[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Rules and Regulations]
[Pages 33492-33669]
[FR Doc No: 2019-12376]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 240, 249, 275, and 279

[Release Nos. 34-86032; IA-5247; File No. S7-08-18]
RIN 3235-AL27

Form CRS Relationship Summary; Amendments to Form ADV

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'' or
the ``SEC'') is adopting new rules and forms as well as amendments to
its rules and forms, under both the Investment Advisers Act of 1940
(``Advisers Act'') and the Securities Exchange Act of 1934 (``Exchange
Act'') to require registered investment advisers and registered broker-
dealers (together, ``firms'') to provide a brief relationship summary
to retail investors. The relationship summary is intended to inform
retail investors about: The types of client and customer relationships
and services the firm offers; the fees, costs, conflicts of interest,
and required standard of conduct associated with those relationships
and services; whether the firm and its financial professionals
currently have reportable legal or disciplinary history; and how to
obtain additional information about the firm. The relationship summary
will also reference Investor.gov/CRS, a page on the Commission's
investor education website, Investor.gov, which offers educational
information to investors about investment advisers, broker-dealers, and
individual financial professionals and other materials. Retail
investors will receive a relationship summary at the beginning of a
relationship with a firm, communications of updated information
following a material change to the relationship summary, and an updated
relationship summary upon certain events. The relationship summary is
subject to Commission filing and recordkeeping requirements.

DATES:
    Effective dates: The rules and form are effective September 10,
2019.
    Compliance dates: The applicable compliance dates are discussed in
section II.D.

FOR FURTHER INFORMATION CONTACT: : Gena Lai, James McGinnis, Elizabeth
Miller, Sirimal R. Mukerjee, Olawal[eacute] Oriola, Alexis Palascak,
Benjamin Tecmire, Roberta Ufford, Jennifer Porter (Branch Chief),
Investment Adviser Regulation Office at<PHONE_NUMBER> or
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exception occurred on : 2019-12376.htm
sec.gov">[email protected]sec.gov; Benjamin Kalish and Parisa Haghshenas (Branch Chief),
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exception occurred on : 2019-12376.htm
Chief Counsel's Office at<PHONE_NUMBER> or sec.gov">[email protected]sec.gov, Division of
Investment Management; Alicia Goldin, Emily Westerberg Russell, Lourdes
Gonzalez (Assistant Chief Counsel), Office of Chief Counsel, Division
exception occurred on : 2019-12376.htm
exception occurred on : 2019-12376.htm
of Trading and Markets, at<PHONE_NUMBER> or sec.gov">[email protected]sec.gov,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting new rule 17 CFR
275.204-5 [rule 204-5] under the Investment Advisers Act of 1940 [15
U.S.C. 80b] \1\ and is adopting amendments to Form ADV to add a new
Part 3: Form CRS [17 CFR 279.1] under the Advisers Act. The Commission
is also adopting amendments to rules 17 CFR 275.203-1 [rule 203-1], 17
CFR 275.204-1 [rule 204-1], and 17 CFR 275.204-2 [rule 204-2] under the
Advisers Act. The Commission is adopting new rule 17 CFR 240.17a-14
[rule 17a-14] \2\ under the Securities

Exchange Act of 1934 and new Form CRS [17 CFR 249.641] under the
Exchange Act. The Commission is also adopting amendments to rules 17
CFR 240.17a-3 [rule 17a-3] and 17 CFR 240.17a-4 [rule 17a-4] under the
Exchange Act. The Commission is also adopting amendments to rule 17 CFR
200.800 [rule 800].
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the
Advisers Act, or any paragraph of the Advisers Act, we are referring
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we
refer to rules under the Advisers Act, or any paragraph of these
rules, we are referring to Title 17, part 275 of the Code of Federal
Regulations [17 CFR 275], in which these rules are published.
    \2\ 15 U.S.C. 78a. Unless otherwise noted, when we refer to the
Exchange Act, or any paragraph of the Exchange Act, we are referring
to 15 U.S.C. 78a, at which the Exchange Act is codified, and when we
refer to rules under the Exchange Act, or any paragraph of these
rules, we are referring to Title 17, part 240 of the Code of Federal
Regulations [17 CFR 240], in which these rules are published.
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Table of Contents

I. Introduction
II. Form CRS Relationship Summary
    A. Presentation and Format
    1. Limited Prescribed Wording
    2. Standard Question-and-Answer Format and Other Presentation
Instructions
    3. Electronic and Graphical Formats, and Layered Disclosure
    4. Conversation Starters
    5. Presentation of Relationship Summaries by Dual Registrants
and Affiliated Firms
    B. Items
    1. Introduction
    2. Relationships and Services
    3. Summary of Fees, Costs, Conflicts, and Standard of Conduct
    4. Disciplinary History
    5. Additional Information
    6. Proposed Items Omitted in Final Instructions
    C. Filing, Delivery, and Updating Requirements
    1. Definition of Retail Investor
    2. Filing Requirements
    3. Delivery Requirements
    4. Updating Requirements
    D. Transition Provisions
    E. Recordkeeping Amendments
III. Disclosures About a Firm's Regulatory Status and a Financial
Professional's Association
IV. Economic Analysis
    A. Introduction
    B. Baseline
    1. Providers of Financial Services
    2. Investor Perceptions about the Marketplace for Financial
Services and Disclosures
    3. Investor Responses to Disclosures About Financial
Professionals and Firms
    C. Broad Economic Considerations
    D. Economic Effects of the Relationship Summary
    1. Retail Investors
    2. Broker-Dealers and Investment Advisers (Registrants)
    3. Impact on Efficiency, Competition, and Capital Formation
    4. Alternatives to the Relationship Summary
V. Paperwork Reduction Act Analysis
    A. Form ADV
    1. Respondents: Investment Advisers and Exempt Reporting
Advisers
    2. Changes in Average Burden Estimates and New Burden Estimates
    3. Total Revised Burden Estimates for Form ADV
    B. Rule 204-2 Under the Advisers Act
    1. Changes in Burden Estimates and New Burden Estimates
    2. Revised Annual Burden Estimates
    C. Rule 204-5 Under the Advisers Act
    1. Respondents: Investment Advisers
    2. Initial and Annual Burdens
    D. Form CRS and Rule 17a-14 Under the Exchange Act
    1. Respondents: Broker-Dealers
    2. Initial and Annual Burdens
    E. Recordkeeping Obligations Under Exchange Act Rule 17a-3
    F. Record Retention Obligations Under Exchange Act Rule 17a-4
    1. Changes in Burden Estimates and New Burden Estimates
    2. Revised Annual Burden Estimates
VI. Final Regulatory Flexibility Analysis
    A. Need for and Objectives of the Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Rule and Rule Amendments
    1. Investment Advisers
    2. Broker-Dealers
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    1. Initial Preparation and Filing of the Relationship Summary
    2. Delivery and Updating Requirements Related to the
Relationship Summary
    3. Recordkeeping Requirements Related to the Relationship
Summary
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Authority
Text of the Rule and Form

I. Introduction

    Individual investors rely on the services of broker-dealers and
investment advisers when making and implementing investment decisions.
Research continues to show that retail investors are confused about the
services, fees, conflicts of interest, and the required standard of
conduct for particular firms, and the differences between broker-
dealers and investment advisers.\3\ We are adopting a new set of
disclosure requirements designed to reduce retail investor confusion in
the marketplace for brokerage and investment advisory services and to
assist retail investors with the process of deciding whether to engage,
or to continue to engage, a particular firm \4\ or financial
professional and whether to establish, or to continue to maintain, an
investment advisory or brokerage relationship.\5\ Firms will deliver to
retail investors a customer or client relationship summary
(``relationship summary'' or ``Form CRS'') that provides succinct
information about the relationships and services the firm offers to
retail investors, fees and costs that retail investors will pay,
specified conflicts of interest and standards of conduct, and
disciplinary history, among other things.\6\ The relationship summary
will also link to Investor.gov/CRS on the Commission's investor
education website, Investor.gov, which offers educational information
to investors about investment advisers, broker-dealers, and individual
financial professionals and other materials.
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    \3\ Brian Scholl, et al., SEC Office of the Investor Advocate
and RAND Corporation, The Retail Market for Investment Advice
(2018), available at https://www.sec.gov/comments/s7-07-18/s70718-4513005-176009.pdf (``OIAD/RAND'') (finding that participant
understanding of types of financial services and financial
professionals continues to be low). The SEC's Office of Investor
Advocate and the RAND Corporation prepared this research report
regarding the retail market of investment advice prior to, and
separate from, our rulemaking proposal. This report was included in
the comment file at https://www.sec.gov/comments/s7-07-18/s70718-4513005-176009.pdf.
    \4\ For purposes of this release, the term ``firm'' includes
sole proprietorships and other business organizations that are
registered as (i) an investment adviser under section 203 of the
Advisers Act; (ii) a broker-dealer under section 15 of the Exchange
Act; or (iii) a broker-dealer under section 15 of the Exchange Act
and as an investment adviser under section 203 of the Advisers Act.
    \5\ The requirements adopted here, with modifications as
discussed in this release, were proposed in Form CRS Relationship
Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the use of Certain Names or
Titles, Investment Advisers Act Release No. 4888, Exchange Act
Release No. 83063 (Apr. 18, 2018) [83 FR 23848 (May 23, 2018)]
(``Proposing Release'').
    \6\ For investment advisers registered with the Commission, a
new Form ADV Part 3 will describe the requirements for the
relationship summary and it will be required by amended rule 203-1.
For broker-dealers, Form CRS will be required by new rule 17a-14
under the Exchange Act. When we refer to Form CRS in this release,
we are referring to Form CRS for both broker-dealers and investment
advisers registered with the Commission. We are also adopting
conforming technical and clarifying amendments to the General
Instructions of Form ADV.
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    We proposed a version of a relationship summary on April 18,
2018.\7\ The proposed relationship summary would have required
information separated into the following sections: (i) Introduction;
(ii) the relationships and services the firm offers to retail
investors; (iii) the standard of conduct applicable to those services;
(iv) the fees and costs that retail investors will pay; (v) comparisons
of brokerage and investment advisory services (for standalone broker-
dealers and investment advisers); \8\ (vi) conflicts of

interest; (vii) where to find additional information, including whether
the firm and its financial professionals currently have reportable
legal or disciplinary history and who to contact about complaints; and
(viii) key questions for retail investors to ask the firm's financial
professional. The proposed instructions required firms to use
standardized headings in a prescribed order throughout the disclosure
and respond to the required items by using a mix of language prescribed
in the instructions as well as their own wording in describing their
services and offerings. The proposal limited the relationship summary
to four pages or an equivalent length if in electronic format and also
included three examples of how the relationship summary might look for
a standalone broker-dealer, a standalone investment adviser, and a dual
registrant.
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    \7\ See Proposing Release, supra footnote 5.
    \8\ We proposed definitions for ``standalone investment
adviser'' and ``standalone broker-dealer''. See Proposed General
Instruction 9.(f) to Form CRS. Given the streamlining and other
revisions to the Form CRS instructions relative to the proposal, we
believe that these proposed definitions are no longer needed and
therefore are not adopting them. We use the terms throughout this
release, however, for the avoidance of doubt, to indicate broker-
dealers and investment advisers that are not dual registrants. We
are adopting the proposed definition for ``dual registrant''
substantially as proposed. We are adding language in the definition
of dual registrant in the final instructions to clarify that a
dually registered firm is not considered a dual registrant for
purposes of Form CRS and the final instructions if the dually
registered firm does not provide both investment advisory and
brokerage services to retail investors. See General Instruction 11.C
to Form CRS; see infra footnotes 201-202 and accompanying text.
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    To better understand retail investors' views about the disclosures
designed for them, the Commission engaged in broad outreach to
investors and other market participants. As described further
throughout the release, the Commission received substantial feedback on
the proposed relationship summary in several forms. We received comment
letters in connection with the Proposing Release from a variety of
commenters including individual investors, consumer advocacy groups,
financial services firms, investment professionals, industry and trade
associations, state securities regulators, bar associations, and
others.\9\ Several of those commenters provided alternative mock-ups to
illustrate their suggestions. Additionally, some commenters submitted
reports of surveys or studies that they had conducted or engaged third
parties to conduct in connection with the proposal. The Commission also
received input and recommendations from its Investor Advisory Committee
(``IAC'') on the proposed relationship summary to improve its
effectiveness.\10\
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    \9\ The comment letters are available in the comment file at
https://www.sec.gov/comments/s7-08-18/s70818.htm.
    \10\ See Investor Advisory Committee, Recommendation of the
Investor as Purchaser Subcommittee Regarding Proposed Regulation
Best Interest, Form CRS, and Investment Advisers Act Fiduciary
Guidance (Nov. 7, 2018), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac110718-investor-as-purchaser-subcommittee-recommendation.pdf. (``IAC Form CRS Recommendation'').
The majority of the IAC recommended that the Commission conduct
usability testing of the proposed Form CRS disclosures and, if
necessary, revise them to ensure that they enable investors to make
an informed choice among different types of providers and accounts.
In addition, when considering potential Commission rulemaking under
section 913 of the Dodd-Frank Act, the IAC also recommended that the
Commission adopt a uniform, plain English disclosure document to be
provided to customers and potential customers of broker-dealers and
investment advisers at the start of the engagement, and periodically
thereafter, that covers basic information about the nature of
services offered, fees and compensation, conflicts of interest, and
disciplinary record. See Investor Advisory Committee, Recommendation
of the Investor Advisory Committee: Broker-Dealer Fiduciary Duty
(Nov. 22, 2013), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/fiduciary-duty-recommendation-2013.pdf, as amended in https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac112213-minutes.htm (``IAC Broker-Dealer
Fiduciary Duty Recommendations''). We discuss these IAC findings and
recommendations in several sections below. Under section 39 of the
Exchange Act, the Commission is required to review, assess, and
disclose the action, if any, the Commission intends to take with
respect to the findings and recommendations of the IAC; however, the
Commission is not required to agree or to act upon any such findings
or recommendations. See 15 U.S.C. 78pp.
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    The Commission also solicited comments from individual investors
through a number of forums in addition to the traditional requests for
comment in the Proposing Release. The Commission used a ``feedback
form'' designed specifically to solicit input from retail investors
with a set of questions requesting both structured and narrative
responses, and received more than 90 responses from individuals who
reviewed and commented on the sample proposed relationship summaries
published in the proposal.\11\ Seven investor roundtables were held in
different locations across the country to solicit further comment from
individual investors on the proposed relationship summary, and we
received in-person feedback from almost 200 attendees in total.\12\
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    \11\ The feedback forms are available in the comment file at
https://www.sec.gov/comments/s7-08-18/s70818.htm (``Feedback
Forms''). When we refer to Feedback Form commenters, we include
those who completed and submitted a Feedback Form with a relevant
response or comment answering at least one of the questions on the
form. To simplify discussion of comments received on the Feedback
Forms, staff aggregated and summarized these comments in an appendix
to this release (see Appendix C, the ``Feedback Forms Comment
Summary''), and references to individual Feedback Forms in this
release use short-form names defined in the Feedback Forms Comment
Summary.
    \12\ The transcripts from the seven investor roundtables, which
took place in Atlanta (``Atlanta Roundtable''), Baltimore
(``Baltimore Roundtable''), Denver (``Denver Roundtable''), Houston
(``Houston Roundtable''), Miami (``Miami Roundtable''), Philadelphia
(``Philadelphia Roundtable''), and Washington, DC (``Washington, DC
Roundtable''), are available in the comment file at https://www.sec.gov/comments/s7-08-18/s70818.htm#transcripts.
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    Further, the Commission's Office of the Investor Advocate engaged
the RAND Corporation (``RAND'') to conduct investor testing of the
proposed relationship summary.\13\ RAND conducted a survey of over
1,400 individuals through a nationally representative panel to collect
information on the opinions, preferences, attitudes, and level of self-
assessed comprehension regarding the sample dual-registrant
relationship summary in the proposal. RAND also conducted qualitative
interviews of a smaller sample of individuals to ascertain
comprehension of the relationship summary and gain feedback from
interview participants, which allowed RAND to obtain insights to
complement its survey.\14\ On November 7, 2018, the Office of the
Investor Advocate made the report on that testing available in the
comment file to allow the public to consider and comment on the
supplemental information.\15\ The Commission received several letters
in response to the inclusion of the RAND 2018 report in the comment
file.\16\
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    \13\ Angela A. Hung, et al., RAND Corporation, Investor Testing
of Form CRS Relationship Summary (2018), available at https://www.sec.gov/about/offices/investorad/investor-testing-form-crs-relationship-summary.pdf (``RAND 2018'').
    \14\ RAND conducted a total of 31 in-person interviews with
investors recruited using guidelines designed to achieve a sample
that had a broad range of educational background, racial and ethnic
characteristics, gender, age and experience working with financial
professionals. In describing the design of qualitative interviews,
RAND explains that interviews included some general questions about
comprehension and helpfulness of the form, which provided a window
into participants' understanding of concepts introduced in the
relationship summary, but were not designed to serve as a full
assessment of participants' objective understanding of the
relationship summary. See RAND 2018, supra footnote 13.
    \15\ See Investor Testing of the Proposed Relationship Summary
for Investment Advisers and Broker-Dealers, Securities and Exchange
Commission Press Release 2018-257 (Nov. 7, 2018), available at
https://www.sec.gov/news/press-release/2018-257.
    \16\ See, e.g., Comment Letter of Investment Adviser Association
(Dec. 4, 2018); Comment Letter of Ron A. Rhodes (Dec. 6, 2018);
Comment Letter of AFL-CIO, et al. (Dec. 7, 2018) (``AFL-CIO
Letter''); Comment Letter of Betterment (Dec. 7, 2018) (``Betterment
Letter II''); Comment Letter of Consumer Federation of America (Dec.
7, 2018) (``CFA Letter II''); Comment Letter of Financial Services
Institute (Dec. 7, 2018) (``FSI Letter II''); Comment Letter of
Public Investors Arbitration Bar Association (Dec. 7, 2018); Comment
Letter of Consumer Reports (Feb. 15, 2019) (``Consumer Reports
Letter'').
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    As noted, some commenters submitted reports of surveys and studies
to the comment file, and the design and scope of these varied
considerably. Two reports described online surveys of

larger sample sizes--one based on the sample proposed dual-registrant
relationship summary \17\ and another based on the proposed sample
standalone investment adviser relationship summary.\18\ A group of
commenters submitted two reports of usability testing of the sample
proposed dual-registrant relationship summary based on a small number
of long-form interviews.\19\ One of the two surveys, and the two
interview-based studies, included questions designed to ascertain
comprehension and tested alternate relationship summary designs with
changes to some of the proposed prescribed wording and presentation
from the proposal.\20\ Finally, two different commenters submitted
surveys of retail investors' views about disclosure communications
provided by firms and their relationships with financial professionals,
which did not test any version of the proposed relationship
summary.\21\
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    \17\ Comment Letter of Cetera Financial Group (Nov. 19, 2018)
(``Cetera Letter II'') (attaching report of Woelfel Research Inc.
(``Woelfel'')). Woelfel, an independent research firm, conducted
internet interviews in June 2018 with a sample of 800 adults aged 25
and over, including individuals that had a current relationship with
a financial professional and individuals who did not have a current
financial professional relationship. Respondents were asked to read
the sample dual-registrant relationship summary included in the
proposal and answer a series of questions about the document overall
and for specific sections. Id.
    \18\ Comment Letter of Betterment (Aug. 7, 2018) (``Betterment
Letter I'') (attaching report of Hotspex, Inc. (``Hotspex'')).
Hotspex, an independent research firm, conducted online surveys with
304 current or potential U.S. investors ages 18 and over in June
2018. The survey tested the standalone investment adviser
relationship summary prepared following the instructions and sample
design of the proposal (the ``SEC Form'') and a redesigned version
developed by Betterment. Id. Respondents reviewed and answered
questions about only one version; 154 responded to questions on the
SEC Form. Id.
    \19\ Kleimann Communication Group, Inc., Final Report on Testing
of Proposed Customer Relationship Summary Disclosures, Submitted to
AARP, Consumer Federation of America, and Financial Planning
Coalition (Sept. 10, 2018), available at https://www.sec.gov/comments/s7-08-18/s70818-4341455-173259.pdf (``Kleimann I'')
(results of 15 90-minute qualitative interviews focusing on how
consumers interacted with the sample dual-registrant relationship
summary as proposed); Kleimann Communication Group, Inc., Report on
Development and Testing of Model Client Relationship Summary,
Presented to AARP and Certified Financial Planner Board of
Standards, Inc. (Dec. 5, 2018), available at https://www.sec.gov/comments/s7-07-18/s70718-4729850-176771.pdf (``Kleimann II'')
(results of testing alternate designs of the proposed dual-
registrant relationship summary in 18 one-on-one qualitative
interviews).
    \20\ See Betterment Letter I (Hotspex), supra footnote 18
(online survey included ten true-false questions designed to test
investor comprehension of the standalone investment adviser
relationship summary as proposed relative to a version redesigned by
Betterment); Kleimann I, supra footnote 19 (interview questions
designed to elicit responses that could demonstrate two levels of
cognitive skills); Kleimann II, supra footnote 19.
    \21\ Comment Letter of Charles Schwab & Co., Inc. (Aug. 6, 2018)
(``Schwab Letter I'') (attaching report of Koski Research
(``Koski'')). Koski, an independent research firm, conducted an
online survey of a national sample of 1000 investors in June 2018 to
measure investor understanding of fiduciary duty and best interest
standards for investment advice and obtain input from retail
investors on method, frequency and content of disclosure
communications. Id.; Comment Letter of the Center for Capital
Markets Competitiveness of the U.S. Chamber of Commerce (Sept. 5,
2018) (``CCMC Letter'') (attaching report of investor polling
(``investor polling'')). CCMC commissioned online polling of 801
investors in May 2018 to examine investors' perspectives on working
with financial professionals and gauge priorities regarding new
regulatory requirements. Id.
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    The Commission appreciates the time and effort of these commenters
who submitted surveys and studies. The Commission has carefully
considered this input. The varying designs and scope of these surveys
and studies limits us from drawing definitive conclusions, and we do
not view any one of the surveys and studies submitted by commenters, or
the RAND 2018 report, as dispositive. However, these surveys and
studies submitted by commenters, together with the results of the RAND
2018 report, input from individual investors at our roundtables and on
Feedback Forms, and other information offered by other commenters, have
informed our policy choices. Throughout this release we discuss
observations reported in the RAND 2018 report and in surveys and
studies submitted by commenters, and how these observations informed
our policy choices as well as the costs and benefits of such choices.
    Overall, we believe that feedback we have received from or on
behalf of retail investors through the RAND 2018 report, surveys and
studies submitted by commenters, and input received at roundtables and
on Feedback Forms, demonstrate that the proposed relationship summary
would be useful for retail investors and provide information, e.g.,
about services, fees and costs, and standard of care, that would help
investors to make more informed choices when deciding among firms and
account options. For example, among the RAND 2018 survey respondents,
nearly 90% said that the relationship summary would help them make more
informed decisions about types of accounts and services and more than
80% said it would help them compare accounts offered by different
firms.\22\ RAND 2018 survey participants rated information about the
firm's relationship and services and fees and costs to be among the
most informative.\23\ In other surveys, large majorities of respondents
also reacted positively to the relationship summary and the types of
information that would be provided.\24\ In the RAND 2018 qualitative
interviews, it was observed that participants could learn new
information from the proposed relationship summary.\25\ Similarly,
other surveys and studies that assessed investor comprehension observed
that investors learned important information by reviewing the
relationship summary.\26\ Over 70% of individuals submitting Feedback
Forms commented that they found the relationship summary to be
``useful,'' with more than 80% rating the relationship summary sections
describing relationships and services, obligations, and fees and costs
as ``very useful'' or ``useful.'' \27\ Investor roundtable participants
also reacted

positively and indicated that they found the relationship summary to be
useful.\28\ A significant percentage of RAND 2018 survey participants
agreed that the relationship summary would facilitate conversations
between retail investors and their financial professionals, and other
surveys and studies reported similar observations.\29\ Investor
roundtable participants and comments on Feedback Forms also indicated
that the relationship summary could facilitate conversations between
retail investors and their financial professionals in a beneficial
way.\30\
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    \22\ RAND 2018, supra footnote 13.
    \23\ RAND 2018, supra footnote 13 (a majority of respondents
rated both of the relationships and services section and fees and
costs sections of the relationship summary as one of two sections
that are ``most informative'').
    \24\ Cetera Letter II (Woelfel), supra footnote 17 (more than
80% of respondents rated all of the nine topics covered by the
relationship summary as ``very'' or ``somewhat'' important; 88%
rated fees and costs and the firm's obligations as ``very'' or
``somewhat'' important; 61% said the relationship summary had
provided the necessary information to help decide whether a
brokerage relationship or an advisory relationship is best);
Betterment Letter I (Hotspex), supra footnote 18 (finding that
around 90% of survey respondents found the proposed relationship
summary ``very useful'' or ``somewhat useful''); see also CCMC
Letter (investor polling), supra footnote 21 (when the concept of
the proposed relationship summary was described, 62% of participants
said they would be interested in reading the document and 72% agreed
that the new document will ``boost transparency and help build
stronger relationships between me and my financial professional'').
    \25\ RAND 2018, supra footnote 13 (concluding from qualitative
interviews that ``[p]articipants demonstrated evidence of learning
new information from the relationship summary'' even though
interview discussions revealed areas of confusion).
    \26\ See Kleimann I, supra footnote 19 (although the authors
concluded that, overall, participants had difficulty with ``sorting
out similarities and differences,'' the study reports that ``nearly
all participants easily identified a key difference between
Brokerage Accounts and Advisory accounts as the fee structure'' and
that ``most participants understood that both Brokerage Accounts and
Advisory Accounts could have financial relationships with other
companies that could be potential conflicts with clients' best
interests.''); see also Betterment Letter I (Hotspex), supra
footnote 18 (83% of respondents correctly identified as ``true'' a
statement that ``some investment firms have a conflict of interest
because they benefit financially from recommending certain
investments'' when viewing a version of the standalone adviser
relationship summary constructed based on the instructions set forth
in the proposal'').
    \27\ See Feedback Forms Comment Summary, supra footnote 11
(summary of answers to Questions 1 and 2). In addition, more than
70% of commenters on Feedback Forms rated all of the other sections
of the proposed relationship summary as ``very useful'' or
``useful.'' Id.
    \28\ See e.g., Houston Roundtable, at 19 (``I think your idea of
having . . . a short four page . . . is really helpful''), at 27
(reacting positively to the idea of the relationship summary but
asking that updated versions indicate the changed content), and at
35 (agreeing that a disclosure such as the relationship summary is
needed); Atlanta Roundtable, at 28 (stating that the proposed sample
relationship summary is ``a very good form'' and ``concise'' and
``easy to read and clear'' but needs to be in a form that can be
compared with other relationship summaries).
    \29\ RAND 2018, supra footnote 13 (approximately 76% of
participants agreed that they would use the relationship summary as
the basis for a conversation with an investment professional; in
qualitative interviews, participants said they liked all of the
questions and they would ask questions in meeting with a financial
service provider); see also Kleimann I, supra footnote 19 (many
investors responded that they would use key questions when speaking
with their brokers); Betterment Letter I (Hotspex), supra footnote
18 (93% of respondents viewing a version of the proposed standalone
relationship summary indicated that they were very or somewhat
likely to ask the suggested questions.).
    \30\ Houston Roundtable (several investors responding that key
questions would be helpful conversation starters, one commenter
remarking that the Key Questions were ``very, very good''); Feedback
Forms Comment Summary, supra footnote 11 (summary of responses to
Question 7) (over 75% of commenters indicated that the Key Questions
are useful). Eleven Feedback Forms included specific comments
agreeing that the Key Questions would encourage discussions with
financial professionals. See, e.g., Hawkins Feedback Form (``Useful
information for the investor to have before engaging in a
conversation with an investment firm. Giving some examples of types
of questions to ask would be beneficial.''); Asen Feedback Form
(``The Relationship Summary (and not the individual BD or RIA
account opening forms) is the opportunity to have that important
conversation and ``educate'' the customer.''); Baker Feedback Form
(``key questions are very useful as they give words to an
unsophisticated client'').
---------------------------------------------------------------------------

    Many other commenters supported the concept of a short disclosure
document for retail investors that would serve as part of a layered
disclosure regime,\31\ and agreed that that the relationship summary
would facilitate conversations between retail investors and their
financial professionals in a beneficial way.\32\ However, some
commenters argued that the relationship summary is duplicative of other
disclosures and is unnecessary.\33\ Others cautioned against over-
reliance on disclosure efforts to address all issues related to the
different business models and the applicable standard of conduct for
broker-dealers and investment advisers.\34\
---------------------------------------------------------------------------

    \31\ See, e.g., Comment Letter of AARP (Aug. 7, 2018) (``AARP
Letter''); Comment Letter of Consumers Union (Oct. 19, 2018)
(``Consumers Union Letter''); Comment Letter Type B; Comment Letter
of the North American Securities Administrators Association, Inc.
(Aug. 23, 2018) (``NASAA Letter''); Comment Letter of the Securities
Industry and Financial Markets Association (Aug. 7, 2018) (``SIFMA
Letter''); Comment Letter of Triad Advisors, LLC (Jul. 26, 2018)
(``Triad Letter''); Comment Letter of Investacorp, Inc. (Jul. 26,
2018) (``Investacorp Letter''); Comment Letter of Ladenburg Thalmann
Financial Services Inc. (Jul. 26, 2018) (``Ladenburg Letter'');
Comment Letter of KMS Financial Services, Inc. (Jul. 27, 2018)
(``KMS Financial Letter''); Comment Letter of Securities America,
Inc. (Jul. 27, 2018) (``Securities America Letter'').
    \32\ See, e.g., Comment Letter of Commonwealth Financial Network
(Aug 7, 2018) (``CFN Letter'') (``Form CRS may also drive
conversations that help potential clients and advisors determine
which type of relationship (brokerage or advisory) is most
appropriate.''); CCMC Letter (concluding from investor polling that
``[t]he SEC's proposed Form CRS could be a good way to start a
conversation with investors.''); Comment Letter of the Financial
Services Institute (Aug. 7, 2018) (``FSI Letter I'') (``The greatest
benefit of these disclosures will come in the conversations they
facilitate between the client and their financial professionals'');
Comment Letter Wells Fargo & Company (Aug. 7, 2018) (``Wells Fargo
Letter'') (``the basic premise that a brief overview document
designed to provide a high-level understanding of important
information to clients (with directions to more detailed
information) that can be used to prompt more detailed conversations
with financial professionals is a good one''). Triad Letter (``The
greatest benefit of the CRS will come in the conversations it
facilitates between the client and their Financial Professional. . .
.''); Ladenburg Letter (same); KMS Financial Letter (same).
    \33\ Some commenters stated that Form CRS would be duplicative
of the Disclosure Obligation required by Regulation Best Interest.
See, e.g., Triad Letter; Investacorp Letter; Ladenburg Letter; KMS
Financial Letter; Securities America Letter; FSI Letter I; Comment
Letter of Securities Service Network, LLC (Aug. 6, 2018); Comment
Letter of Cambridge Investment Research, Inc. (Aug. 7, 2018)
(``Cambridge Letter''). Others argued that Form CRS is duplicative
of other Form ADV disclosures. See, e.g., Comment Letter of
MarketCounsel (Aug. 7, 2018) (``MarketCounsel Letter''); Comment
Letter of the Investment Adviser Association (Aug. 6, 2018) (``IAA
Letter I''); Comment Letter of Gerald Lopatin (Jul. 30, 2018). One
commenter expressed concern that because the relationship summary
would be duplicative of Form ADV and Form BD, retail customers would
be less likely to read the more comprehensive disclosures. See
Comment Letter of Financial Engines (Aug. 6, 2018) (``Financial
Engines Letter'').
    \34\ See Comment Letter of Integrated Financial Planning
Solutions (Jul. 20, 2018) (``IFPS Letter'') (``Clients do not have
the ability to understand the disclosure material that is still
written only by and for lawyers.''); Comment Letter of Sen.
Elizabeth Warren (Aug. 7, 2018) (``Warren Letter'') (arguing that
``the [Commission] shouldn't rely on disclosure alone to protect
consumers''); Consumers Union Letter (``[W]hile we support simple,
understandable disclosures, we caution against placing too much
reliance on disclosure to protect investors.''); Consumer Reports
Letter.
---------------------------------------------------------------------------

    Nearly all commenters (including commenters on Feedback Forms) and
investors participating in roundtables, suggested modifications to the
proposed relationship summary, as did observations reported in the RAND
2018 report and surveys and studies submitted to the comment file.
Suggested changes generally pertained to: Appropriate placement of
educational material; length and format; use of prescribed wording;
comprehensibility; additional flexibility for firms; and delivery
requirements (including electronic delivery). For example, some
commenters and observations from the RAND 2018 survey and other surveys
and studies indicated that the proposed relationship summary could be
difficult to understand, particularly the proposed disclosures on fees,
conflicts of interest, and standards of conduct.\35\ Many commenters
preferred a shorter, one-to-two page document relying more heavily on
layered disclosure, such as by using more hyperlinks and other cross-
references to more detailed disclosure.\36\ Many commenters from both
industry and investor groups argued that some of the prescribed wording
would not be accurate or applicable in relation to the different
services and business models of all firms or could lead to confusing or

misleading disclosures.\37\ Various commenters advocated for more
flexibility for firms to use their own wording to describe their
services more accurately.\38\ Many commenters favored the use of a
question-and-answer format, suggesting, for example, that focusing a
document on investors' questions helps them to feel that the document
is relevant to them and encourages them to read it.\39\ Some commenters
viewed parts of the relationship summary as educational, such as the
sections comparing broker-dealers and investment advisers, describing
the applicable standard of conduct, and containing key questions
investors should ask, and advocated that the Commission should develop
and provide educational material separately from firm-specific
disclosures, such as in an additional disclosure layer or on the
Commission's website.\40\ Several individuals submitting Feedback Forms
also were supportive of links to additional educational
information.\41\
---------------------------------------------------------------------------

    \35\ See RAND 2018, supra footnote 13 (among other findings, the
percentages of respondents indicating that the fees and costs,
conflicts of interest, and standards of conduct sections were either
``difficult'' or ``very difficult'' to understand were 35.5%, 33.5%,
and 22.9%, respectively); Kleimann I, supra footnote 19 (noting that
participants had difficulty ``sorting out similarities and
differences between Broker-Dealer Services and Investment Adviser
Services. Both the formatting and language contributed to the
confusion.''); Betterment Letter I (Hotspex), supra footnote 18
(showing that survey participants had difficulty understanding
differences in standard of care and did not find the section on
conflicts in the standalone adviser relationship summary to be
useful); see also Comment Letter of John Wahh (Apr. 23, 2018)
(``Wahh Letter'') (relationship summary is ``impenetrable'');
Comment Letter of David John Marotta (Apr. 26, 2018) (``Marotta
Letter'') (disclosures would be too confusing to clients); Comment
Letter of John H. Robinson (Aug. 6, 2018) (``Robinson Letter'')
(expressing concern that relationship summary is too text-heavy for
consumers to read and will be ineffective in resolving investor
confusion); Comment Letter of CFA Institute (Aug. 7, 2018) (``CFA
Institute Letter I'') (``[A]s proposed, CRS is too wordy and
technically written for the average investor to understand.'').
    \36\ See, e.g., AARP Letter; Comment Letter of Better Markets
(Aug. 7, 2018) (``Better Markets Letter''); Comment Letter of the
Bank of America (Aug. 7, 2018) (``Bank of America Letter''); Comment
Letter of the Committee on Capital Markets Regulation (Jul. 16,
2018) (``CCMR Letter''); Comment Letter of LPL Financial LLC (Aug.
7, 2018) (``LPL Financial Letter''); Schwab Letter I. Cf. RAND 2018,
supra footnote 13 (finding at least a plurality of respondents would
keep the length of each section ``as is''; however, when asked ``Is
the Relationship Summary too long, too short, or about right?'',
56.9% of respondents answered ``too long'' and only 41.2% responded
``about right'').
    \37\ See, e.g., Comment Letter of the Vanguard Group, Inc. (Aug.
7, 2018) (``Vanguard Letter'') (explaining instances in which the
prescribed wording would be inaccurate or not sufficiently nuanced
for some of its services); Comment Letter of the American Council of
Life Insurers (Aug. 3, 2018) (``ACLI Letter'') (``[M]any of the
statements mandated in the Proposed Rule are inaccurate from the
perspective of a life insurer-affiliated broker-dealer); IAA Letter
I (expressing concern that the proposed prescribed language
describing legal standards of conduct would result in less accurate
understanding and greater confusion for investors); FSI Letter I
(``[S]ome of the prescribed disclosure language is highly
problematic, will add to investor confusion, and would negatively
impact [firms'] client relationships.''); AARP Letter (expressing
concern that some of the prescribed language is too technical and
likely to confuse retail investors); Comment Letter of the Insured
Retirement Institute (Aug. 7, 2018) (``IRI Letter'') (expressing
concern that the prescribed language would not permit descriptions
of services offered outside of brokerage accounts, such as
recommendations of variable annuities). One commenter asserted that
prescribed wording requiring firms to compare themselves adversely
with their competitors could raise First Amendment concerns. See
Comment Letter of the Consumer Federation of America (Aug. 7, 2018)
(``CFA Letter I'') (arguing that certain language requiring firms to
compare their own services unfavorably to those of their competitors
may raise First Amendment concerns, and that Proposed Item 5,
Comparisons to be provided by standalone investment advisers and
standalone broker-dealers, should be eliminated entirely); see also
infra footnotes 77-80 and accompanying text. Although not explicitly
raising First Amendment concerns, another commenter also opposed
requiring firms to describe services of other types of financial
professionals. See IAA Letter I (``In our view, it is not
appropriate to require firms to include statements about business
models other than their own.''). But see Comment Letter of AFL-CIO,
Consumer Federation of America, et. al. (Apr. 26, 2019) (``AFL-CIO,
CFA Letter'') (arguing that allowing firms more flexibility in their
disclosure will result in a failure to clearly convey important
information, and such information would not be comparable from firm
to firm).
    \38\ See, e.g., ACLI Letter (``Firms should have the flexibility
in the Form CRS to accurately describe their business model and what
their clients can expect from the relationship''); NASAA Letter
(``[F]irms should have some level of flexibility in crafting their
own Form CRS so that it is tailored for the different types of
customers they service.''); Letter from Members of Congress (Aug. 8,
2019) (``The SEC should develop a disclosure form that ensures firms
have the flexibility to provide information that the average
investor will understand.''); IAA Letter I (advocating that firms be
given flexibility to draft their own descriptions of their principal
services and conflicts of interest); FSI Letter I (suggesting that
the prescribed wording regarding the extent and frequency of
monitoring be removed or customized using the firm's own wording);
IRI Letter (firms need more latitude to describe their relationships
and services and fees and costs, given their variability; one-size-
fits-all disclosures are insufficient); Comment Letter of T. Rowe
Price (Aug. 10, 2018) (``T. Rowe Letter'') (firms should have the
flexibility to tailor their disclosures to make it clearer and more
readable without potentially confusing investors); Vanguard Letter
(suggesting that the Commission clarify that all of the prescribed
disclosures may be modified to accurately describe the nature of
firms' services and conflicts of interest given their business
models); Comment Letter of CUNA Mutual Group (Aug. 7, 2018).
    \39\ See, e.g., CFA Letter I. Many of the mock-ups submitted by
commenters used a question-and-answer format. See Comment Letter of
Fidelity Brokerage Services LLC (Aug. 7, 2018) (``Fidelity
Letter''); IAA Letter I; LPL Financial Letter; Comment Letter of
Primerica (Aug. 7, 2018) (``Primerica Letter''); Schwab Letter I;
SIFMA Letter; Wells Fargo Letter. For the purposes of this release,
we view the substance and design of all mock-ups that commenters
provided within their comment letters as comments on our proposed
form, and the mock-ups have informed our approach to the
relationship summary, as discussed below throughout.
    \40\ See, e.g., Comment Letter of the American Securities
Association (Aug. 7, 2018) (``ASA Letter''); Primerica Letter; ACLI
Letter; IAA Letter I; Comment Letter of Pickard Djinis and Pisarri
LLP (Aug. 14, 2018) (``Pickard Djinis and Pisarri Letter''); Comment
Letter of L.A. Schnase (Jul. 30, 2018) (``Schnase Letter''); CFA
Letter I; LPL Financial Letter.
    \41\ See, e.g., Daunheimer Feedback Form (``I would like to see
a list of applicable websites for discerning disciplinary websites
or anything else that would additionally educate a consumer.'');
Asen Feedback Form (``Might want to consider hyperlinking key words
for ease of definition lookup.''); Baker Feedback Form (responding
to a question on the Additional Information section, commented
``Helpful also were the website links, i.e., sec.gov, investor.gov,
BrokerCheck.Finra.org.''); Smith2 Feedback Form (``would like to see
a link included a site or sites that contain general investment
information. Types of investments, risks, time horizons . . .'').
---------------------------------------------------------------------------

    Although some commenters argued that the relationship summary is
duplicative of other disclosures and is unnecessary,\42\ we believe
that the relationship summary has a distinct purpose and will provide a
separate and important benefit relative to other disclosures. The
relationship summary is designed to help retail investors select or
determine whether to remain with a firm or financial professional by
providing better transparency and summarizing in one place selected
information about a particular broker-dealer or investment adviser. The
format of the relationship summary also allows for comparability among
the two different types of firms in a way that is distinct from other
required disclosures. Both broker-dealers and investment advisers must
provide disclosures on the same topics under standardized headings in a
prescribed order to retail investors, which should benefit retail
investors by allowing them to more easily compare services by comparing
different firms' relationship summaries.\43\ We do not believe that
existing disclosures provide this level of transparency and
comparability across investment advisers, broker-dealers, and dual
registrants. The relationship summary also encourages retail investors
to ask questions and highlights additional sources of information. All
of these features should make it easier for investors to get the facts
they need when deciding among investment firms or financial
professionals and the accounts and services available to them. As noted
above, the relationship summary will complement additional rules and
guidance that the Commission is adopting concurrently to enhance
protections for retail investors and is not designed to address all
investor protection issues related to different business models and
legal obligations of broker-dealers and investment advisers.\44\
---------------------------------------------------------------------------

    \42\ See supra footnote 33.
    \43\ Several individuals submitting Feedback Forms said that
more firm-specific information that could be easily compared would
be helpful. See, e.g., Lee1 Feedback Form (``The information should
let me compare firms. . . . Make it short, more useful (so I can
compare services and firms).''); Anonymous13 Feedback Form (``Firm
specific info would be nice on this document.''); Bhupalam Feedback
Form (``I would like to see additional information regarding
specific firm rather than a general description.'').
    \44\ See supra footnote 34.
---------------------------------------------------------------------------

    Further to this purpose, in response to the comment letters and
other feedback, we modified the instructions to reorganize and
streamline the relationship summary, to enable more accurate
descriptions tailored to what firms offer, and to help improve investor
understanding of the disclosures provided. The instructions we are
adopting are consistent with and designed to fulfill the original goals
of the proposal, including the creation of relationship summaries that
will highlight certain information in one place for retail investors in
order to help them select or decide whether to remain with a firm or
financial professional, encourage retail investors to engage in
meaningful and individualized conversations with their financial
professionals, and empower them to easily find additional information.
Although certain prescribed generalized

comparisons between brokerage and investment advisory services have
been removed from the final instructions, we believe the revised
instructions will result in more meaningful comparisons among firms.
    The key changes of the relationship summary and instructions we are
adopting include the following: \45\
---------------------------------------------------------------------------

    \45\ If any of the provisions of these rules, or the application
thereof to any person or circumstance, is held to be invalid, such
invalidity shall not affect other provisions or application of such
provisions to other persons or circumstances that can be given
effect without the invalid provision or application.
---------------------------------------------------------------------------

     Standardized Question-and-Answer Format and Less
Prescribed Wording. Instead of declarative headings as proposed, the
final instructions for the relationship summary will require a
question-and-answer format, with standardized questions serving as the
headings in a prescribed order to promote consistency and comparability
among different relationship summaries. The headings will be structured
and machine-readable, to facilitate data aggregation and comparison.
Under the standardized headings, firms will generally use their own
wording to address the required topics. Thus, the final instructions
contain less prescribed language, which creates more flexibility in
providing accurate information to investors. Investment advisers and
broker-dealers will be limited to two pages and dual registrants will
be limited to four pages (or an equivalent length if in electronic
format).\46\
---------------------------------------------------------------------------

    \46\ For clarification purposes, one page is equivalent to a
single-side of text on a sheet of paper, rather than two sides of
the same paper.
---------------------------------------------------------------------------

     Use of Graphics, Hyperlinks, and Electronic Formats. To
help retail investors easily digest the information, the instructions
will specifically encourage the use of charts, graphs, tables, and
other graphics or text features in order to explain or compare
different aspects of the firm's offerings. If the chart, graph, table,
or other graphical feature is self-explanatory and responsive to the
disclosure item, additional narrative language that may be duplicative
is not required. For electronic relationship summaries, the
instructions encourage online tools that populate information in
comparison boxes based on investor selections. The instructions permit,
and in some instances require, a firm to cross-reference additional
information (e.g., concerning services, fees, and conflicts), and will
require embedded hyperlinks in electronic versions to further
facilitate layered disclosures. Firms must use text features to make
the required cross-references more noticeable and prominent in relation
to other discussion text.
     Introduction With Link to Commission Information. The
relationship summary will include a more streamlined introductory
paragraph that will provide a link to Investor.gov/CRS, a page on the
Commission's investor education website, Investor.gov, which offers
educational information about investment advisers, broker-dealers, and
individual financial professionals and other materials. In order to
highlight the importance of these materials, the introduction also will
note that brokerage and advisory services and fees differ and that it
is important for the retail investor to understand the differences.
     Combined Fees, Costs, Conflicts of Interest, and Standard
of Conduct Section. We are integrating the proposed fees and costs
section with the sections discussing the conflicts of interest and
standards of conduct. We are also expanding the discussion of fees and
making several other changes to help make the disclosures clearer for
retail investors. The relationship summary will cover the same broad
topics as proposed, including a summary of fees and costs, a
description of ways the firm makes money, certain conflicts of
interest, and standards of conduct. In addition, firms will include
disclosure about financial professionals' compensation.
     Separate Disciplinary History Section. Firms will be
required to indicate under a separate heading whether or not they or
any of their financial professionals have reportable disciplinary
history and where investors can conduct further research on these
events, instead of including this information under the Additional
Information section as proposed.
     Conversation Starters. The proposed Key Questions to Ask
have generally been integrated into the relationship summary sections
either as question-and-answer headings or as additional ``conversation
starters'' to provide clearer context for the questions. Retail
investors can use these questions to engage in dialogue with their
financial professionals about their individual circumstances. The
discussion topics raised by certain other proposed key questions have
been incorporated into the relationship summary through otherwise-
required disclosure.
     Elimination of Proposed Comparisons Section. We are
eliminating the proposed requirement that broker-dealers and investment
advisers include a separate section using prescribed wording that in a
generalized way described how the services of investment advisers and
broker-dealers, respectively, differ from the firm's services. We
encourage, but do not require, dual registrants to prepare a single
relationship summary that discusses both brokerage and investment
advisory services. Whether dual registrants prepare a single or two
separate relationship summaries to describe their brokerage and
investment advisory services, they must present information on both
services with equal prominence and in a manner that clearly
distinguishes and facilitates comparison between the two. The material
provided on Investor.gov offers educational information about
investment advisers, broker-dealers, and individual financial
professionals and other materials.
     Delivery. As proposed, investment advisers must deliver a
relationship summary to each new or prospective client who is a retail
investor before or at the time of entering into an investment advisory
contract with the retail investor. In a change from the proposal,
broker-dealers must deliver the relationship summary to each new or
prospective customer who is a retail investor before or at the earliest
of: (i) A recommendation of an account type, a securities transaction,
or an investment strategy involving securities; (ii) placing an order
for the retail investor; or (iii) the opening of a brokerage account
for the retail investor. We also are revising the instructions to
provide greater clarity on the use of electronic delivery, while
generally maintaining the guidelines that were proposed.
    We designed the final disclosure requirements in light of comments,
input from individual investors through roundtables and on Feedback
Forms, and observations reported in the RAND 2018 report and other
surveys and studies, that suggest retail investors benefit from
receiving certain information about a firm before the beginning of a
relationship with that firm, but they prefer condensed disclosure so
that they may focus on information that they perceive as salient to
their needs and circumstances, and prefer having access to other
``layers'' of additional information rather than receiving a
significant amount of information at once. Together, all of the
required disclosures will assist a retail investor to make an informed
choice regarding whether a brokerage or investment advisory
relationship, as well as whether a particular broker-dealer or
investment adviser, best suits his or her particular needs and

circumstances. The relationship summary will complement additional
rules and guidance that the Commission is adopting concurrently to
enhance protections for retail investors.\47\
---------------------------------------------------------------------------

    \47\ See Regulation Best Interest, Exchange Act Release No.
86031 (June 5, 2019) (adopting rule 15l-1 under the Exchange Act
(``Regulation Best Interest'')) (``Regulation Best Interest
Release''). Along with adopting Regulation Best Interest, the
Commission is clarifying standards of conduct for investment
advisers. See Commission Interpretation Regarding Standard of
Conduct for Investment Advisers, Advisers Act Release No. 5248 (June
5, 2019) (``Fiduciary Release''). The Commission is also providing
guidance about when a broker-dealer's advisory services are solely
incidental to the conduct of the business of a broker or dealer. See
Commission Interpretation Regarding the Solely Incidental Prong of
the Broker-Dealer Exclusion to the Definition of Investment Adviser,
Advisers Act Release No. 5249 (June 5, 2019) (``Solely Incidental
Release'').
---------------------------------------------------------------------------

    Some commenters responding to the RAND 2018 report noted that the
RAND 2018 survey and qualitative interviews did not objectively test
investor comprehension, and they pointed to observations from RAND 2018
interviews that suggested that some interview participants failed to
understand differences in the legal standards that apply to brokerage
and advisory accounts and did not understand the meaning of the word
``fiduciary'' for example.\48\ They argued that we should conduct more
usability testing before adopting Form CRS and Regulation Best
Interest.\49\
---------------------------------------------------------------------------

    \48\ See CFA Letter II (noting that the testing conducted for
the RAND 2018 Report is limited and does not provide more detailed
information, such as transcripts of the in-depth interviews, to
present fully the level of investor understanding); Comment Letter
of CFA Institute (May 16, 2019) (``CFA Institute Letter II'') (``The
RAND Report is clear that its survey was not designed to measure
objective comprehension . . . Nor did it provide respondents with
alternatives that could have allowed them to express preferences for
certain formats or language.''). See also AFL-CIO Letter; Consumer
Reports Letter; Comment Letter of PIABA (Dec. 7, 2018).
    \49\ See, e.g., AFL-CIO Letter (``If the Commission chooses to
maintain different standards for brokers and advisers, it must
clearly delineate what the differences are . . . This would require
rethinking the Form CRS and re-testing to ensure that it achieves
these goals . . .''); CFA Letter II (``make the [RAND 2018] report
the start, not the end, of an iterative process of testing and
revision needed to develop disclosure that works . . .''); AFL-CIO,
CFA Letter (stating ``. . . unless the Commission retests the
revised disclosure, it won't have any way to know whether the
revised version solves the problems that earlier testing has
identified.''); Consumer Reports Letter (``SEC must test and retest
Form CRS disclosures . . . and continue to publish the results of
its testing before the form is made final''); CFA Institute Letter
II. Others commented on the results of the RAND 2018 report but did
not suggest delaying adoption of Form CRS. See, e.g., Comment Letter
of Charles Schwab & Co. Inc. (Dec. 7, 2018) (``Schwab Letter II'')
(``The Commission should acknowledge and act on consensus findings
to improve the Form CRS''); Betterment Letter II (noting that the
RAND 2018 report ``demonstrates that Form CRS serves a valuable
function''). See also FSI Letter II (encouraging the Commission to
``continue investor testing of Form CRS after the final rule is in
place'').
---------------------------------------------------------------------------

    We disagree. The amount of information available from the various
investor surveys and investor testing described in this release,
including those submitted by commenters, as well as the comment letters
and other input submitted to the Commission for this rulemaking, is
extensive. We considered all of this information thoroughly, leveraging
our decades of experience with investor disclosures, when evaluating
changes to the relationship summary from the proposal. The perceived
usefulness of the relationship summary, as shown by observations in the
RAND 2018 report, surveys and studies submitted by commenters, and
input from individual investors at our roundtables and in Feedback
Forms, demonstrates that, even as proposed, the relationship summary
would benefit investors by providing information that would help
investors make more informed choices when deciding among firms and
account options.\50\ Large majorities of participants in the RAND 2018
survey and in other surveys supported the specific topics, such as
services, fees, conflicts and standards of conduct, that we require
firms to address in the relationship summary.\51\ Even though the RAND
2018 qualitative interviews and another interview-based study observed
that interview participants could have some gaps in understanding,
these studies still observed that interview participants could learn
new important information from the relationship summary as
proposed.\52\
---------------------------------------------------------------------------

    \50\ See supra footnotes 22 to 30 and accompanying text. We note
that the Department of Labor did not describe or reference usability
testing in adopting its now vacated rule broadening the definition
of fiduciary investment advice under the Employee Retirement Income
Security Act of 1974 as amended (``ERISA'') and the related Best
Interest Contract Exemption (``BIC Exemption''). The BIC Exemption
required certain disclosures to be provided to a retirement investor
and included on a financial institution's public website. See DOL,
Best Interest Contract Exemption, 81 FR 21002, 21045-52 (Apr. 8,
2016).
    \51\ See supra footnotes 23 to 24 and accompanying text; see
also Schwab Letter (Koski), supra footnote 21 (reporting that retail
investors say it is most important for firms to communicate about
``costs I will pay for investment advice,'' a ``description of
advice services,'' the ``obligations the firm and its
representatives owe me'' and any ``conflicts of interest related to
the advice I receive''); CCMC Letter (investor polling), supra
footnote 21 (reporting as issues that ``matter most'' to investors,
``explaining fees and costs,'' explaining conflicts of interest''
and ``explaining own compensation'').
    \52\ See RAND 2018, supra footnote 13 (describing that
participants in qualitative interviews had difficulty reconciling
the information provided in the obligations section and conflicts of
interest section and other areas of confusion, but concluding that
``[p]articipants demonstrated evidence of learning new information
from the relationship summary''); Kleimann I, supra footnote 19
(although study author concluded that, overall, participants had
difficulty with ``sorting out similarities and differences,'' the
study reports that ``nearly all participants easily identified a key
difference between Brokerage Accounts and Advisory accounts as the
fee structure;'' ``[p]articipants expected to pay for transactions
in a Brokerage Account or the quarterly fee for an Advisory
Account;'' ``most participants understood that both Brokerage
Accounts and Advisory Accounts could have financial relationships
with other companies that could be potential conflicts with clients'
best interests'' and ``[nearly all participants saw the Key
Questions as essential . . . straightforward and raised important
questions that they themselves might not have thought to ask.'');
see also Betterment Letter I (Hotspex) supra footnote 18 (83% of
respondents correctly identified as ``true'' a statement that ``some
investment firms have a conflict of interest because they benefit
financially from recommending certain investments'' when viewing a
version of the standalone adviser relationship summary constructed
based on the instructions set forth in the proposal).
---------------------------------------------------------------------------

    In addition, as noted above and discussed in further detail below,
we are making a number of modifications designed to improve the
relationship summary relative to the proposal, which are informed by
these and other observations reported by RAND 2018 and other surveys
and studies, as well as by investor feedback at roundtables and in
Feedback Forms and the other comment letters we have received. 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--whether broker-
dealers, investment advisers, or dual registrants--to use the term
``best interest'' to describe their applicable standard of conduct.\53\
Further, as compared to the proposal, modifications adopted in the
final relationship summary instructions require less prescribed
wording, and instead, firms will generally use their own wording to
address required topics, which creates flexibility in providing
accurate information to investors. We believe that this modification
substantially limits the practicability and benefit of additional
usability testing because there is no single version of the
relationship summary (or a limited set of form versions) that may be
used to gauge investor comprehension given firms' flexibility to tailor
their relationship summary.\54\

Therefore, we believe that any anticipated benefit from continued
rounds of investor usability testing does not justify the cost to
investors of delaying a rulemaking designed to increase investor
protection.
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    \53\ See infra, Section II.B.3.
    \54\ In this regard, the RAND 2018 report and surveys and
studies submitted by commenters generally were based on sample
versions of the relationship summary that we included in the
proposal. Alternate designs tested by commenters generally used the
all of the same topics (e.g., a description of service and the
relationship, fees and costs, standard of care, conflicts,
additional information and key questions) as the proposed sample
versions, with changes using different versions of prescribed
wording and formatting designed to be more appealing to readers. See
Kleimann II, supra footnote 19 (describing alternative Form CRS
design assumptions) and Betterment Letter I (Hotspex) supra footnote
18 (describing approach to optimizing the Form CRS). Given
modifications that we are adopting to the Form CRS instructions that
provide firms more flexibility to use their own wording to describe
service offerings, fees and costs and their conflicts of interest
and more flexibility in formatting as compared to the proposal, we
are not preparing sample or illustrative versions of the
relationship summary that could be used to repeat such surveys and
testing, and we do not believe that we would be able to develop
sample versions that would be representative given the diversity
among firms in their service and product offerings.
---------------------------------------------------------------------------

    Accordingly, we believe that the totality of input received through
comments (including Feedback Forms), outreach at roundtables and
through the OIAD/RAND and RAND 2018 reports, as well as surveys and
studies submitted by commenters, fully supports our consideration and
adoption of the relationship summary, with modifications informed by
this input as discussed more fully below. However, to help ensure that
the relationship summary fulfills its intended purpose, we have
directed our staff to review a sample of relationship summaries that
are filed with the Commission beginning after June 30, 2020, when firms
first file their relationship summaries, and to provide the Commission
with the results of this review. The Commission and its staff are also
reviewing educational materials provided on Investor.gov and intend to
develop additional content in order to continue to improve the
information available to investors about working with investment
advisers, broker-dealers, individual financial professionals, and
investing.
    In the Proposing Release, we proposed certain disclosures to be
included in all print or electronic retail investor communications by
broker-dealers, investment advisers, and their financial professionals
(the ``Affirmative Disclosures''). We have determined not to adopt the
Affirmative Disclosures, as we discuss further below. In our view, the
combination of the disclosure requirements in Form CRS and Regulation
Best Interest should adequately address the objectives of the proposed
Affirmative Disclosures.

II. Form CRS Relationship Summary

A. Presentation and Format

    The relationship summary is designed to be a short and accessible
disclosure for retail investors that helps them to compare information
about firms' brokerage and/or investment advisory offerings and
promotes effective communication between firms and their retail
investors.\55\ The proposed instructions included requirements on
length, formatting, and content. The proposal also provided three
examples of what a relationship summary might look like for a
standalone broker-dealer, standalone investment adviser, and dual
registrant. In providing feedback on the proposed sample relationship
summaries, commenters on Feedback Forms and participants in the RAND
2018 survey and other surveys and studies provided by commenters
indicated that the proposed relationship summary could be too dense and
difficult to read.\56\ They suggested using simpler terms and more
white space, among other changes.\57\ Commenters also encouraged the
use of design principles that would result in a more visually appealing
and accessible disclosure.\58\ In addition, the IAC recommended,
through a majority vote, uniform, simple, and clear summary disclosures
to retail investors.\59\ We have incorporated many of these suggestions
into the instructions.
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    \55\ Form CRS defines ``relationship summary'' as ``[a]
disclosure prepared in accordance with these Instructions that you
must provide to retail investors'' and also references Advisers Act
rule 204-5 and Exchange Act rule 17a-14. Firms that do not have any
retail investors to whom they must deliver a relationship summary
are not required to prepare or file one. See General Instructions to
Form CRS, Advisers Act rule 204-5, Exchange Act rule 17a-14(a).
    \56\ See Feedback Forms Comment Summary, supra footnote 11
(summary of responses to Questions 1 and 4) (33 commenters (35%)
answered ``Somewhat'' or ``No'' in either of Question 3(a) (Do you
find the format of the Relationship Summary easy to follow?) or
Question 3(c) (Is the Relationship Summary easy to read?); comments
responding to Question 4 (``Are there topics in the relationship
summary that are too technical or that could be improved?''); 41
Feedback Forms (44%) indicated in response to Question 4 or another
question that the relationship summary was too technical or
suggested one or more topics that could be improved); see also RAND
2018, supra footnote 13 (on average, 24% of respondents described
any given section as difficult or very difficult, more than 30%
described the fees and costs section as difficult or very difficult;
but qualitative interview discussions revealed that there were areas
of confusion for participants, including differences between account
types or financial professionals); Betterment Letter I (Hotspex)
supra footnote 18 (only 22% of respondents reviewing a version of
the standalone adviser relationship summary said information was
easy to understand; only 18% said the format was appealing);
Kleimann I, supra footnote 19 (finding that participants were
confused). Cf. Cetera Letter II (Woelfel), supra footnote 17 (more
than 75% of respondents strongly or somewhat agreed that individual
topics covered by the relationship summary were described clearly).
See also comments discussed supra footnote 35.
    \57\ Comment Letter of Front Street Consulting (Jun. 8, 2018)
(stating that disclosure must be readable and understandable using
plain language); Kleimann II, supra footnote 19 (describing design
and content principles for a redesigned relationship summary, noting
that ``[h]eading and white space allow readers to have an overview
of the content, see the overall structure of the content, and choose
which parts most interest them . . .''); IAA Letter I (recommending
flexibility for innovative use of design techniques including
``using more white space, and using visuals like icons and
images''); Fidelity Letter (discussing designed relationship summary
using ``key design elements that are informed by our experienced
employees whose focus is on graphic design and applying design
thinking techniques to customer facing products''). Schwab Letter I
(Koski), supra footnote 21 (reporting that the ``majority of retail
investors surveyed want communications that are relevant to them
(91%), short and to the point (85%), and visually appealing
(79%)''); Schwab Letter II (stating that combined results of RAND
2018 and its own survey indicate that the Form CRS should be
shorter, organized around questions, focus on ``fees/costs'' and
``services/relationships'' and contain ``hyperlinks''); Betterment
Letter I (Hotspex), supra footnote 18 (providing suggestions for
streamlining and focusing the content requirements and improving the
visual layout and format of the relationship summary to improve its
effectiveness).
    \58\ See, e.g., Betterment Letter II (``The form should better
implement design principles that have been shown to facilitate
visual appeal and comprehension.''); Schwab Letter I (citing to a
presentation given by Kleimann Communication Group, Inc., at an IAC
meeting on June 14, 2018); IAA Letter I (arguing that more visually
dynamic and engaging design would make the relationship summary more
effective and likely to be read).
    \59\ See IAC Form CRS Recommendation, supra footnote 10
(reiterating a recommendation from the IAC Broker-Dealer Fiduciary
Duty Recommendations in 2013 to ``adopt a uniform, plain English
disclosure document to be provided to customers and potential
customers of broker-dealers and investment advisers that covers
basic information about the nature of services offered, fees and
compensation, conflicts of interest, and disciplinary record'' and
recommending that the Commission work with a design expert and test
the relationship summary for effectiveness).
---------------------------------------------------------------------------

    We are changing the instructions to require a question-and-answer
format, give additional support for electronic formats, provide
guidance that firms should include white space, and implement other
design features to make the relationship summary easier to read.\60\ We
are requiring firms to use standardized headings in a prescribed order
to preserve comparability, while permitting greater flexibility in
other aspects of the relationship summary's wording and design to
enhance the relationship summary's accuracy, usability, and
effectiveness.\61\ The final instructions will require limited
prescribed wording compared to the

proposal and will permit firms to use their own wording to describe
most topics. We also are not requiring firms to discuss the sub-topics
required within each section in a prescribed order, as proposed.\62\
Dual registrants \63\ and affiliated brokerage and investment advisory
firms also will have flexibility to decide whether to prepare separate
or combined relationship summaries. These changes are intended to
enhance the relationship summary's clarity, usability, and design, and
to promote effective communication and understanding between retail
investors and their firms and financial professionals. We describe
these changes in more detail below.
---------------------------------------------------------------------------

    \60\ General Instruction 2.A. to Form CRS. (``You should include
white space and implement other design features to make the
relationship summary easy to read.'').
    \61\ See, e.g., Items 2.B. and 3.C.(ii) of Form CRS.
    \62\ See Proposed General Instruction 1.(b) to Form CRS
(``Unless otherwise noted, you must also present the required
information within each item in the order listed.'').
    \63\ Form CRS defines ``dual registrant'' as ``A firm that is
dually registered as a broker or dealer registered under section 15
of the Exchange Act and an investment adviser registered under
section 203 of the Advisers Act and offers services to retail
investors as both a broker-dealer and an investment adviser.''
General Instruction 11.C. to Form CRS. This definition varies from
the one proposed in that it includes only those investment advisers
registered with the SEC, rather than with the States. For the
avoidance of doubt, it also includes the statutory registration
provisions for broker-dealers and investment advisers.
---------------------------------------------------------------------------

    We are also adopting some parts of the instructions that address
presentation and formatting as proposed. The instructions state that
the relationship summary should be concise and direct, and firms must
use plain English and take into consideration retail investors' level
of financial experience, as proposed.\64\ Firms also are not permitted
to use multiple negatives, or legal jargon or highly technical business
terms unless firms clearly explain them, as proposed. In a change from
the proposal, the instructions will not permit use of legal jargon or
technical terms without explaining them in plain English, even if the
firm believes that reasonable retail investors will understand those
terms.\65\ Several commenters suggested that the relationship summary
avoid the use of jargon (e.g., terms like ``asset-based fee'' and
``load'' in the fees section),\66\ and several roundtable participants
and participants in the RAND 2018 interviews and another study said
that they did not understand certain technical terms.\67\ Roundtable
participants and commenters on Feedback Forms asked that the
relationship summary include definitions or a glossary.\68\ In
addition, the IAC recommended that a document such as the relationship
summary use plain English and a concise format.\69\ As a result, we are
instructing firms to avoid using legal jargon and highly technical
terms in the relationship summary unless they are able to explain the
terms in the space of the relationship summary. We believe this simpler
approach obviates the need for firms to justify what they believe a
reasonable retail investor would or would not understand. Firms would
have the flexibility to use their own wording, including legal or
highly technical terms as long as they explain them, or may prefer to
use simpler terms, given the space limitations of the relationship
summary. Additionally, we have added a cover page for Form CRS under
the Exchange Act (17 CFR 249.640) only, displaying a currently valid
OMB control number and including certain statements relating to federal
information law and requirements, and the SEC's collection of
information.\70\
---------------------------------------------------------------------------

    \64\ See General Instruction 2.A. to Form CRS (providing that
firms should (i) use short sentences and paragraphs; (ii) use
definite, concrete, everyday words; (iii) use active voice; (iv)
avoid legal jargon or highly technical business terms unless firms
clearly explain them; and (v) avoid multiple negatives. Firms must
write their responses to each item as if speaking to the retail
investor, using ``you,'' ``us,'' ``our firm,'' etc.). Delivery of
the relationship summary will not necessarily satisfy the additional
requirements that broker-dealers and investment advisers have under
the federal securities laws and regulations or other laws or
regulations. See General Instruction 2.D. to Form CRS; Proposed
General Instruction 3 to Form CRS.
    \65\ General Instruction 2.A. to Form CRS. Compare to Proposed
General Instruction 2 to Form CRS (``. . . avoid legal jargon or
highly technical terms unless you clearly explain them or you
believe that reasonable retail investors will understand them . .
.'').
    \66\ CFA Letter I; AARP Letter; IAA Letter I.
    \67\ See, e.g., Miami Roundtable; Houston Roundtable;
Philadelphia Roundtable; RAND 2018, supra footnote 13 (in
qualitative interviews participants asked for definitions of
``transaction-based fee,'' ``asset-based fee,'' and struggled with
terms such as ``mark-up,'' ``mark-down,'' ``load,'' surrender
``charges'' and ``wrap fee''); see also Kleimann I, supra footnote
19.
    \68\ See, e.g., Philadelphia Roundtable, at 64 (participant
recommending a glossary at the end of the relationship summary);
Washington, DC Roundtable, at 31 (``You might want to consider a
glossary of terms.''); Feedback Forms Comment Summary, supra
footnote 11 (summary of comments to Question 4) (10 comments asked
for a definition or a better explanation of the term ``fiduciary,''
seven asked for definitions of terms such as transaction-based fee,
asset-based fee or wrap fee); see also Anonymous 18 Feedback Form
(``A glossary would be nice--not in ``legalize'' [sic] language'').
    \69\ See IAC Broker-Dealer Fiduciary Duty Recommendations, supra
footnote 10; and IAC Form CRS Recommendation, supra footnote 10.
    \70\ Under the Advisers Act, Form CRS is Part 3 of Form ADV,
which already contains a cover page.
---------------------------------------------------------------------------

1. Limited Prescribed Wording
    The proposed instructions would have required firms to include
prescribed wording throughout many sections of the relationship
summary. In particular, the fees and costs, standard of conduct, and
the comparison section for standalone broker-dealers and investment
advisers included a number of required statements, many that differed
for broker-dealers, investment advisers, and dual registrants.\71\ The
introduction, conflicts of interest, and key questions sections also
included some required statements.\72\ In response to comments (as
described more fully below) we are largely eliminating the prescribed
wording and replacing those statements with instructions that generally
allow firms to describe their own offerings with their own wording.
---------------------------------------------------------------------------

    \71\ See infra discussion at Sections II.B.3 (fees and costs and
standard of conduct) and II.B.6 (proposed items omitted in final
instructions).
    \72\ See infra discussion at Sections II.B.1 (introduction) and
II.B.3 (conflicts of interests) and supra Section II.A.4
(conversation starters).
---------------------------------------------------------------------------

    For example, the proposed instructions would have required broker-
dealers to state, ``If you open a brokerage account, you will pay us a
transaction-based fee, generally referred to as a commission, every
time you buy or sell an investment'' and ``The fee you pay is based on
the specific transaction and not the value of your account.'' \73\
Broker-dealers also would have stated ``The more transactions in your
account, the more fees we charge you. We therefore have an incentive to
encourage you to engage in transactions.'' \74\ Instead the final
instructions will require broker-dealers to describe the principal fees
and costs that retail investors will incur, including their
transaction-based fees, and summarize how frequently the fees are
assessed and the conflicts of interest they create.\75\
---------------------------------------------------------------------------

    \73\ Proposed Items 2.B.1. and 4.B.1. of Form CRS.
    \74\ Proposed Item 4.B.5. of Form CRS.
    \75\ See Items 3.A. through 3.C. of Form CRS.
---------------------------------------------------------------------------

    Many commenters requested more flexibility for firms to provide
accurate descriptions of their services.\76\ Some

argued that the mix of prescribed and firm-authored wording required by
the proposed instructions would be inaccurate, contribute to investor
confusion, or be ineffective for investors, particularly language that
some commenters considered ``boilerplate.'' \77\ Observations reported
in the RAND 2018 qualitative interviews and other surveys and studies
also showed that investors had difficulty understanding, were confused
by, or misinterpreted some of the prescribed wording.\78\ A range of
commenters asserted that the proposed prescribed wording could be
inaccurate or inapplicable.\79\ For example, various providers of
insurance products explained that references to brokerage or investment
advisory accounts were not consistent with their business models and
could confuse retail investors because customers generally purchase
insurance products directly from the issuer, without needing to open a
brokerage account.\80\ One commenter expressed concern that some of the
prescribed wording could constitute impermissible compelled speech that
could raise First Amendment concerns.\81\ That same commenter, with
others, also opposed providing firms with more flexibility than
proposed to implement the relationship summary, arguing that more
flexibility could impair comparability.\82\
---------------------------------------------------------------------------

    \76\ See, e.g., IAA Letter I; Comment Letter of Massachusetts
Mutual Life Insurance Company (Aug. 7, 2018) (``MassMutual
Letter''); Comment Letter of the Association for Advanced Life
Underwriting (Aug. 7, 2018) (``AALU Letter''); Comment Letter of
Prudential Financial, Inc. (Aug. 7, 2018) (``Prudential Letter'');
Comment Letter of Mutual of America Life Insurance Company (Aug. 3,
2018) (``Mutual of America Letter''); Comment Letter of John Hancock
Life Insurance Company (U.S.A.) (Aug. 3, 2018) (``John Hancock
Letter''); ACLI Letter; Comment Letter of New York Life Insurance
Company (Aug. 7, 2018) (``New York Life Letter''); Comment Letter of
Transamerica (Aug. 7, 2018) (``Transamerica Letter''); Vanguard
Letter. See also Betterment Letter I, supra footnote 18 (arguing
that investor survey conducted by Hotspex showed that its more
customized version of the relationship summary facilitated investor
understanding). Some individuals submitting Feedback Forms also
preferred more firm-specific information. See, e.g., Anonymous 13
Feedback Form (``Firm-specific info would be nice on this
document.''); Bhupalam Feedback Form (``I would like to see
additional information regarding specific firm rather than a general
description.''); Christine Feedback Form (``I'm interested in my
individual advisor's orientation--small cap, mid cap, large cap or
mix growth vs. value foreign, domestic or mix fundamental or
quantitative long term or short term'').
    \77\ ASA Letter (``[T]he mix of prescribed and customized
language will only create more confusion and complexity, as well as
legal risk for financial institutions.''); Primerica Letter (``This
mix of prescribed and flexible disclosure would ultimately result in
a patchwork of new disclosures that fail to comprehensively describe
a particular firm's business model in a way that is accessible and
digestible by retail investors.''); IAA Letter I (``Many firms would
. . . be compelled to explain to prospective clients how and why
their business is different from the boilerplate descriptions and
why the comparisons are not applicable. The boilerplate language may
thus detract from a firm's ability to explain its own services and
make it harder for investors to understand those services.'').
    \78\ E.g., RAND 2018, supra footnote 13 (describing that, in
qualitative interviews, participants noted some words or phrases
that needed further definition and some misunderstood differences
between account types and professionals); Kleimann I, supra footnote
19; Betterment Letter I (Hotspex) supra footnote 18 (finding that
investors had difficulty understanding certain key information on
the SEC sample version of standalone investment adviser relationship
summary); see also Kleimann II, supra footnote 19 (investors
misconstrued the legal standard in alternative versions of
prescribed wording used in a redesigned version of the relationship
summary); Feedback Forms Comment Summary, supra footnote 11 (summary
of responses to Question 4) (41 Feedback Forms included narrative
responses that indicated that one or more topics were too technical
or could be improved; of these, 20 indicated that the relationship
summary language was too technical, wordy, confusing or should be
simplified; 23 indicated that information on fees and costs was too
technical or needed to be more clear; 23 suggested that information
in sections on relationships and services and obligations needed
clarification, and 14 suggested clarification or more information
about conflicts of interest).
    \79\ See, e.g., IAA Letter I; ACLI Letter; AARP Letter; SIFMA
Letter; FSI Letter I; Triad Letter; Vanguard Letter.
    \80\ See, e.g., Comment Letter of the Committee of Annuity
Insurers (Aug. 7, 2018) (``Committee of Annuity Insurers Letter'')
(``The use of the term `brokerage account may be confusing to retail
investors purchasing and owning annuities, as annuities are
typically `held' directly by an insurance company.''); ACLI Letter;
IAA Letter I; FSI Letter I; Comment Letter of Lincoln Financial
Group (Nov. 13, 2018) (``Lincoln Financial Group Letter'') (``Sales
of variable annuities, and variable life insurance products,
typically do not involve the opening of a brokerage account and are
not conducted in a brokerage account.'').
    \81\ See CFA Letter I, supra footnote 37.
    \82\ See AFL-CIO, CFA Letter.
---------------------------------------------------------------------------

    We recognize that extensive use of prescribed wording in certain
contexts could add to investor confusion and may not accurately or
appropriately capture information about particular firms. Accordingly,
the final instructions permit firms, within the parameters of the
instructions, to describe their services, investment offerings, fees,
and conflicts of interest using their own wording. This approach should
enable firms to reflect accurately what they offer to retail investors,
should result in disclosures that are more useful to retail investors,
and should mitigate concerns relating to the mix of prescribed and
firm-authored wording, and the extensive use of prescribed wording,
that the proposed instructions required.
    Although we are allowing more flexibility so that firms can
describe their offerings more accurately, firms still will be required
to discuss required topics within a prescribed order, as discussed
below.\83\ This approach will facilitate transparency, consistency, and
comparability of information across the relationship summaries of
different firms, helping retail investors to focus on information that
we believe would be particularly helpful in deciding among firms,
financial professionals, services, and accounts--namely: Relationships
and services; fees, costs, conflicts, and required standard of conduct;
disciplinary history; and how to get additional information. We believe
that more tailored, specific, and distinct information in the required
topic areas also will better serve the educational purpose by
facilitating more robust substantive comparisons across firms.
---------------------------------------------------------------------------

    \83\ See, e.g., General Instructions 1.A and 1.B., and 2.B. to
Form CRS.
---------------------------------------------------------------------------

    This approach addresses--and mitigates--First Amendment concerns.
Generally, the instructions no longer require any specific speech.\84\
Rather, they permit firms to use their own words to impart accurate
information to investors. In certain circumstances, however, we are
continuing to require firms to use prescribed wording. For example, the
final instructions require firms to use standardized headings and
conversation starters, which are in the form of questions that
investors are encouraged to ask.\85\ These elements are organizational
(the headings) or intended to prompt a discussion by the investor (the
conversation starters).\86\ The final instructions also require firms
to include prescribed statements describing their required standard of
conduct when providing recommendations or advice.\87\ Requiring firms
to provide a consistent articulation of their required legal
obligations in this regard will reduce and minimize investor confusion,
as compared with allowing firms to state their required standard of
conduct using their own wording.\88\ These statements are designed to
require the disclosure of purely factual information about the standard
of conduct that applies to the provision of recommendations by broker-
dealers and the provision of advice by investment advisers under their
respective legal regimes.\89\ Finally, the instructions require firms
to include a prescribed, factual statement regarding the impact of fees
and costs on investments, and a prescribed statement encouraging retail
investors to understand what fees and costs they are paying.\90\ As
explained further below,

the final instructions provide that if a required disclosure or
conversation starter is inapplicable to a firm's business or specific
wording required by the instructions is inaccurate, firms may omit or
modify it.\91\
---------------------------------------------------------------------------

    \84\ For example, the final instructions no longer require the
proposed Comparisons section or other prescribed wording that could
be perceived as requiring firms to compare their owns services
unfavorably to those of their competitors. See infra Section II.B.6.
    \85\ See infra Sections II.A.2 and II.A.4.
    \86\ See infra Sections II.A.2. and II.A.4.
    \87\ Item 3.B.(i) of Form CRS. See infra Section II.B.3.b.
    \88\ See infra Sections II.A.2 and II.B.3.b.
    \89\ See Milavetz, Gallop & Milavetz, P.A. v. United States, 559
U.S. 229, 249-50 (2010) (upholding against First Amendment challenge
a requirement that lawyers disclose their ``legal status'' and ``the
character of the assistance provided''); Zauderer v. Office of
Disciplinary Counsel, 471 U.S. 626, 651 (1985) (upholding required
disclosure of factual information about terms of service); Pharm.
Care Mgmt. Ass'n v. Rowe, 429 F.3d 294, 310 (1st Cir. 2005)
(upholding requirement that pharmacy benefit managers disclose
conflicts of interest and financial arrangements).
    \90\ See Item 3.A.(iii) of Form CRS (requiring firms to state,
``You will pay fees and costs whether you make or lose money on your
investments. Fees and costs will reduce any amount of money you make
on your investments over time. Please make sure you understand what
fees and costs you are paying.''). See also infra footnotes 424-425
and accompanying text.
    \91\ See General Instruction 2.B to Form CRS. We are adopting
this provision to ensure that firms are not compelled to include
wording in their relationship summaries that is misleading or
inaccurate in the context of their business models. This provision
may apply in limited circumstances. For example, the headings and
conversation starters prescribed by the final instructions are
worded at a highly generalized level and cover selected key topics
that are broadly applicable to broker-dealers and investment
advisers and their relationships with retail investors, irrespective
of business model (i.e., relationships and services the firm offers
to retail investors, fees and costs that retail investors will pay,
specified conflicts of interest and standards of conduct, and
disciplinary history).
---------------------------------------------------------------------------

    As in the proposal, the final instructions include parameters for
the scope of information expected within the relationship summary,
though we are modifying the requirements to clarify the scope further
in light of commenter concerns. First, all information in the
relationship summary must be true and may not omit any material facts
necessary in order to make the disclosures, in light of the
circumstances under which they were made, not misleading.\92\ The
proposed instructions required all information in the relationship
summary to be true and prohibited firms from omitting any material
facts necessary to make the disclosures required by the instructions
and the applicable item not misleading, but did not include the clause
``in light of the circumstances under which they were made.'' \93\
Commenters raised concerns with respect to the applicability of this
standard to a short document with strict page limits that is meant to
provide only a brief summary of information.\94\
---------------------------------------------------------------------------

    \92\ General Instruction 2.B. to Form CRS (``All information in
your relationship summary must be true and may not omit any material
facts necessary in order to make the disclosures required by these
Instructions and the applicable Item, in light of the circumstances
under which they were made, not misleading.''). Cf. Proposed
Instruction 3 to Form CRS (``All information in your relationship
summary must be true and may not omit any material facts necessary
to make the disclosures required by these Instructions and the
applicable item not misleading.'').
    \93\ Proposed General Instruction 3 to Form CRS.
    \94\ See, e.g., LPL Financial Letter (raising concerns that the
relationship summary raises the risk of liability for material
omissions given its page limits and required level of detail); CCMC
Letter (``The page and length limitations imposed by the proposed
regulation, coupled with the required disclosure that is mandated by
the proposed rules, present a substantial risk of liability for
omissions that may be necessary only to ensure the disclosure meets
the Commission's strict formatting requirements.''); Fidelity Letter
(stating that firms ``would find it very challenging to summarize
their offerings within the four-page limit and other content and
formatting constraints of the form as proposed, let alone to do so
in a manner that provides sufficient detail to convey meaningful
information to investors, and is sufficiently accurate to avoid
creating liability for a misstatement'').
---------------------------------------------------------------------------

    We continue to believe that firms should include only as much
information as is necessary to enable a reasonable investor \95\ to
understand the information required by each item.\96\ As discussed
below, we believe that investors will benefit from receiving a
relationship summary containing high-level information that they will
be more likely to read and understand, with the ability to access more
detailed information.\97\ As a result, we recognize a firm's
relationship summary by itself is a summary of the information required
to inform retail investors about the services a firm provides along
with its fees, costs, conflicts of interest, and standard of conduct.
We also believe that the disclosure provided in the relationship
summary should be responsive and relevant to the topics covered by the
final instructions,\98\ and not omit information that is required to be
disclosed or necessary to make the required disclosure not
misleading.\99\ We are sensitive to commenters' concerns, however,
regarding expectations for the scope of required information within
page limits. In this regard, the instructions continue to provide, as
proposed, that firms may not include a disclosure in the relationship
summary other than a disclosure that is required or permitted by the
instructions and the applicable item,\100\ and that all the information
contained in the relationship summary must be true.\101\
---------------------------------------------------------------------------

    \95\ The proposed instructions referred to a ``reasonable retail
investor.'' For example, under the proposed instructions, firms
would have been able to omit or modify prescribed wording or other
statements required to be part of the relationship summary if such
statements were inapplicable to a firm's business or would have been
misleading to a ``reasonable retail investor.'' See Proposed General
Instruction 3 to Form CRS. The final instructions no longer make
reference to a ``reasonable retail investor.'' By eliminating the
reference to a ``reasonable retail investor,'' we are clarifying
that we did not intend at the proposal, and do not intend now, to
introduce a new standard under the federal securities laws, which
generally refer to what a ``reasonable investor'' would consider
important in making a decision. See infra footnotes 95-105 and
accompanying text. References to a ``reasonable retail investor'' in
the proposed instructions were meant to clarify how the operative
Instruction or Item would apply in the context of a retail investor.
Because new rule 17a-14 under the Exchange Act and new rule 204-5
under the Advisers Act require firms to deliver relationship
summaries to retail investors in accordance with such rules, we do
not believe such clarifications are necessary.
    \96\ General Instruction 2.A. to Form CRS. The instructions
remind firms to use not only short sentences as proposed, but also
short paragraphs. General Instruction 2.A.(i) to Form CRS.
    \97\ See infra Section II.A.3.
    \98\ Firms should keep in mind the applicability of the
antifraud provisions of the federal securities laws, including
section 206 of the Advisers Act, section 17(a) of the Securities
Act, and section 10(b) of the Exchange Act and rule 10b-5
thereunder, in preparing the relationship summary, including
statements made in response to the relationship summary's
``conversation starters.'' See infra Section II.B.2.c.
    \99\ This approach is consistent with the approach the
Commission has taken with respect to disclosure more broadly. See,
e.g., rule 408(a) under Regulation C [17 CFR 230.408(a)] (``In
addition to the information expressly required to be included in a
registration statement, there shall be added such further material
information, if any, as may be necessary to make the required
statements, in the light of the circumstances under which they are
made, not misleading''); Exchange Act rule 12b-20 [17 CFR 240.12b-
20] (``In addition to the information expressly required to be
included in a statement or report, there shall be added such further
material information, if any, as may be necessary to make the
required statements, in the light of the circumstances under which
they are made not misleading''); see also Commission Statement and
Guidance on Public Company Cybersecurity Disclosures, Securities Act
Release No. 82746 (Feb. 21, 2018) [83 FR 8166 (Feb. 26, 2018)]
(stating that the ``Commission considers omitted information to be
material if there is a substantial likelihood that a reasonable
investor would consider the information important in making an
investment decision or that disclosure of the omitted information
would have been viewed by the reasonable investor as having
significantly altered the total mix of information available''); TSC
Industries v. Northway, 426 U.S. 438, 449 (1976) (stating a fact is
material ``if there is a substantial likelihood that a reasonable
shareholder would consider it important'' in making an investment
decision or if it ``would have been viewed by the reasonable
investor as having significantly altered the `total mix' of
information made available'' to the shareholder); Basic, Inc. v.
Levinson, 485 U.S. 224, 240 (1988) (stating that ``materiality
depends on the significance the reasonable investor would place on
the withheld or misrepresented information''); Securities and
Exchange Com'n v. Texas Gulf Sulphur, 258 F. Supp. 262, 279
(S.D.N.Y. 1966) (stating that ``[a]n insider's liability for failure
to disclose material information which he uses to his own advantage
in the purchase of securities extends to purchases made on national
securities exchanges as well as to purchases in `face-to-face'
transactions''); Cochran v. Channing Corporation, 211 F. Supp. 239,
242 (S.D.N.Y. 1962) (stating that the ``Securities Exchange Act was
enacted in part to afford protection to the ordinary purchaser or
seller of securities. Fraud may be accomplished by false statements,
a failure to correct a misleading impression left by statements
already made or, as in the instant case, by not stating anything at
all when there is a duty to come forward and speak'').
    \100\ General Instruction 1.B. to Form CRS; see also Proposed
General Instruction 1.(d) to Form CRS.
    \101\ General Instruction 2.B. and 2.C. to Form CRS; see also
Proposed General Instruction 3 to Form CRS.
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    In a change from the proposal, and to address commenters' concerns,
the final instructions provide that the information contained in the
relationship summary may not omit any material facts necessary in order
to make the disclosures, in light of the circumstances under which they
were

made, not misleading.\102\ We have added the phrase ``in light of the
circumstances under which they were made'' to clarify that the content
included or not included in the relationship summary should be viewed,
for example, in light of the fact that the disclosure is intended to be
a summary, that firms must adhere to the page limit, and that there
will be links to additional information. Any information contained in
the relationship summary or omitted facts will not be viewed in
isolation in respect of determining whether such information would have
been viewed by a reasonable investor as having significantly altered
the total mix of information available.\103\ As discussed below, firms
will provide additional detail and context through layered disclosure.
For example, the instructions require firms to include specific
references or a link to additional information as part of the
relationships and services and fees and conflicts sections.\104\ In
other instances, the instructions encourage firms to reference or link
to additional information to supplement their required
disclosures.\105\ While this change from the proposal is drawn from
other areas of the federal securities laws,\106\ Form CRS is not
intended to create a private right of action.
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    \102\ Id.
    \103\ See rule 10b-5 under the Exchange Act [17 CFR 240.10b-5];
supra footnote 99 and accompanying text; see also footnote 469 and
accompanying text.
    \104\ See infra Section II.A.3.
    \105\ See, e.g., General Instruction 3.A. to Form CRS (``You are
encouraged to use charts, graphs, tables, and other graphics or text
features in order to respond to the required disclosures. . . . You
also may include: (i) A means of facilitating access to video or
audio messages, or other forms of information (whether by hyperlink,
website address, Quick Response Code (``QR code''), or other
equivalent methods or technologies); (ii) mouse-over windows; (iii)
pop-up boxes; (iv) chat functionality; (v) fee calculators; or (vi)
other forms of electronic media, communications, or tools that
designed to enhance a retail investor's understanding of the
material in the relationship summary.'').
    \106\ See supra footnotes 99 and 103 and accompanying text.
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    Second, firms may omit or modify required disclosures or
conversation starters that are inapplicable to their business, or
specific wording required by the final instructions that is
inaccurate.\107\ The proposed instructions permitted firms to omit or
modify required disclosures that were inapplicable to their business or
would be misleading to a reasonable retail investor.\108\ We modified
the proposed instruction to provide a more concrete requirement
allowing firms to omit or modify prescribed wording, rather than using
a broader standard referencing a reasonable retail investor. This
instruction is intended to ensure that no statements are misleading or
inaccurate in the context of a firm's particular services or business.
Rather, the objective of the Commission is to ensure that required
disclosures are purely factual and provide investors with an accurate
portrayal of the firm's services and operations.
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    \107\ General Instruction 2.B. to Form CRS.
    \108\ See Proposed General Instruction 3 to Form CRS (``If a
statement is inapplicable to your business or would be misleading to
a reasonable retail investor, you may omit or modify that
statement.'').
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    Finally, given that firms will use mostly their own wording, we are
adding instructions that remind firms that their responses must be
factual and provide balanced descriptions to help retail investors
evaluate the firm's services.\109\ For example, firms may not include
exaggerated or unsubstantiated claims, vague and imprecise
``boilerplate'' explanations, or disproportionate emphasis on possible
investments or activities that are not made available to retail
investors.\110\ The relationship summary is designed to serve as
disclosure, rather than marketing material, and should not unduly
emphasize aspects of firms' offerings that may be favorable to
investors over those that may be unfavorable.
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    \109\ General Instruction 2.C. to Form CRS.
    \110\ General Instruction 2.C. to Form CRS.
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2. Standard Question-and-Answer Format and Other Presentation
Instructions
    As with the proposed instructions, the final instructions require
firms to present information under standardized headings and to respond
to all the items in the final instructions in a prescribed order.\111\
Instead of using declarative headings as proposed, however, the
headings will be in the form of questions.\112\ This change responds to
feedback from surveys and studies \113\ and commenters,\114\ including
many submitting their own mock-ups of the relationship summary that
suggested or used a question-and-answer format in their own documents.
Several commenters noted that the question-and-answer format is a more
effective design for consumer disclosures because it focuses on
questions to which a consumer wants answers and allows a consumer to
skim quickly and understand where to get more information.\115\ Based
on consideration of these comments, we are both incorporating the
format generally and are utilizing several of the question headings
suggested by commenters in mock-ups, as discussed in each item below.
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    \111\ General Instruction 1.B. to Form CRS.
    \112\ See generally Items 2.A., 3.A., 3.B., 3.C, and 4.A to Form
CRS.
    \113\ See e.g.; RAND 2018, supra footnote 13 (reporting that
about 60% of survey respondents preferred a question-and-answer
format over the sample relationship summary format presented in the
survey). Kleimann I, supra footnote 19 (``Participants liked the Key
Questions section, but wanted the questions to be answered within
the document.'').
    \114\ IAA Letter I (``A [question-and-answer] format will help
keep the relationship summary short and should also remove the onus
of the retail investor having to ask questions. This format would
encourage further conversation, particularly if the Commission
requires firms to point investors to additional information--
including comparison information and other key questions--on the
SEC's website.''); Schwab Letter I (citing Kleimann Communication
Group, Inc., Making Disclosures Work for Consumers (Jun. 14, 2018),
available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac061418-slides-by-susan-kleimann.pdf, and
contemporaneous discussions); Schwab Letter II (``Form CRS should be
organized around questions''); Fidelity Letter (redesigned
relationship summary with a question-and-answer format).
    \115\ See Kleimann II, supra footnote 19 (``Readers ask
questions when they read, especially of functional documents . . . .
For good design, we want to build upon this tendency by identifying
the key questions investors should or are likely to ask and
featuring them prominently in the text, thus easing the cognitive
task for readers.); Schwab Letter I (``[Q]uestions that a consumer
has . . . should be the organizing principle.''); see also CFA
Letter I.
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    In addition to the standardized headings, we continue to believe
that a prescribed order of topics facilitates comparability of
different firms' relationship summaries. Commenters generally supported
or did not oppose the premise of a prescribed order of topics.\116\
Some commenters did, however, suggest changes to the organization or
inclusion of topics, either explicitly in their comment letters,
implicitly by the design of their own mock-ups, or both.\117\ Results
of

surveys and studies that assessed comprehension of the sample proposed
relationship summaries demonstrated the importance of context and
revealed confusion caused by the placement of some information. For
example, the RAND 2018 qualitative interviews suggested that investors
were confused by and had difficulty reconciling the conflicts and
standard of conduct sections, which were separated by the fees and
comparisons sections.\118\ Another study suggested that the appearance
of fee information in three separate sections and separation of the
fees and conflicts sections by the comparisons section inhibited
understanding of the connection between fees and conflicts.\119\ As
discussed further below, we are combining the proposed Fees and Costs,
Conflicts of Interest, and Standard of Conduct sections into one, to
address these comments.\120\ In addition, in response to suggestions
that we provide more flexibility for how firms describe their services
so that they can more accurately convey the information, the final
instructions do not require firms to present the information within
each section in the order listed.\121\ Therefore, firms are free to
discuss the required sub-topics within each item in an order that they
believe best promotes accurate and readable descriptions of their
business.
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    \116\ See, e.g., Trailhead Consulting Letter (supporting a
standardized order of topics to facilitate comparability); Fidelity
Letter (``[W]e urge the SEC to consider prescribing content and
topics, but not specific language . . .'').
    \117\ See, e.g., CFA Letter I (suggesting changes to the order
of the disclosures and the design of the relationship summary); IAA
Letter I (suggesting a different order of topics and elimination of
the Comparisons section, including by submitting its own mock-up);
Comment Letter of Charles Schwab & Co., Inc. (Feb. 26, 2019)
(``Schwab Letter III'') (providing sample Form CRS instructions that
permit flexibility as to the order of sub-topics under each topic).
On Feedback Forms, 57 (about 60%) commenters responded ``yes'' when
asked whether information was in the appropriate order; 8 commenters
suggested moving the Key Questions to be first or closer to the
front of the document. See Feedback Forms Comment Summary, supra
footnote 11 (summary of responses to Questions 3(b) and 7). A few
commenters on Feedback Forms suggested moving the Additional
Information section forward. See Durgin Feedback Form, Salkowitz
Feedback Form, Starmer2 Feedback Form, Anonymous14 Feedback Form,
and a few suggested changes to the order of discussion of
obligations and conflicts. See Anonymous28 Feedback Form, Asen
Feedback Form, Lee2 Feedback Form.
    \118\ See RAND 2018, supra footnote 13.
    \119\ See Kleimann I, supra footnote 19, at 30 (participants
``had difficulty building knowledge and relating one piece to
another when it was separated by physical space.'').
    \120\ See Item 3 of Form CRS.
    \121\ See Proposed General Instruction 1.(b) to Form CRS
(``Unless otherwise noted, you must also present the required
information within each item in the order listed.'').
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    The final instructions provide for page limits to promote brevity,
as proposed. The proposed instructions limited the length of the
relationship summary to four pages for both standalone firms and dual
registrants.\122\ The final instructions provide that for dual
registrants that include their brokerage services and advisory services
in a single relationship summary, the relationship summary must not
exceed four pages in paper format, or the equivalent if delivered
electronically.\123\ For broker-dealers \124\ and investment advisers
\125\ a relationship summary in paper format must not exceed two pages,
or the equivalent if delivered electronically.\126\ Dual registrants
that prepare separate relationship summaries for their brokerage and
advisory services are limited to two pages each, or the equivalent if
delivered electronically.\127\ Unlike the proposed instructions, the
final instructions do not prescribe paper size, font size, and margin
width, providing instead that they should be reasonable.\128\ For
example, we believe that 8\1/2\'' x 11'' paper size, at least an 11
point font size, and a minimum of 0.75'' margins on all sides, as
proposed, could be considered reasonable, but other parameters could
also be reasonable. The objective of the proposed paper, font, and
margin size limitations was to make the relationship summary easy to
read. We expect that a visually engaging and effective design,
including in electronic format, could achieve the same objective
without the prescriptive limitations.
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    \122\ Proposed General Instruction 1.(c) to Form CRS.
    \123\ General Instruction 1.C. to Form CRS.
    \124\ Proposed Form CRS defined ``standalone broker-dealer'' as
``a broker or dealer registered under section 15 of the Exchange Act
that offers services to retail investors and (i) is not dually
registered as an investment adviser under section 203 of the
Advisers Act or (ii) is dually registered as an investment adviser
under section 203 of the Advisers Act but does not offer services to
retail investors as an investment adviser.'' We are not adopting
this definition because we believe using the term ``broker-dealer''
is sufficient for the final instructions. The final instructions
provide that Form CRS applies to broker-dealers registered under
section 15 if the Exchange Act. See supra footnote 8.
    \125\ Proposed Form CRS defined ``standalone investment
adviser'' as ``an investment adviser registered under section 203 of
the Advisers Act that offers services to retail investors and (i) is
not dually registered as a broker or dealer under Section 15 of the
Exchange Act or (ii) is dually registered as a broker or dealer
under Section 15 of the Exchange Act but does not offer services to
retail investors as a broker-dealer.'' We are not adopting this
definition because we believe using the term ``investment adviser''
is sufficient for the final instructions. See supra footnote 8.
Furthermore, the final instructions specify that Form CRS applies to
investment advisers registered under section 203 of the Advisers
Act.
    \126\ General Instruction 1.C. to Form CRS.
    \127\ General Instruction 1.C. to Form CRS. We discuss
additional considerations and requirements for dual registrants and
affiliates in Section II.A.5 below.
    \128\ General Instruction 1.C. to Form CRS.
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