The SEC has been seeing a fair share of controversy over their recent advice reforms. The latest? Advisers cannot call themselves \ fiduciaries in their conduct description in the Form CRS (Customer Relationship Summary), a two-pager that must be shown to clients.
The SEC’s ruling states:
For example, we are substantially revising our approach to disclosing standard of conduct and conflicts of interest to make this information clearer to retail investors, including (among other changes) eliminating the word ‘fiduciary’ and requiring firms… to use the term ‘best interest’ to describe their applicable standard of conduct.
The Form CRS is meant to show clients what their adviser charges and for what. Some advisers took the ruling to mean they could not call themselves fiduciaries in the Form CRS at all. However, an SEC spokesperson said this not so, and advisers can call themselves fiduciaries, just not in a singular conduct description section of the Form CRS
According to InvestmentNews:
Investment advisers are free to describe themselves as fiduciaries and to market that standard of care to clients, despite a prohibition on the term in one part of a new Securities and Exchange Commission Disclosure form.
The conduct standard of the Form CRS is the only place where advisers must say they are working in the client’s best interest, as opposed to a fiduciary.
Karen Barr, the Investment Adviser Association’s president and CEO, stated, “[Advisers] may still use the term ‘fiduciary’ in Form CRS to further elaborate on the duties owed to their clients…”
The reason for swapping “best interest” for “fiduciary?” According to Barr, to simplify the language.
This isn’t the first bit of heat the SEC’s new reforms are causing. This confusion is supposedly why certain states such as New Jersey claim to need their own laws to truly establish conduct standards.
