PLANADVISER - March/April 2020 - 38

ERISA vista
Fred Reish and Joan Neri
New Obligation to the SEC
Client relationship summaries will be needed to do rollovers
ADVISER QUESTION: I'm an investment adviser
registered
with the Securities and Exchange Commission [SEC].
I provide investment advice to individuals about rollovers
from 401(k) plans or transfers from existing IRAs [individual
retirement accounts] to IRAs that I manage. Will I have to
provide a client
relationship summary [Form CRS]
advice, and, if so, what does that entail?
ANSWER: Yes. The Form CRS disclosure obligation will be
triggered when you provide rollover advice to an individual
who comes to you as a retail investor. There are two disclosures
for rollovers. One is for new clients and the other is for
existing clients, each with specific delivery requirements.
Advisers should evaluate
how they practice giving
rollover advice and integrate
Form CRS delivery into their
processes.
Usage and Filing Deadlines
The Form CRS is a new disclosure obligation that must be
filed with the SEC between this May 1 and June 30 and delivered
to retail investors. It's intended to provide them with
a succinct-i.e., two-page-high-level overview of a registered
investment advisory (RIA) firm's services, fees, costs,
standards of conduct, conflicts of interest and disciplinary
history to help them decide whether to engage the firm.
For purposes of this disclosure, a retail investor is defined
as a " natural person, or the legal representative of such
natural person, who seeks to receive or receives services
primarily for personal, family or household purposes. "
In its Interpretation Regarding Standard of Conduct for
Investment Advisers, the SEC explains that retirement is a
personal, family or household purpose and that retirement
plan participants fall within the definition of a natural
person. As a result, the Form CRS disclosure rules will apply
to plan participants. However, Form CRS does not need
to be delivered to a plan fiduciary seeking services for an
employer plan, except in the case of small Keogh plans.
When an adviser recommends a rollover, the best interest
standard of conduct applies to that advice, and this new
for this
disclosure obligation will also apply. The SEC interpretation
clarified that investment advisers have a duty to provide
advice that is in the best interest of the retail investor. For
rollovers, this duty applies to advice both about the type of
account the assets are rolled into and the investments or
investment strategy for the rolled-over assets. When you give
rollover advice to either new or existing clients, the Form CRS
disclosure obligation will apply.
For new clients, the form must be delivered before or
at the time you enter into an investment advisory contract
with them. However, for retail investors who, on June 30, are
existing clients, the form must be delivered within 30 days of
the date your firm is first required to file it with the SEC.
But what if you're recommending a rollover to an existing
client who has already received the form? The answer is that
another Form CRS must be given to that individual. That
requirement is based on the SEC's view that a rollover recommendation
is separate and significant from the services
already being provided to that client and, therefore, warrants
a new CRS delivery.
Delivery Methods
If any information in the Form CRS becomes materially inaccurate,
you must update the form and file it with the SEC
within 30 days. You'll need to notify retail investor clients
within 60 days after the updates are required to be made.
The form may be sent in paper format or electronically,
consistent with SEC guidance on electronic delivery. If it is
delivered electronically, it must be presented prominently,
as a direct link or in the body of an email or message, and
must be easily accessible for retail investors. The form may
be delivered separately or along with information that you
already provide, such as the annual Form ADV [Uniform
Application for Investment Adviser Registration] update. If
delivered as part of a package of documents, it must be the
document on top.
Advisers should evaluate how they practice giving rollover
advice and integrate Form CRS delivery into their processes.
Fred Reish is chairman of the financial services ERISA practice at law
firm Faegre Drinker Biddle & Reath LLP. A nationally recognized expert in
employee benefits law, Fred has written four books and many articles on
ERISA, pension plan disputes and audits by the IRS and Department of
Labor. Joan Neri is counsel in the firm's financial services ERISA practice,
where she focuses on all aspects of ERISA compliance affecting
registered investment advisers and other plan service providers.
38 | planadviser.com March-April 2020 Art by Tim Bower
http://www.planadviser.com
PLANADVISER - March/April 2020

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