrangements, and also other fees and costs that you will pay, directly or indirectly (including custodian fees, account maintenance fees, and/or other transactional fees and product-level fees). This discussion should include how frequently these fees and costs will be assessed and the conflicts of interest they create;
- Conflicts of interest a broker or adviser has. These include conflicts caused by the ways in which firms make money from providing services and investments to retail investors. For example, compensation the firm receives from third parties when it recommends or sells certain investments or compensation the firm receives for investments that are issued, sponsored, or managed by the firm or its affiliates.
- The required standard of conduct associated with the services a firm offers. When a firm provides you with a recommendation as your broker-dealer or acts as your investment adviser, it has to act in your best interest and not put its interests ahead of yours.
- Whether a firm and its financial professionals have reportable legal or disciplinary history. For example, being charged with any felony or certain misdemeanors, like those related to investments or an investment-related business. Firms must indicate where investors can conduct further research on these events.
- Key questions (conversation starters) to ask your financial professional. These will help you learn about the services, fees, and other details of the financial professional to see if they are right for you. More on these questions are below.
- Links or other reference to more detailed information. For example, more detailed information about services, fees and costs, conflicts of interest and disciplinary history, as well as a telephone number where you can request information.
Each firm’s relationship summary will have similarly worded headings and cover generally the same topics in the same order to make it easy for you to compare firms.
What questions should I ask my financial professional?
We always recommend confirming whether a financial professional is registered using the free search tool at Investor.gov. After confirming that a financial professional is registered, here are some key questions to ask about your individual financial situation. We call them “conversation starters” and you can expect to see these in your relationship summary.
- Given my financial situation, should I choose an investment advisory service? Should I choose a brokerage service? Should I choose both types of services? Why or why not?
- Help me understand how these fees and costs might affect my investments. If I give you $1,000 to invest, how much will go to fees and costs, and how much will be invested for me?
- How will you choose investments to recommend to me?
- What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?
- How might your conflicts of interest affect me, and how will you address them?
- As a financial professional, do you have any disciplinary history? For what type of conduct?
- Who is my primary contact person? Is he or she a representative of an investment adviser or a broker-dealer? Who can I talk to if I have concerns about how this person is treating me?
How do I find a relationship summary?
SEC rules require advisers and brokers to provide new, prospective, and existing retail customers and clients with a relationship summary. You can also find a firm’s relationship summary using the “Check Out Your Investment Professional” search tool on Investor.gov. To begin your search, select “Firm” on the far left hand side and then type in the name of the firm. After you find the firm you are looking for, click on the button for “Get Details.” Then, click on the “Part 3 Relationship Summary” button.