financial professional by helping the investor to better understand its
application to him or her.
---------------------------------------------------------------------------

    \495\ Item 3.B.(iii) of Form CRS.
    \496\ See supra Section II.A.4.
---------------------------------------------------------------------------

    Unlike the proposal,\497\ the final instructions do not require
prescribed disclosure summarizing how a firm's standard of conduct
would require it to address conflicts of interest. As discussed above,
commenters found the proposal's standard of conduct disclosure
confusing.\498\ After considering comments and observations reported in
surveys and studies, we recognize that the proposed disclosures were
confusing, particularly the prescribed disclosure attempting to explain
concepts of full and fair disclosure, mitigation, and informed
consent.\499\ Accordingly, we are removing this wording to shorten the
disclosure and to provide more focus on the rest of the disclosure
required in this section, as we believe this should improve investor
comprehension. We believe that clearly disclosing to investors that
firms have an obligation to act in the best interest of a client or
customer and also simultaneously have conflicts of interest is more
important than describing the particular aspects of firms' general duty
to disclose, mitigate, or obtain informed consent to conflicts, as
applicable. Instead of this disclosure, we are requiring a conversation
starter to encourage firms to discuss with retail investors how their
standards of conduct require them to address conflicts of interests. In
addition, we believe that the discussion prompted by the conversation
starter accompanied by examples of conflicts of interest \500\ will
provide retail investors with specific illustrations of how a firm's
standard of conduct can apply, which could encourage investors to ask
more detailed questions about how firms address their conflicts.
---------------------------------------------------------------------------

    \497\ See Proposed Items 3.B.2. and 3.C.2. of Form CRS.
    \498\ See supra footnote 471 and accompanying text. See also
RAND 2018, supra footnote 13 (noting that one ``participant pointed
out that the obligations section had said that any conflicts of
interest would be reduced and disclosed [but] the conflicts of
interest section does not mention disclosing or reducing conflicts);
Kleimann II, supra footnote 19 (``Most participants did not
understand how conflicts would be resolved . . . they read the
disclosure as indicating that Brokerage Accounts were under no
obligation to notify clients of a conflict . . .'').
    \499\ See Fiduciary Release, supra footnote 47 (discussing the
concepts of full and fair disclosure, mitigation, and informed
consent).
    \500\ Item 3.B.(ii) of Form CRS.
---------------------------------------------------------------------------

    Finally, we have modified the standard of conduct disclosure for
broker-dealers and investment advisers to reduce the amount of required
disclosure,\501\ to focus the disclosure on the standard of conduct
that applies to the provision of recommendations and advice,\502\ and
to require that portions of the disclosure be presented in bold and
italicized font.\503\ We believe that streamlining the standard of
conduct disclosure and tailoring the disclosure to the type of firm
providing such disclosure will clarify for retail investors the
applicable legal standard of conduct to which their particular firm is
subject when providing recommendations or advice or when providing
broker-dealer services without recommendations.
---------------------------------------------------------------------------

    \501\ Items 3.B.(i).a. and 3.B.(i).b. of Form CRS.
    \502\ Item 3.B. of Form CRS (heading).
    \503\ Items 3.B.(i).a., 3.B.(i).b., and 3.B.(i).c. of Form CRS.
---------------------------------------------------------------------------

    Most commenters found the proposal's standard of conduct disclosure
confusing because it included legal or technical words. For example,
some commenters, and results from investor studies and surveys,
indicated that many did not understand the meaning of ``fiduciary'' or
had never heard of the word.\504\ Accordingly, the modified standard of
conduct disclosure both eliminates technical words, such as
``fiduciary,'' and describes the standards of conduct of broker-
dealers, investment advisers, or dual registrants using similar
terminology in a plain-English manner. In particular, the final
instructions use the term ``best interest'' to describe how broker-
dealers, investment advisers, and dual registrants must act regarding
their retail customers or clients when providing recommendations as a
broker-dealer or acting as an investment adviser.\505\ We believe that
requiring firms--whether broker-dealers, investment advisers, or dual
registrants--to use the term ``best interest'' to describe their
applicable standard of conduct will clarify for retail investors their
firm's legal obligation in this respect, regardless of whether that
obligation arises from Regulation Best Interest or an investment
adviser's fiduciary duty under the Investment Advisers Act.\506\ The
modified language, however, highlights a key difference in when a firm
must exercise its obligation--specifically, when providing a
recommendation (in the case of a broker-dealer),\507\ or when acting as
an

investment adviser,\508\ or either providing a recommendation or acting
as an investment adviser (in the case of a dual registrant).\509\
Portions of the modified standard of conduct disclosure also are
required to be presented in bold and italicized font.\510\ The final
instructions are designed to provide retail investors with a clear
understanding of when a firm's legal obligations regarding its standard
of conduct is required to be discharged. In addition, with respect to
broker-dealers, the modified standard of conduct disclosure, like the
proposal,\511\ distinguishes between broker-dealers that provide
recommendations subject to Regulation Best Interest and broker-dealers
that do not provide recommendations subject to Regulation Best Interest
(e.g., execution-only brokers). The modified standard of conduct
disclosure also requires that broker-dealers, investment advisers, and
dual registrants to state that conflicts of interest will remain
despite the existence of these legal obligations, and to provide
examples of these conflicts.\512\ This change is designed to address
commenters' concerns that we clarify for retail investors the
interaction between broker-dealers' or investment advisers' legal
obligations regarding their standards of conduct and their conflicts of
interest.
---------------------------------------------------------------------------

    \504\ See supra footnote 477 and accompanying text; see also CFA
Letter I (citing to ``man on the street'' interviews suggesting that
average investors do not understand the term ``fiduciary'');
Consumer Reports Letter (commenting on the RAND 2018 report).
    \505\ Item 3.B.(i) of Form CRS.
    \506\ See Fiduciary Release, supra footnote 47; Regulation Best
Interest Release, supra footnote 47.
    \507\ Item 3.B.(i).a. of Form CRS (requiring broker-dealers that
provide recommendations subject to Regulation Best Interest to
include (emphasis required): ``When we provide you with a
recommendation, we have to act in your best interest and not put our
interest ahead of yours. At the same time, the way we make money
creates some conflicts with your interests. You should understand
and ask us about these conflicts because they can affect the
recommendations we provide you. Here are some examples to help you
understand what this means,'' and broker-dealers that do not provide
recommendations subject to Regulation Best Interest to include
(emphasis required): ``We do not provide recommendations. The way we
make money creates some conflicts with your interests. You should
understand and ask us about these conflicts because they can affect
the services we provide you. Here are some examples to help you
understand what this means.'').
    \508\ Item 3.B.(i).b. of Form CRS (requiring investment advisers
to include (emphasis required): ``When we act as your investment
adviser, we have to act in your best interest and not put our
interest ahead of yours. At the same time, the way we make money
creates some conflicts with your interests. You should understand
and ask us about these conflicts because they can affect the
investment advice we provide you. Here are some examples to help you
understand what this means.'').
    \509\ Item 3.B.(i).c. of Form CRS (requiring dual registrants
that prepare a single relationship summary and provide
recommendations subject to Regulation Best Interest to include
(emphasis required): ``When we provide you with a recommendation as
your broker-dealer or act as your investment adviser, we have to act
in your best interest and not put our interest ahead of yours. At
the same time, the way we make money creates some conflicts with
your interests. You should understand and ask us about these
conflicts because they can affect the recommendations and investment
advice we provide you. Here are some examples to help you understand
what this means,'' and dual registrants that prepare a single
relationship summary and do not provide recommendations subject to
Regulation Best Interest to include (emphasis required): ``We do not
provide recommendations as your broker-dealer. When we act as your
investment adviser, we have to act in your best interest and not put
our interests ahead of yours. At the same time, the way we make
money creates some conflicts with your interest. You should
understand and ask us about these conflicts because they can affect
the services and investment advice we provide you. Here are some
examples to help you understand what this means.'' Also requiring
that dual registrants that prepare two separate relationship
summaries follow the instructions for broker-dealers and investment
advisers in Items 3.B., 3.B.(i).a. and 3.B.(i).b.).
    \510\ Items 3.B.(i).a. (``When we provide you with a
recommendation'' and ``do not''), 3.B.(i).b. (``When we act as your
investment adviser''), and 3.B.(i).c. (``When we provide you with a
recommendation as your broker-dealer or act as your investment
adviser,'' ``do not,'' and ``When we act as your investment
adviser'') of Form CRS.
    \511\ See Proposed Item 3.B. of Form CRS.
    \512\ Broker-dealers that do not provide recommendations subject
to Regulation Best Interest will be required to include
substantially the same conflict disclosure, except that it will
reflect that conflicts of interest can affect the services provided,
rather than referring to recommendations. See Items 3.B.(i).a. and
3.B.i.(c) of Form CRS.
---------------------------------------------------------------------------

    Examples of Ways the Firm Makes Money and Conflicts of Interest.
Following the standard of conduct prescribed wording, a firm must
summarize the following ways in which it and its affiliates make money
from brokerage or investment advisory services and investments it
provides to retail investors, to the extent they are applicable to the
firm.\513\ The specific wording is not prescribed, but firms must
include specific information to describe each of the applicable
conflicts.
---------------------------------------------------------------------------

    \513\ Item 3.B.(iv) of Form CRS.
---------------------------------------------------------------------------

     Proprietary Products: Investments that are issued,
sponsored, or managed by you or your affiliates;
     Third-Party Payments: Compensation received from third
parties when a firm recommends or sells certain investments;
     Revenue Sharing: Investments where the manager or sponsor
of those investments or another third party (such as an intermediary)
shares with the firm revenue it earns on those investments; and
     Principal Trading: Investments the firm buys from a retail
investor, and/or investments the firm sells to a retail investor, for
or from the firm's own accounts, respectively.\514\
---------------------------------------------------------------------------

    \514\ Items 3.B.(iv)(a) through 3.B.(iv)(d) of Form CRS.
---------------------------------------------------------------------------

    If none of those conflicts apply to the firm, it must summarize at
least one of its material conflicts of interest that affect retail
investors. Firms will be required to explain the incentives created by
each of these examples.\515\
---------------------------------------------------------------------------

    \515\ Item 3.B.(iv) of Form CRS.
---------------------------------------------------------------------------

    The proposal would have required a firm to discuss these same
enumerated topics, to the extent they were relevant. If none of the
four specified conflicts applied to a firm, the firm was not required
to discuss any other conflicts that applied to its business. The
proposal did not require a firm to summarize other ways its affiliates
made money from the services and products the firm provides to retail
investors.
    We are adopting a heading that specifically asks how else the firm
makes money in an effort to further highlight the firm's financial
incentives and emphasize that they are intertwined with conflicts. In a
departure from the proposal, the relationship summary will not include
an introductory sentence explaining that the firm benefits from the
services it provides to the retail investor because we believe that the
new heading and required content of this item make this sentence
unnecessary. We are also expanding the required conflicts disclosures
to ensure that firms without any of the enumerated conflicts will still
summarize at least one other material conflict of interest. Firms will
include the four enumerated conflicts (if applicable) that were in the
proposal, or otherwise at least one material conflict of interest, and
a specific cross-reference to more detailed information about
conflicts. Firms with none of the enumerated conflicts should carefully
consider their operations in their entirety when selecting a material
conflict to disclose to retail investors. While we think it is unlikely
that a firm will not have any material conflicts to disclose, if this
item is inapplicable, firms may omit or modify this disclosure.\516\
---------------------------------------------------------------------------

    \516\ General Instruction 2.B. of Form CRS.
---------------------------------------------------------------------------

    Commenters generally believed that at least some conflicts
disclosure was important to include in the relationship summary, but
many suggested changes to the approach, including fewer conflicts
disclosures and increased use of layered disclosure.\517\ Commenters
generally supported requiring firms to disclose the types of conflicts
of interest related to these financial incentives identified in the
proposal, specifically disclosure regarding proprietary products,\518\
compensation received

from third parties,\519\ revenue sharing,\520\ and principal
trading.\521\
---------------------------------------------------------------------------

    \517\ See, e.g., IAA Letter I (suggesting leveraging disclosures
made elsewhere on Part 2 of Form ADV); SIFMA Letter (suggesting
leveraging disclosures that would be required by Regulation Best
Interest); Fidelity Letter and Schwab Letter I (suggesting using
examples of conflicts, with links to additional disclosure).
    \518\ See Fidelity Letter; Schwab Letter I; SIFMA Letter.
    \519\ See, e.g., IFS Letter; IAA Letter I; Wells Fargo Letter;
Primerica Letter (suggesting including in additional layered
disclosure).
    \520\ See Fidelity Letter (third-party revenue sharing
agreements in mock-up).
    \521\ See mock-ups in IAA Letter I; Primerica Letter; Wells
Fargo Letter.
---------------------------------------------------------------------------

    Investor feedback, however, was mixed. Results from the RAND 2018
survey and another survey indicated that many survey participants did
not find this section to be as informative as other sections,\522\ and
some participants in surveys and studies indicated that this section
was ``difficult'' or ``very difficult'' to understand.\523\ About 75%
of Feedback Form commenters rated the conflicts of interest section as
either ``very useful'' or ``useful,'' while narrative comments on the
Feedback Forms suggested that the conflicts of interest disclosure
could be clarified or otherwise improved.\524\
---------------------------------------------------------------------------

    \522\ See RAND 2018, supra footnote 13 (conflicts of interest
was selected as one of the two most informative sections by only 15%
of survey respondents and selected as one of the two least
informative by 36%); Cetera Letter II (Woelfel), supra footnote 17
(81% of survey respondents strongly or somewhat agreed that
conflicts of interest is an important topic in the relationship
summary, fewer than for any other topic); see also Margolis Feedback
Form (stating that the conflicts of interest section is very
confusing, particularly with respect to fee-sharing arrangements and
referral fees).
    \523\ See RAND 2018, supra footnote 13 (about one third of
survey respondents found this section to be difficult or very
difficult to understand; in qualitative interviews, participants
demonstrated misunderstanding of how this section reconciled with
the ``obligations to you'' section and how conflicts would be
resolved); Kleimann I, supra footnote 19 (interview participants had
difficulty explaining how firms earned money from financial
relationships that could cause conflicts and were unclear how
conflicts would be resolved); Betterment Letter I (Hotspex), supra
footnote 18 (noting that further improvements could be made to
improve respondents understanding of differences in conflicts).
    \524\ Feedback Forms Comment Summary, supra footnote 11 (summary
of responses to Question 2(e) and Question 4). Among the 41 Feedback
Forms with narrative comments suggesting that one or more topics
were too technical or could be improved, 14 included a narrative
comment suggesting clarification or more information about conflicts
of interest. See, e.g., Baker Feedback Form (``A sampling of
possible conflict-of-interest situations is most desirable'');
Bhupalam Feedback Form (``It doesn't clearly tell me whether the
company will do this or not. In fact, it tells me that the company
may do this and I should be fine with it.''); Lee2 Feedback Form
(``What can I expect and not expect about the independence and
conflict-free nature of the advice''); Margolis Feedback Form
(``While I agree that fee-sharing arrangements and referral fees
need to be disclosed, your wording is confusing''); Schreiner
Feedback Form (``highlight implications of conflicts of interest'').
---------------------------------------------------------------------------

    Several commenters suggested that we broaden the disclosures to
require a firm to inform its retail investors of all of the conflicts
related to its business.\525\ Commenters also supported highlighting
conflicts of interest stemming from affiliates,\526\ and several
commenters included disclosure about affiliates in their mock-ups.\527\
One industry commenter expressed concern that including solely the
proposed conflicts in isolation and on a standalone basis may lead
investors to think these are the only meaningful conflicts.\528\ Other
commenters pointed out that if only the proposed conflicts were
required to be included, then some firms would not include any
conflicts disclosures because their conflicts do not fall within the
requisite categories.\529\ Furthermore, one commenter proposed to allow
firms to affirmatively state that they did not have any of these
conflicts without further disclosure of the firm's other conflicts of
interest.\530\
---------------------------------------------------------------------------

    \525\ See CFA Institute Letter I; Trailhead Consulting Letter.
    \526\ See Comment Letter of Jackson, Grant Investment Advisers,
Inc. (Aug. 7, 2018) (``Jackson Grant Letter'') (stating that other
compensation (such as recommending proprietary products and products
of affiliates) needs to be addressed for the investor to fully
understand the potential for conflicts in any relationship).
    \527\ See SIFMA Letter; Wells Fargo Letter; Schwab Letter I;
Comment Letter of Ron A. Rhoades, Western Kentucky University (Dec.
6, 2018) (``Rhoades Letter''); Stifel Letter (mock-up); Cetera
Letter I; Betterment Letter I; ASA Letter (mock-up).
    \528\ IAA Letter I.
    \529\ See Paul Hynes Letter; Betterment Letter I (stating that
their business model avoids the proposed conflicts of interest, and
proposing an alternate ``alignment of interest'' section for the
section on conflicts of interest).
    \530\ Betterment Letter I (indicating that the firm had none of
the proposed enumerated conflicts).
---------------------------------------------------------------------------

    We continue to believe that the conflicts we identified in the
proposal should be highlighted to retail investors in the relationship
summary. Accordingly, we are including in the final instructions a
requirement that firms describe these four conflicts to the extent that
any of these conflicts apply to them. Like other sections in the
relationship summary, this section will provide firms with more
flexibility in the way in which they describe their particular
conflicts so that they can tailor the summary to more accurately
reflect their specific business. While we are maintaining the
proposal's approach of requiring firms to provide information about
certain types of conflicts applicable to them, we are not requiring
firms to state as many specific details with respect to such
conflicts.\531\ For example, the proposed instructions would have
required firms to provide specific examples of advising on proprietary
or affiliated investments or investments paying the firm a share of
revenue, and we have removed such requirements from the final
instructions. Instead, the relationship summary will focus on four
specific ways a firm could make money from retail investors'
investments to highlight that firms have conflicts of interest and
encourage retail investors to ask and learn more about them.
---------------------------------------------------------------------------

    \531\ In addition, the IAC recommended that the Commission adopt
a uniform, plain English document that covers basic information
about conflicts of interest, among other topics. See IAC Broker-
Dealer Fiduciary Duty Recommendations, supra footnote 10.
---------------------------------------------------------------------------

    Additionally, as some commenters pointed out, we agree that not
mentioning any conflicts, or permitting the firm to affirmatively state
that it has none of the enumerated conflicts, could lead retail
investors to conclude that the particular firm does not have any
material conflicts. Accordingly, the instructions require a firm that
does not have any of the four required categories of conflicts to
provide at least one example of the firm's conflicts of interest.
Specially, the instructions require a firm to summarize at least one
material conflict of interest that affects retail investors.\532\ Firms
are not expected to disclose every material conflict of interest, and
should instead consider what would be most relevant for retail
investors to know in deciding whether to select or retain the
particular firm.
---------------------------------------------------------------------------

    \532\ As discussed in Section II.A.1. above, if a required
disclosure is inapplicable to a firm's business, a firm would be
permitted to omit or modify that disclosure. General Instruction
2.B. We believe, however, that most firms will have at least one
material conflict of interest that they would need to disclose.
---------------------------------------------------------------------------

    We determined to require an example of a conflict, rather than
broadening the instruction to include all conflicts, as some commenters
suggested. The language disclosing firms' standard of conduct and
existence of conflicts includes wording to make explicit that the
conflicts described in the relationship summary are examples. Firms
will disclose at least one of their material conflicts of interest that
impact their retail investors, and such a conflict is not limited
expressly to financial conflicts. In addition, with respect to broker-
dealers, this conflict disclosure (unlike the conflict disclosure
obligation in Regulation Best Interest) \533\ is not limited to
conflicts associated with a recommendation.\534\ To determine whether a
conflict of interest should be disclosed, a firm could consider, for
example, the benefit to the firm or its affiliate or the cost to the
retail investor.
---------------------------------------------------------------------------

    \533\ See Regulation Best Interest Release, supra footnote 47,
at Section II.C.1 (Disclosure Obligation).
    \534\ For instance, broker-dealers may include conflicts that
affect product offerings to customers who do not obtain
recommendations from the firm.

---------------------------------------------------------------------------

    We believe that an exhaustive list of conflicts in the relationship
summary would not as effectively enhance investor understanding of
conflicts. More details could inundate investors with information that
makes it difficult for them to focus on the fact that conflicts exist
and will impact them, and they may not focus on or may not realize the
importance of the specific conflicts firms are required to summarize.
We also agree with comments that disclosure of all conflicts would be
too cumbersome \535\ and lengthy for the relationship summary's
intended purpose--that is, highlighting certain aspects of a firm and
its services to help retail investors to make an informed choice and to
find additional information about a topic. The approach we are adopting
of requiring firms to provide examples will make retail investors aware
that these types of conflicts exist, but will avoid providing a laundry
list of conflicts. Taking into account all of these considerations, we
believe that these examples of conflicts of interest should be
highlighted for the investor. We recognize that this will be a high-
level summary of conflicts and generally will not be a complete
description. As discussed further below, we are requiring firms to
include a link to additional information on their conflicts of
interest.\536\ This layered disclosure will facilitate investors'
ability to review additional information on conflicts while balancing
the high-level nature of the relationship summary.
---------------------------------------------------------------------------

    \535\ See, e.g., CFA Letter I; SIFMA Letter; Prudential Letter.
    \536\ Item 3.B.(iv) of Form CRS (Firms must include specific
references to more detailed information about their conflicts of
interest that, at a minimum, include the same or equivalent
information to that required by the Form ADV, Part 2A brochure and
Regulation Best Interest, as applicable, and broker-dealers that do
not provide recommendations subject to Regulation Best Interest, to
the extent they prepare more detailed information about their
conflicts, must include specific references to such information.).
---------------------------------------------------------------------------

    Conversation Starter and Additional Information. To promote access
to information about other firm conflicts, as well as to clarify for
retail investors the application of their firms' standard of conduct as
discussed above, firms will include a conversation starter prompting
investors to ask about conflicts and a hyperlink to additional
information. Specifically, firms must include the following question as
a conversation starter: ``How might your conflicts of interest affect
me, and how will you address them?'' \537\
---------------------------------------------------------------------------

    \537\ Item 3.B.(iii) of Form CRS.
---------------------------------------------------------------------------

    The proposal included a longer key question asking about the most
common conflicts of interest in the firm's advisory and brokerage
accounts and how the firm will address those conflicts when providing
services to the retail investor.\538\ One commenter noted that this key
question elicited the same information as provided elsewhere in the
relationship summary.\539\ We shortened the question to avoid this
duplication. In addition, the firm's other conflicts will be disclosed
as part of the summary of material conflicts or in the additional
conflicts disclosure that firms will cross-reference. The new
conversation starter is meant to complement these other disclosures and
elicit more information about how specifically the firm's conflicts of
interest could affect the retail investor.
---------------------------------------------------------------------------

    \538\ Proposed Item 8 of Form CRS. The proposal included the
following question: ``What are the most common conflicts of interest
in your advisory and brokerage accounts? Explain how you will
address those conflicts when providing services to my account.''
    \539\ See LPL Financial Letter.
---------------------------------------------------------------------------

    Firms will also include specific cross-references to more detailed
information about conflicts of interest that, at a minimum, includes
the same or equivalent information to that required about a firm by the
Form ADV, Part 2A brochure and/or Regulation Best Interest.\540\ If a
firm is a broker-dealer that does not provide recommendations subject
to Regulation Best Interest, to the extent it prepares more detailed
information about its conflicts, it must include specific references to
such information.\541\ Firms may include hyperlinks, mouse-over
windows, or other means of facilitating access to this additional
information and to any additional examples or explanations of such
conflicts of interest.\542\
---------------------------------------------------------------------------

    \540\ Item 3.B.(iv) of Form CRS.
    \541\ Item 3.B.(iv) of Form CRS.
    \542\ Item 3.B.(iv) of Form CRS. See also General Instructions
3. and 4. of Form CRS (instructions applicable to electronic
delivery). For further discussion of these provisions, see supra
Section II.A.3. and footnotes 156 and 158 and accompanying text, and
Section II.B.2.(b) and footnotes 348-349.
---------------------------------------------------------------------------

    Over 60% of RAND 2018 survey respondents indicated that they would
be ``very likely'' or ``somewhat likely'' to click on hyperlinks
related to conflicts of interest.\543\ While the proposal did not
require firms to link to additional information with respect to their
conflicts, several commenters suggested that the relationship summary
include a link to all conflicts.\544\ We believe that using layered
disclosure through cross-references to a more detailed discussion of
conflicts balances the Commission's objective of concise disclosure
while providing interested investors with tools to easily access
additional, useful information.
---------------------------------------------------------------------------

    \543\ RAND 2018, supra footnote 13. But see Kleimann II, supra
footnote 19 (only one interview participant said he would use the
link in the conflicts of interest section).
    \544\ See, e.g., Fidelity Letter (mock-up); IAA Letter I (mock-
up); see also Kleimann II, supra footnote 19 (redesigned
relationship summary suggests a link to more information about
conflicts).
---------------------------------------------------------------------------

    Many industry commenters also suggested that Regulation Best
Interest's and Form CRS's conflicts disclosures be coordinated, and
that any conflict disclosure obligations under Regulation Best Interest
should be satisfied upon delivery of the relationship summary.\545\ We
recognize that broker-dealers may need to disclose additional conflicts
or disclose additional conflicts at a point in time other than at the
beginning of the relationship with an investor or other times the
relationship summary is required to be delivered.\546\ The relationship
summary will provide a high-level summary for investors so that they
can engage in a conversation with their financial professional about
investment advisory or brokerage services, and so that the investors
can choose the type of service that best meets their needs.
Furthermore, as discussed above in Section II.A (Presentation and
Format),\547\ we believe it is essential to limit the length of the
relationship summary and keep the disclosures focused, highlighting
these topic areas while encouraging questions and providing access to
additional information. As a result, we believe many firms may not be
able to capture all of the necessary disclosures about their conflicts
in this short summary disclosure.\548\ The layered disclosure approach
should strike a balance between alerting investors of these conflicts
while keeping with the intended purpose of the relationship summary.
---------------------------------------------------------------------------

    \545\ See, e.g., ACLI Letter; Cambridge Letter; Massachusetts
Letter; FSI Letter I; MassMutual Letter; Schwab Letter I; SIFMA
Letter; Transamerica Letter; see also Regulation Best Interest
Release, supra footnote 47, at n.438 and accompanying text.
    \546\ See Regulation Best Interest Release, supra footnote 47.
    \547\ See supra Section II.A (Presentation and Format).
    \548\ For example, investment advisers must make full and fair
disclosure to all clients of all material facts relating to the
advisory relationship, including conflicts of interest. See
Fiduciary Release, supra footnote 47; General Instruction 3 to Form
ADV Part 2. Broker-dealers subject to Regulation Best Interest must
also provide full and fair disclosure of material facts, including
all material facts relating to conflicts of interest that are
associated with the recommendation. See Regulation Best Interest
Release, supra footnote 47.
---------------------------------------------------------------------------

    Finally, some commenters argued that the relationship summary
should require firms to explain how conflicts will be mitigated or
minimized, or that firms should be permitted to state that

a particular firm has fewer conflicts than other firms.\549\ While we
agree that firms should have increased flexibility to describe
conflicts, as discussed above, we are not permitting this additional
disclosure. The purpose of this section is to highlight for investors
that conflicts of interest exist.
---------------------------------------------------------------------------

    \549\ See AARP Letter; Betterment Letter I.
---------------------------------------------------------------------------

c. Payments to Financial Professionals
    Finally, in a change from the proposal, we are adding an additional
section to Item 3 that requires a firm to include in its relationship
summary the heading ``How do your financial professionals make money?''
\550\ A firm will summarize how its financial professionals are
compensated (including cash and non-cash compensation) and the
conflicts of interest those payments create.\551\ For example, the firm
must, to the extent applicable, disclose whether financial
professionals are compensated based on factors such as: The amount of
client assets they service; the time and complexity required to meet a
client's needs; the product sold (i.e., differential compensation);
product sales commissions; or revenue the firm earns from the financial
professional's advisory services or recommendations.\552\
---------------------------------------------------------------------------

    \550\ Item 3.C. of Form CRS.
    \551\ Item 3.C.(i) of Form CRS.
    \552\ Item 3.C.(ii) of Form CRS.
---------------------------------------------------------------------------

    In the Proposing Release, we asked if the relationship summary
should include disclosure of compensation received by financial
professionals and the related conflicts of interest such compensation
might pose. Several commenters supported including disclosures related
to the conflicts of interest that financial professionals' compensation
arrangements create.\553\ Several commenters suggested featuring
financial professionals' compensation in the relationship summary,
including in a separate section.\554\ A number of commenters
illustrated the importance of these disclosures by including sections
discussing financial professionals' compensation in their mock-
ups.\555\ These disclosures generally included more detailed
information about how broker-dealers and investment advisers earn money
from various sources, in addition to what the retail investor may pay
directly.
---------------------------------------------------------------------------

    \553\ See Proposing Release, supra footnote 5 (requesting
comments on whether there are other considerations related to fees
and compensation that we should require firms to highlight for
retail investors that were not captured in the proposal); see also
Jackson Grant Letter; Schwab Letter I; SIFMA Letter; Stifel Letter.
    \554\ See, e.g., Schwab Letter I; SIFMA Letter; Stifel Letter;
Jackson Grant Letter. One industry commenter also stated that we
should focus on conflicts that result from a financial
professional's financial compensation. SIFMA Letter (also stating
this view is consistent with FINRA's 2013 Conflicts of Interest
Report, which specifically identified financial compensation as the
major source of conflicts of interest for associated persons); see
also CCMC Letter (investor polling) supra footnote 21 (in connection
with investor polling, noting that investors identify explaining
``own compensation'' as one of three ``issues that matter most'' to
them).
    \555\ See Primerica Letter and ASA Letter (including disclosure
stating that financial professional compensation is typically
affected by the amount of client assets the financial professional
is responsible for and the fees and commissions those assets
generate); see also SIFMA Letter and Schwab Letter I (including
disclosure on how the firm pays professionals who provide investment
advice).
---------------------------------------------------------------------------

    We have concluded that disclosure of conflicts of interest related
to a financial professional's compensation is useful to highlight for
retail investors in the relationship summary.\556\ In particular, the
commenters' mock-up disclosures highlighted the benefit of separately
summarizing financial professionals' compensation to help retail
investors identify and assess these conflicts of interest that may
affect the services they receive.\557\ We believe that requiring
specific information on financial professional compensation and
conflicts related to that compensation will provide improved clarity
from the proposal and better help retail investors understand these
conflicts and how they might impact a financial professional's
motivation. We also believe it is useful to specifically highlight this
conflict for retail investors, as it is a different type of payment and
a different type of conflict than a conflict at the firm level. We
further believe that by placing this discussion directly after the
discussion on fees, costs and conflicts, it will mitigate potential
investor confusion. This approach is also consistent with Regulation
Best Interest, which treats compensation to financial professionals and
the conflicts of interest that such compensation creates as material
facts that must be disclosed.\558\
---------------------------------------------------------------------------

    \556\ See Regulation Best Interest Release, supra footnote 47,
at Section II.C.1.b.
    \557\ See, e.g., Primerica Letter; SIFMA Letter; Schwab Letter
I.
    \558\ See Regulation Best Interest Release, supra footnote 47.
---------------------------------------------------------------------------

4. Disciplinary History
    The relationship summary will include a separate section about
whether a firm or its financial professionals have reportable
disciplinary history and where investors can conduct further research
on these events.\559\ Inclusion of a separate disciplinary history
section is a change from the proposed relationship summary, where this
information was included in the Additional Information section.\560\
Certain commenters suggested that we remove the requirement that firms
disclose whether or not they have disciplinary history.\561\ Similarly,
some commenters suggested that any disciplinary information should
simply direct retail investors to resources where they could review a
firm's or a representative's disciplinary history, without any firm-
specific information in the relationship summary.\562\
---------------------------------------------------------------------------

    \559\ As proposed, we used the terms ``legal or disciplinary
events.'' However, we are adopting the terms ``legal or disciplinary
history'' for greater precision.
    \560\ See Proposing Release, supra footnote 5, at nn.270-71 and
accompanying text.
    \561\ See, e.g., Wells Fargo Letter (arguing that any firm-based
aspect of disciplinary disclosure is not fair to representatives of
the firm without any history of wrongdoing); see also ACLI Letter;
New York Life Letter (arguing that any firm-specific disciplinary
history disclosure would prejudice large firms).
    \562\ See, e.g., LPL Financial Letter (mock-up suggested that
``[f]or free tools to research our firm, our financial advisors and
other firms, including our disciplinary events . . .'' investors
should visit BrokerCheck or IAPD).
---------------------------------------------------------------------------

    We have concluded, however, based on consideration of commenters
and investor feedback received through surveys and studies, at
roundtables and in Feedback Forms, to include the disciplinary history
as a separate section of the relationship summary.\563\ These comments
emphasized the importance of disciplinary history information and
advocated that it should be placed in a more prominent position than as
part of the Additional Information section.\564\ Commenters also
generally supported firm-specific disclosure as to whether the firm has
disciplinary history.\565\ About 70% of commenters on Feedback Forms
responded that they would seek

out additional information about a firm's disciplinary history.\566\
Similarly, more than 70% of investors surveyed in the RAND 2018 report
reported that they were ``very likely'' or ``somewhat likely'' to look
up the disciplinary history of a financial professional.\567\
---------------------------------------------------------------------------

    \563\ The IAC also recommended including disciplinary history in
the relationship summary. See IAC Broker-Dealer Fiduciary Duty
Recommendations, supra footnote 10 (``[W]e encourage the Commission
to develop an approach to disclosure of disciplinary record that
makes it easier for investors to assess the significance of
disclosed events, particularly for firms that may have a large
number of relatively insignificant technical violations.'').
    \564\ See, e.g., CFA Letter I (``The required disclosure
regarding disciplinary events does not give adequate prominence to
this issue.''); NASAA Letter (``The descriptor `Additional
Information' is too vague to describe the important information in
this section [and] should be recast as `Disciplinary History and
Customer Rights and Remedies . . . .''); Trailhead Consulting Letter
(``Legal and Disciplinary Actions are very important for an investor
to consider and should not be `hidden' in an Additional Information
section. This information deserves its own separate section.''); IAA
Letter.
    \565\ See, e.g., CFA Letter I (``We believe this information is
important enough to be highlighted under its own separate heading,
`Do you have a disciplinary record?' '').
    \566\ See Feedback Forms Comment Summary, supra footnote 11
(summary of responses to Question 3(e)). Some commented that, before
viewing the relationship summary, they had not known that they could
ask or how to check. See, e.g., Anonymous02 Feedback Form (``did not
know how to do that''); Anonymous03 Feedback Form (``I looked up my
advisor while reading through the summary''); Anonymous26 Feedback
Form (``Now I know where to go''); Anonymous29 Feedback Form (``I
didn't know if asked--they had to answer''); see also Philadelphia
Roundtable (investor participant noting that ``checking your
broker's disciplinary record'' is ``something that people should
do'').
    \567\ See RAND 2018, supra footnote 13 (``More than 40 percent
of respondents reported being very likely to look up the
disciplinary history based on the information provided in the
Relationship Summary, and another 35 percent reported being somewhat
likely to look it up. Only 5 percent reported being not at all
likely to do so.''); see also Kleimann II, supra footnote 19 (study
participants who viewed a redesigned form reported that they would
research the company they are doing business with''); but see Schwab
Letter I (Koski), supra footnote 21 (only 20% of survey participants
selected ``How to find disciplinary information about a firm or its
representatives'' when asked to select the four most important
topics for a firm to communicate, from a list of 11 topics).
---------------------------------------------------------------------------

    However, results from investor studies and surveys and investor
comments on Feedback Forms supported the concern that the Additional
Information section may not provide enough salience. For example, in
the RAND 2018 survey, the Additional Information section was most often
selected as one of the two least useful sections of the proposed
relationship summary.\568\ On Feedback Forms, commenters rated the
Additional Information section as ``very useful'' or ``useful'' less
often than any other section of the relationship summary.\569\ One
investor study suggested a reason for these mixed results, finding that
participants would skip the Additional Information section, in part
because they did not understand that the websites in the section would
allow them to review the disciplinary history of the investment adviser
or broker-dealer that they were considering.\570\ Comments on Feedback
Forms similarly suggest that information about how to research a firm's
disciplinary information should be presented more prominently and more
simply in the relationship summary.\571\ After taking comments into
consideration, we believe that a separate disciplinary history section
is appropriate, with a requirement that firms explicitly state whether
or not they have legal or disciplinary history so that investors can
find the information in the summary with ease.
---------------------------------------------------------------------------

    \568\ See RAND 2018, supra footnote 14 (Additional Information
section rated as one of the two ``least informative'' sections by
66% of respondents; only 3% selected it as one of the two ``most
informative''); see also Cetera Letter II (Woelfel), supra footnote
17 (84% of survey respondents strongly or somewhat agreed that the
``how to find additional information about a broker/adviser'' and
``how to find additional information about the firm,'' fewer than
for most other topics out of a series of nine topic options).
    \569\ Feedback Forms Comment Summary, supra footnote 11 (summary
of responses to Question 2(f)) (Additional Information section rated
as ``not useful'' or ``unsure'' by more commenters (20%) and ``very
useful'' by fewer commenters (32%) relative to other sections of the
relationship summary).
    \570\ See Kleimann I, supra footnote 19; see also Kleimann II,
supra footnote 19 (noting that interview responses to links in the
relationship summary ``suggest that use is dependent on perceived
relevance . . . Some of that relevance can be built in with more
specific descriptions of what can be found at the link.'').
    \571\ Some commenters on Feedback Forms suggested moving the
Additional Information section forward in the relationship summary.
See Anonymous14 Feedback Form (``Recommend add this to beginning of
the pamphlet''); Durgin Feedback Form (``Additional info needs to be
moved up''); Salkowitz Feedback Form (``Move this section to near
the beginning''); Starmer2 Feedback Form (``put Key Questions and
Additional Info up front to stimulate a conversation.''). Others
commented that the presentation should be clearer. See, e.g.,
Anonymous28 Feedback Form (``Would be better titled `How to find out
about us' or `Other information you need to know'''); Anonymous29
Feedback Form (``plain language''); Calderon Feedback Form (``say
expressly where that information is found, with linked URL's'');
Shepard Feedback Form (``the easier it is to access, the better'');
Baker Feedback Form (``Please explain IAPD'').
---------------------------------------------------------------------------

    The section will begin with the heading: ``Do you or your financial
professionals have legal or disciplinary history?'' Firms will answer
``yes'' or ``no,'' depending upon whether they or one of their
financial professionals have a triggering event enumerated in the
instructions, as discussed below. The proposed relationship summary
required a statement that the firm has legal and disciplinary events
but did not require an affirmative statement that a firm or its
financial professionals did not have disclosable events. We are
requiring a ``No'' answer in the final instructions where applicable,
given the importance of disciplinary history and to provide a complete
answer to the question in the heading.
    Regardless of whether firms report a ``Yes'' or ``No'' answer as to
whether they or their financial professionals have legal or
disciplinary history, the relationship summary will direct the retail
investor to visit Investor.gov/CRS to research the firm and its
financial professionals, as proposed.\572\ This is responsive to RAND
2018 survey results, which indicated that 37% of investors did not know
where to research disciplinary history.\573\ Directing retail investors
to the search tool is also consistent with the Commission's Office of
Investor Education and Advocacy initiative to encourage retail
investors to do background checks on financial professionals and is
intended to increase awareness of available search tools.\574\ In
addition to disciplinary history, the search tools also can provide
useful information regarding registration and licensing and financial
professional employment history.
---------------------------------------------------------------------------

    \572\ Item 4.D.(i) of Form CRS. Investor.gov includes a search
function that searches the databases Web CRD[supreg] and IARD, and
this search will direct an investor to BrokerCheck and/or IAPD, as
appropriate, where the investor can research disciplinary history.
    \573\ See RAND 2018, supra footnote 13. By contrast, 19% of
surveyed investors cited the time and effort required and 10% of
surveyed investors indicated that they would not look up a firm or
financial professional's disciplinary history because the
information was not very important to the investor. Id. We believe
this is also consistent with the IAC's recommendation to ``look at
whether it might be beneficial to adopt a layered approach to
[disciplinary history] disclosures, with the goal of developing a
more abbreviated, user-friendly document for distribution to
investors.'' IAC Broker-Dealer Fiduciary Duty Recommendations, supra
footnote 10.
    \574\ See https://www.investor.gov/research-before-you-invest.
---------------------------------------------------------------------------

    The triggering events for a statement that a firm does have legal
or disciplinary history are the same as proposed.\575\ Following the
heading, firms will be required to state ``Yes'' in response to the
heading questions if they currently disclose or are required to
disclose (i) disciplinary information per Item 11 of Part 1A or Item 9
of Part 2A of Form ADV,\576\ or (ii) legal or disciplinary history per
Items 11A-K of Form BD (``Uniform Application for

Broker-Dealer Registration'') \577\ except to the extent such
information is not released to BrokerCheck pursuant to FINRA Rule
8312.\578\ Regarding their financial professionals, firms will
determine whether they need to include an affirmative statement based
on legal and disciplinary information on Form U4,\579\ Form U5,\580\ or
Form U6.\581\ In particular, firms will be required to state ``Yes'' if
they have financial professionals for whom disciplinary history is
reported per Items 14 A through M on Form U4, Items 7A or 7C through F
on Form U5,\582\ or Form U6 except to the extent such information is
not released to BrokerCheck pursuant to FINRA Rule 8312.\583\ Firms
that do not have disclosable events for themselves or their financial
professionals in connection with these provisions will state ``No'' in
answer to the heading.\584\
---------------------------------------------------------------------------

    \575\ See Proposed Item 7.B. of Form CRS. In the proposal, firms
with such events would have been required to state the following:
``We have legal and disciplinary events.'' Id. For reasons discussed
supra, we believe the question-and-answer formatting will make the
relationship summary more useful to investors.
    \576\ Item 4.B. of Form CRS. Generally, investment advisers are
required to disclose on Form ADV Part 2A any legal or disciplinary
event, including pending or resolved criminal, civil and regulatory
actions, if it occurred in the previous 10 years, that is material
to a client's (or prospective client's) evaluation of the integrity
of the adviser or its management personnel, and include events of
the firm and its personnel. See Amendments to Form ADV, Investment
Advisers Act Release No. 3060 (Jul. 28, 2010) [75 FR 49233 (Aug. 12,
2010)], at 22-27 (``Brochure Adopting Release''). Items 9.A., 9.B.,
and 9.C. provide a list of disciplinary events that are
presumptively material if they occurred in the previous 10 years.
However, Item 9 requires that a disciplinary event more than 10
years old be disclosed if the event is so serious that it remains
material to a client's or prospective client's evaluation of the
adviser and the integrity of its management.
    \577\ Item 11 of Form BD requires disclosure on the relevant
Disclosure Reporting Page (``DRP'') with respect to: (A) Felony
convictions, guilty pleas, ``no contest'' pleas or charges in the
past ten years; (B) investment-related misdemeanor convictions,
guilty pleas, ``no contest'' pleas or charges in the past ten years;
(C) certain SEC or the Commodity Futures Trading Commission
(``CFTC'') findings, orders or other regulatory actions; (D) other
federal regulatory agency, state regulatory agency, or foreign
financial regulatory authority findings, orders or other regulatory
actions; (E) self-regulatory organization or commodity exchange
findings or disciplinary actions; (F) revocation or suspension of
certain authorizations; (G) current regulatory proceedings that
could result in ``yes'' answers to items (C), (D) and (E) above; (H)
domestic or foreign court investment-related injunctions, findings,
settlements or related civil proceedings; (I) bankruptcy petitions
or SIPC trustee appointment; (J) denial, pay out or revocation of a
bond; and (K) unsatisfied judgments or liens. Some of these
disclosures are only required if the relevant action occurred within
the past ten years, while others must be disclosed if they occurred
at any time.
    \578\ Under FINRA Rule 8312, FINRA limits the information that
is released to BrokerCheck in certain respects. For example,
pursuant to FINRA Rule 8312(d)(2), FINRA shall not release
``information reported on Registration Forms relating to regulatory
investigations or proceedings if the reported regulatory
investigation or proceeding was vacated or withdrawn by the
instituting authority.'' We believe it is appropriate to limit
disclosure in the relationship summary to disciplinary information
or history that would be released to BrokerCheck.
    \579\ Form U4 (Uniform Application for Securities Industry
Registration or Transfer) requires disclosure of registered
representatives' criminal, regulatory, and civil actions similar to
those reported on Form BD as well as certain customer-initiated
complaints, arbitration, and civil litigation cases.
    \580\ Form U5 (Uniform Termination Notice for Securities
Industry Registration) requires information about representatives'
termination from their employers.
    \581\ Form U6 (Uniform Disciplinary Action Reporting Form) is
used by SROs, regulators, and jurisdictions to report disciplinary
actions against broker-dealers and associated persons. This form is
also used by FINRA to report final arbitration awards against
broker-dealers and associated persons.
    \582\ Item 7(b) of Form BD (Internal Review Disclosure) is not
released to BrokerCheck by FINRA, pursuant to FINRA Rule 8312(d)(3).
    \583\ Item 4.B.(iii) of Form CRS.
    \584\ Item 4.C. of Form CRS.
---------------------------------------------------------------------------

    As noted above, several commenters opposed the approach of
requiring firms to indicate in their relationship summaries whether
they or their financial professionals have disciplinary history,
questioning the value of the disclosure to retail investors,\585\ or
citing to prejudicial or competitive concerns.\586\ These firms
recommended that the relationship summary include only a prompt for
investors to research the disciplinary history of the firm or financial
professional, directing them to Investor.gov/CRS.\587\
---------------------------------------------------------------------------

    \585\ See NSCP Letter (``NSCP members believe that extending the
disclosure of disciplinary history to be included in Form CRS would
add additional administrative burden and costs outweighing any true
benefit to the customer.''); Wells Fargo Letter (``such a broad
statement will add no value'').
    \586\ See Wells Fargo Letter (arguing that the statement will
lead clients to draw unfair conclusions about both the firm and its
financial professionals); New York Life Letter (arguing that the
statement prejudices larger, established firms that will usually
have a small number of disclosure events to report for current or
former registered representatives); ACLI Letter (same).
    \587\ See Wells Fargo Letter; New York Life Letter; ACLI Letter.
---------------------------------------------------------------------------

    We recognize that the disciplinary history of firms and their
financial professionals is already publicly available, as commenters
have noted. From studies and investor feedback, however, we also
understand that investors view disciplinary history as significant to
their decision of whether or not to engage with a firm or a financial
professional, but in many cases are unaware of the need for researching
or the tools available to research whether disciplinary history
exists.\588\ Highlighting disciplinary history in this way provides
information to retail investors before they enter into a relationship
with a particular firm and financial professional and a ``yes''
response will alert retail investors that there is disciplinary history
they may want to research, review, or discuss with their financial
professional.\589\ As there is no required waiting period between the
delivery of the relationship summary to the retail investor and the
time that the retail investor may enter into a relationship with or an
order placed by a firm, highlighting the disciplinary information
allows the retail investor time to consider any disciplinary history
before moving forward or to monitor the relationship or financial
professional more closely if the retail investor decides to move
forward at that time. By basing this disclosure on information that is
already reported elsewhere and also requiring the relationship summary
to include details about where to find more information, we give retail
investors the tools to learn more about firms and financial
professionals.
---------------------------------------------------------------------------

    \588\ See, e.g., Staff of the Securities and Exchange
Commission, Study Regarding Financial Literacy Among Investors as
Required by Section 917 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Aug. 2012), at iv, v, xiv, 37, 73, 121-23
and 131-32, at nn.317-19 and accompanying text, available at https://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf (``917 Financial Literacy Study'') ([A]bout 76.5% of the
online survey respondents reported that, in selecting their current
adviser, they did not use an SEC-sponsored website to find
information about the adviser. 73% of respondents stated that they
would check IAPD if they were made aware of its existence. Of that
subset--those who reported not using an SEC-sponsored website--
approximately 85.2% indicated that they did not know that such a
website was available for that purpose. Of that majority (i.e., a
further subset)--those who were unaware of such a website--
approximately 73.5% reported that they would review information
about their adviser on an SEC-sponsored website if they knew it were
available); see also RAND 2018, supra footnote 13 (when investors
were asked why they would not look up disciplinary history, 37
percent of all respondents indicated that they did not know where to
get the information, whereas 19 percent of all respondents indicated
that it would take too much time or effort).
    \589\ See Miami Roundtable (investor noting that she had gone on
Investor.gov to learn about the disciplinary history of her
financial professional and noting that she was ``happy when [she]
checked'' the website).
---------------------------------------------------------------------------

    We are not persuaded by commenters who believed that these
disclosures are unduly prejudicial or would have sufficient competitive
concerns and argued that we should not require this information. Firms
or financial professionals would have the opportunity to provide more
information about and encourage retail investors to ask follow-up
questions regarding the nature, scope, or severity of any disciplinary
history, so that retail investors have the information they need to
decide on a relationship. In particular, financial professionals who
themselves have no disciplinary history can make clear that a ``Yes''
disclosure in response to the heading question relates to the firm and
other personnel (if applicable) and not to them. While we recognize
that larger firms might be more likely to respond affirmatively to this
question than smaller firms, we have determined to require this
disclosure because we believe that, on balance, the potential benefit
to the retail investor of seeing at a glance whether a firm or its
financial professionals have disciplinary history (which may encourage
the investor to conduct further research or monitor the relationship or
financial professional more closely) justifies requiring the
disclosures notwithstanding the concerns raised by commenters,

particularly given the importance that commenters placed on
disciplinary history.
    A few commenters suggested revisions to the specific events that
would trigger a disciplinary event disclosure in the proposed
relationship summary.\590\ We have considered these comments but have
determined to adopt the triggers as proposed. As noted in the Proposing
Release, those disclosable events are those that we believe may
generally assist retail investors in evaluating the integrity of a firm
and its financial professionals.\591\ Additionally, these triggering
events are already disclosed on existing systems for other regulatory
purposes. As such, there will not be additional regulatory burdens for
a determination of disciplinary history for the purposes of the
relationship summary.
---------------------------------------------------------------------------

    \590\ See CFA Institute Letter I (``For parity and
comparability, we suggest requiring that the specific events that
would trigger disclosure under these requirements be the same for
both investment advisers and broker-dealers''); Comment Letter of
the Business Law Section of the State Bar of Texas, Investment Funds
Committee (Aug. 7, 2018) (advocating that an investment adviser
disclose that it has a disciplinary event only based on Item 9 of
Part 2A of Form ADV, rather than both Items 9 and 11).
    \591\ See Proposing Release, supra footnote 5, at nn.271-73 and
accompanying text.
---------------------------------------------------------------------------

    Different requirements between other aspects of Form ADV or Form BD
and the relationship summary also could cause confusion and compliance
uncertainty. One commenter suggested basing the relationship summary
disciplinary disclosure around a standardized set of events that would
trigger disclosures specific to the relationship summary.\592\ This
approach may have led to advisers or broker-dealers having publicly
listed disclosure events on BrokerCheck or IAPD yet answering ``No'' to
a question of whether they or their financial professionals have legal
or disciplinary history. We believe that result could have been
confusing or misleading to retail investors. By contrast, the approach
we adopt allows for consistency across public information as to whether
or not a firm or financial professional has a disciplinary event and
leverages existing disclosure reporting systems. We believe that this
consistency justifies not adopting a standardized set of events
triggering disclosure on the relationship summary. Furthermore, the
statement encouraging retail investors to visit Investor.gov/CRS for
more information will help retail investors to more easily learn and
compare additional details from the firms themselves and from their
existing disclosures.\593\
---------------------------------------------------------------------------

    \592\ See CFA Institute Letter I.
    \593\ Item 4.D. of Form CRS.
---------------------------------------------------------------------------

    Firms also will include the following conversation starter: ``As a
financial professional, do you have any disciplinary history? For what
type of conduct?'' \594\ This conversation starter is intended to take
the place of a similarly worded key question.\595\ However, because
this item's heading asks a similar question about disciplinary history
with respect to the firm, we believe that the conversation starter
would be most useful specifically with respect to the financial
professional. This question will allow retail investors to assess that
financial professional's disciplinary history as well as engage in
further discussion about those events or any events applicable to the
firm. In addition, this conversation starter is designed to encourage a
discussion about any differences between the firm's disciplinary
history and that financial professional's history, if applicable (e.g.,
if the financial professional has no disciplinary history while his or
her firm has reportable discipline necessitating a ``Yes'' response to
the heading question).
---------------------------------------------------------------------------

    \594\ Item 4.D.(ii) of Form CRS.
    \595\ See Proposed Item 8.8 of Form CRS (``Do you or your firm
have a disciplinary history? For what type of conduct?''); see also
supra Section II.A.4 (discussing removal of the ``Key Questions to
Ask'' section).
---------------------------------------------------------------------------

5. Additional Information
    At the end of the relationship summary, firms will state where the
retail investor can find additional information about their brokerage
or investment advisory services, as proposed.\596\ This information
should be disclosed prominently at the end of the relationship summary.
However, unlike the proposed relationship summary, the adopted
instructions do not prescribe the different references that a broker-
dealer and investment adviser must include for such direction and do
not require a heading for the section.\597\ This approach is consistent
with our intent to provide firms additional flexibility to provide
information most useful to retail investors.\598\ In addition, removing
the prescribed wording from this section avoids potentially duplicative
disclosure, as the Introduction now includes a statement that free and
simple tools are available to research firms and financial
professionals at Investor.gov/CRS. Investor.gov provides investors
access to search for firms on BrokerCheck and IAPD, references to both
of which would have been required in prescribed wording in the proposed
relationship summary.\599\ The flexibility is also responsive to
observations reported in surveys and studies and comments from
investors at roundtables and on the Feedback Forms indicating that
investors found the proposed ``Additional Information'' section less
helpful compared to other sections in the relationship summary.\600\
Consistent with our layered disclosure approach, we encourage
hyperlinks, QR codes, or other means of facilitating access for retail
investors to obtain additional information.\601\
---------------------------------------------------------------------------

    \596\ See Proposed Item 7.E. of Form CRS. We are also requiring
a statement of where retail investors can request a copy of the
relationship summary.
    \597\ As proposed, broker-dealers would have had to state that,
to find additional information, retail investors should visit
BrokerCheck, the firm's website, and the retail investor's account
agreement. In addition, broker-dealers would link to a portion of
their website with up-to-date information and a link to BrokerCheck.
If the firm did not have a public website, the broker-dealer would
have been required to include a toll-free telephone number where
retail investors could request up-to-date information. See Proposed
Item 7.E.1. of Form CRS.
     Investment advisers would have had to state that, to find
additional information, retail investors should see the firm's Form
ADV brochure on IAPD on Investor.gov and any brochure supplement the
firm provides. If the adviser maintains its current Form ADV on a
public website, it would have had to state the website address. If
the adviser had no such website, a link to adviserinfo.sec.gov would
have had to be provided as well as a toll-free telephone number
where retail investors could request up-to-date information. See
Proposed Item 7.E.2. of Form CRS.
    \598\ See supra footnotes 76-83 and accompanying text.
    \599\ See Item 1.A. of Form CRS. As discussed above, we are
requiring firms to include the reference to Investor.gov/CRS in the
Introduction in part to highlight to retail investors the ability to
research firms and financial professionals as well as the ability to
review educational materials at the website. See supra Section
II.B.1.
    \600\ See supra footnote 568-569 and accompanying text; see also
Philadelphia Roundtable (confusion regarding the difference between
FINRA and the Commission as well as a statement that there are ``too
many websites'' in the Additional Information section).
    \601\ See supra Section II.A.3.
---------------------------------------------------------------------------

    We also are not adopting the proposed requirement that firms
include information on how retail investors should report complaints
about their investments, investment accounts, or financial
professionals in the relationship summary.\602\ While some

commenters supported including information on how retail investors
could report complaints,\603\ others disagreed with this approach\604\
or suggested that it may not be information that is as critical at the
beginning of a relationship.\605\ Commenters submitting their own mock-
ups of the relationship summary likewise took different approaches as
to whether or not to include this information.\606\
---------------------------------------------------------------------------

    \602\ The proposal included the following instruction in the
Additional Information section: ``To report a problem to the SEC,
visit Investor.gov or call the SEC's toll-free investor assistance
line at<PHONE_NUMBER>. [To report a problem to FINRA, [ ].] If you
have a problem with your investments, investment account or a
financial professional, contact us in writing at [insert your
primary business address].'' If you are a broker-dealer or dual
registrant, include the bracketed language. It is your
responsibility to review the current telephone numbers for the SEC
and FINRA no less often than annually and update as necessary.''
Proposed Item 7.D. of Form CRS.
    \603\ See, e.g., NASAA Letter (suggesting that the Additional
Information section be recast as ``Disciplinary History and Customer
Rights and Remedies'' and include, among other things, a discussion
of the legal rights and the remedies available to customers in the
event of breach (including whether the customer will be subject to
mandatory arbitration) and contact information for regulators where
investors may file complaints or ask questions about disciplinary
history); see also Philadelphia Roundtable (investor expressing that
she would like to know where to file a complaint, but not realizing
that the desired information was on the proposed relationship
summary).
    \604\ See Wells Fargo Letter (``We also don't agree that Form
CRS needs to get into details on how an investor can report a
problem. Such a disclosure is outside of the overall purpose of the
summary and will detract from both the readability and length of the
document.'').
    \605\ See Trailhead Consulting Letter (``[T]his document is
encouraged or required to be delivered prior to entering into a
relationship or transaction, so hopefully problems have yet to
occur. The account statements or investment adviser reports should
include statements informing investors how to report a problem.'').
But see Cetera Letter II (Woelfel) (86% of survey respondents
strongly or somewhat agreed that ``how to report a problem with your
investments'' was an important topic to be discussed in the
relationship summary and 84% of survey respondents strongly or
somewhat agreed that ``how to report a problem with a financial
professional'' was an important topic; within a range of 88% to 81%
of ratings for 9 different topics).
    \606\ Compare, e.g., LPL Financial Letter (including hyperlinks
to BrokerCheck and IAPD in part ``to report a problem'' in mock-up)
and IAA Letter I (no reference to problems or reporting complaints
in mock-up).
---------------------------------------------------------------------------

    We are requiring a conversation starter in this part of the
relationship summary, which incorporates and adapts a key question from
the proposal: ``Who is my primary contact person? Is he or she a
representative of an investment adviser or a broker-dealer? Who can I
talk to if I have concerns about how this person is treating me?''
\607\ With required text features to highlight this conversation
starter, as well as information from the Introduction to direct retail
investors to Investor.gov/CRS, we believe that retail investors will be
able to find information on who to contact and how to report a
complaint to the firm at the appropriate time, and Investor.gov
includes links to submit questions and complaints to the Commission. In
light of the mixed feedback from commenters and the changes to the form
designed to enhance flexibility and usability, we are not requiring
firms to include more detailed information about submitting complaints,
as proposed, to enable the disclosures in the relationship summary to
focus on other information about the firm and its services.
---------------------------------------------------------------------------

    \607\ Item 5.C. of Form CRS. In comparison, the analogous
proposed key question was ``Who is the primary contact person for my
account, and is he or she a representative of an investment adviser
or a broker-dealer? What can you tell me about his or her legal
obligations to me? If I have concerns about how this person is
treating me, who can I talk to?'' Proposed Item 8.10 of Form CRS.
---------------------------------------------------------------------------

    We are also requiring firms to include a telephone number where
retail investors can request up-to-date information and request a copy
of the relationship summary.\608\ This differs from the proposal, which
required only those firms that do not have a public website to include
a toll-free number that retail investors may call to request
documents.\609\ Some of the commenter mock-ups included a telephone
number even though the firms maintained a public website.\610\ A
commenter who recommended including a contact telephone number in the
relationship summary did not specify that it must be toll-free and we
received a mock-up with a placeholder for a telephone number that was
not specifically toll-free.\611\
---------------------------------------------------------------------------

    \608\ Item 5.B. of Form CRS.
    \609\ See Proposed General Instruction 8.(a) to Form CRS.
    \610\ See, e.g., Fidelity Letter (mock-up) and Primerica Letter
(mock-up).
    \611\ See IAA Letter I and Primerica Letter (mock-up).
---------------------------------------------------------------------------

    After consideration of these comments and mock-ups, we determined
that all firms should include a telephone number in the relationship
summary. We continue to believe it is important for retail investors to
have firm contact information in the event that they would like to
request disclosures and there is no public website for that firm that
the investor may easily access. In addition, we anticipate that
requiring all firms to include a telephone number will more readily
accommodate retail investors who prefer communicating with firms over
the phone and will facilitate their requests for up-to-date information
and a copy of the relationship summary. If firms do not already have a
toll-free telephone number, they will not be required to obtain one to
comply with the requirements of the relationship summary. Firms will
have the flexibility to decide whether or not the telephone number they
provide in their relationship summary will be toll-free.
6. Proposed Items Omitted in Final Instructions
    The proposal included two sections that we are not adopting as
separate sections in the relationship summary.\612\ As discussed above,
the relationship summary will not include a separate section for ``Key
Questions to Ask;'' instead, the topics covered by the proposed key
questions will be integrated throughout the relationship summary as
headings to items or as ``conversation starters.'' \613\
---------------------------------------------------------------------------

    \612\ In addition to the reasons discussed below, removing these
sections also may help alleviate concerns from commenters that the
proposed relationship summary was trying to ``do too much.'' E.g.,
Schwab Letter I; SIFMA Letter; Comment Letter of UBS Global Wealth
Management (Aug. 7, 2018) (``UBS Letter''); see also AARP Letter
(suggesting that the relationship summary be shortened to avoid
``information overload''); CFA Institute Letter I (the proposed
relationship summary is ``too wordy, lacks design elements that
engage the reader, and, in many respects, is too nuanced for the
average retail investor who is trying to understand the differences
between broker-dealers and investment advisers'').
    \613\ See supra Section II.A.4.
---------------------------------------------------------------------------

    The relationship summary will also not include the Comparisons
section for investment advisers and broker-dealers, as proposed.
Standalone broker-dealers would have been required to include the
following information, using prescribed wording, about a generalized
retail investment adviser: (i) The principal type of fees; (ii)
services investment advisers generally provide; (iii) the applicable
legal standard of conduct; and (iv) certain incentives based on an
investment adviser's asset-based fee structure. For standalone
investment advisers, this section would have required them to include
parallel categories of information regarding broker-dealers.\614\
---------------------------------------------------------------------------

    \614\ See Proposed Item 5 of Form CRS.
---------------------------------------------------------------------------

    Many commenters opposed including discussions comparing investment
advisers and broker-dealers. Some commenters stated that it was
inappropriate for the Commission to require firms to describe products
and services that they do not offer and about which they may have
limited or no expertise.\615\ Other commenters had concerns with the
prescribed wording, which they said may increase investor confusion or
be misleading with prescribed wording that would not reflect the likely
relationship that an investor would have with a specific firm.\616\
Some commenters believed that the wording in the comparison section

favored broker-dealers over investment advisers.\617\ Others indicated
that the comparisons should allow for discussions regarding insurance
products.\618\ As an alternative, some commenters suggested that the
Commission include the information intended for the proposed Comparison
section on the Commission's website as educational material,\619\ and
that firms could link to the educational material from their
relationship summaries.\620\ Given such concerns and suggestions, a
number of mock-ups did not include a comparison section.\621\
---------------------------------------------------------------------------

    \615\ See, e.g., ACLI Letter.
    \616\ See IAA Letter I (arguing that the wording of the section
was ``too boilerplate'' and would prohibit firms from providing
useful information about what the specific investor's relationship
would be with a firm).
    \617\ See CFA Letter I (arguing that ``there are a number of
statements . . . that many, if not most, advisers would likely
object to'' in the prescribed wording); IAA Letter I.
    \618\ See New York Life Letter; Northwestern Mutual Letter.
    \619\ See IAA Letter I; Schnase Letter; Pickard Djinis and
Pisarri Letter.
    \620\ See, e.g., SIFMA Letter; Schwab Letter I.
    \621\ See, e.g., IAA Letter I; SIFMA Letter; Schwab Letter I.
Other mock-ups included a ``first level'' disclosure that involved
generalized comparisons between investment advisers and broker-
dealers, with the relationship summary including firm-specific
information. See LPL Financial Letter; Primerica Letter.
---------------------------------------------------------------------------

    Comments on Feedback Forms indicated that this section was less
useful than other sections of the relationship summary; fewer
commenters rated this section as either ``very useful'' or ``useful''
compared to the other sections of the relationship summary.\622\ Many
narrative comments on Feedback Forms relating to this section (even
from those who graded the section as ``useful'') indicated that these
commenters did not find this section informative and wanted more
information to help them compare firms.\623\ Feedback on this section
from the RAND 2018 report and other surveys and studies was limited
because the RAND 2018 report, and other surveys and studies, generally
focused on the sample proposed dual registrant relationship summary.
However, in a survey that focused on the standalone investment adviser
relationship summary, most survey respondents indicated that this
section was not useful in helping them to understand differences
between firms.\624\
---------------------------------------------------------------------------

    \622\ Twenty-nine commenters (about 30%) on Feedback Forms rated
the comparison section as ``Very Useful''; 39 (about 40%) rated it
as ``Useful''; 17 (almost 20%) responded that they did not find this
section useful or were unsure. See Feedback Forms Comment Summary
(responses to Question 2(d), supra footnote 11).
    \623\ See, e.g., Anonymous07 Feedback Form (``Any example of how
you use either or both for achieving goals''); Anonymous13 Feedback
Form (``. . . list what is the same for both, as much is, then only
list differences in separate columns. What I really want is what's
the differences''); Brantley Feedback Form (``when is it best to use
each type of account--maybe some examples''); Coleman Feedback Form
(``. . . a word that suggests when one type of relationship would be
more beneficial''); Hawkins Feedback Form (``There are so many
different account types and investment options. More information
needed''); Murphy Feedback Form (``Too complicated to follow'');
Schreiner Feedback Form (``highlight differences'').
    \624\ See Betterment Letter I (Hotspex), supra footnote 18 (only
23% of survey respondents indicated that the disclosure on a version
of the sample proposed standalone adviser relationship summary
helped them to understand how other investment firms differed from
Betterment).
---------------------------------------------------------------------------

    We have determined not to require a separate Comparisons section in
the relationship summary for broker-dealers and investment advisers
that are not dual registrants. In lieu of the separate section with
prescribed wording, the final instructions include several requirements
that will help facilitate comparisons among firms. First, each
relationship summary will be required to provide answers to the same
questions in a standard order.\625\ Second, dual registrants will be
required to provide either a combined relationship summary describing
both brokerage and advisory services, presenting the information with
equal prominence and in a manner that facilitates comparison of the two
types of services or, alternatively, will be required to provide
separate relationship summaries that clearly distinguish and facilitate
comparison of the firm's brokerage and investment advisory
services.\626\ Similarly, a firm that has an affiliate providing
brokerage or advisory services may choose to prepare a single
relationship summary, or two separate relationship summaries,
discussing the services provided by both firms, but only if the
relationship summary or summaries are designed in a manner that
facilitates comparison of the brokerage and investment advisory
services.\627\
---------------------------------------------------------------------------

    \625\ See supra Section II.A.2.
    \626\ See supra Section II.A.5. Additionally, and as noted
above, firms that prepare two separate relationship summaries must
deliver both relationship summaries to each retail investor with
equal prominence and at the same time, without regard to whether the
particular retail investor qualifies for those retail services or
accounts. See id.; see also General Instruction 5.A. to Form CRS.
    \627\ See General Instruction 5.B.(i) to Form CRS.
---------------------------------------------------------------------------

    These changes enhance the relationship summary's usability and
design and, we believe, will improve comparisons among firms by retail
investors using the relationship summaries. The relationship summaries
will have differentiated, firm-specific information in a comparable
format as compared to the proposed approach of requiring prescribed and
more generalized information. We believe this comparability and
differentiation among firm relationship summaries will enhance
usability for retail investors. In addition, removing the prescribed
wording allows firms to describe their services and fees more
accurately while simultaneously mitigating concerns commenters raised
regarding potentially misleading or inappropriate prescribed wording.
Investors seeking more general information about investment advisers
and broker-dealers will know they can refer to educational materials
that are available on the Commission's website, Investor.gov, and
elsewhere for investor research and education, including Investor.gov/CRS, which the relationship summary's Introduction must reference.\628\
---------------------------------------------------------------------------

    \628\ See Item 1.B. of Form CRS.
---------------------------------------------------------------------------

C. Filing, Delivery, and Updating Requirements

    We are adopting the filing, delivery, and updating requirements
with several modifications from the proposal. Firms will file copies of
their relationship summaries with the Commission, will update the
disclosures when the information becomes materially inaccurate, and
will communicate any changes to retail investors who are existing
clients or customers. The delivery requirements are designed to ensure
a relationship summary is provided before or at the time a retail
investor enters into a relationship with the firm and when changes are
made to the services the firm provides.
    We made several modifications to the proposed requirements in
response to comments, in order to make it easier for retail investors
to discern changes in updated relationship summaries, streamline the
filing requirements, and provide greater clarity regarding several of
the delivery requirements. As described further below, some of the key
revisions include:
     Broker-Dealer Initial Delivery Obligations. Broker-dealers
will be required to deliver the relationship summary 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, instead of before or at the
time the retail investor first engages the broker-dealer's services, as
proposed. We encourage delivery of the relationship summary to new or
prospective clients or customers at the first possible opportunity,
including the initial point of contact.
     Other Delivery Obligations. Firms will deliver the
relationship summary to existing retail investor clients and customers
before or at the time firms open a new account that is different

from the retail investor's existing account, as was proposed. In
addition, firms will deliver the relationship summary when they
recommend that the retail investor roll over assets from a retirement
account, or when they recommend or provide a new service or investment
outside of a formal account (e.g., variable annuities or a first-time
purchase of a direct-sold mutual fund through a ``check and
application'' process). In response to commenters' concerns, these
changes are intended to replace the proposed instruction that firms
deliver the relationship summary when making changes to an existing
account that would ``materially change the nature and scope'' of the
firm's relationship with the retail investor with more concrete
delivery triggers.
     Highlighting Changes. In a change from the proposal, we
are adding a requirement that firms delivering updated relationship
summaries to existing clients or customers also highlight the most
recent changes by, for example, marking the revised text or including a
summary of material changes. This additional disclosure must be filed
as an exhibit to the unmarked amended relationship summary (but would
not be counted toward the two-page or four-page limit, as applicable).
     New Filing Requirements. As proposed, we are requiring
that firms file the relationship summary using a text-searchable
format. However, in response to comments received, we are also
requiring that the filings contain machine-readable headings to enhance
the ability to compare information submitted by different firms. Also
in response to comments, which we solicited on this topic, we are
changing the system that broker-dealers will use to file Form CRS from
EDGAR, as proposed, to Web CRD[supreg]. Dual registrants will be
required to file their relationship summaries using both IARD and Web
CRD[supreg].
    Finally, we are revising the definition of retail investor to align
more closely with the definition of ``retail customer'' in Regulation
Best Interest. As discussed, below, we do not believe that this results
in substantive changes in the definition as proposed.
1. Definition of Retail Investor
    For purposes of Form CRS, ``retail investor'' is defined as ``a
natural person, or the legal representative of such natural person, who
seeks to receive or receives services primarily for personal, family or
household purposes.'' \629\ The proposal defined the term retail
investor as ``a prospective or existing client or customer who is a
natural person (an individual), including trusts or other similar
entities that represent natural persons, even if another person is a
trustee or managing agent.'' This definition was different from the
definition of ``retail customer'' in proposed Regulation Best Interest
\630\ because the relationship summary was intended for an earlier
stage of the relationship between an investor and a financial
professional, and we thought it would be beneficial for all natural
persons to receive information to facilitate their account
choices.\631\
---------------------------------------------------------------------------

    \629\ General Instruction 11.E. to Form CRS.
    \630\ Compare Proposed Exchange Act rule 15l-1(b)(1) (defining
retail customer to mean ``a person, or the legal representative of
such person, who: (A) Receives a recommendation of any securities
transaction or investment strategy involving securities from a
broker, dealer, or a natural person who is an associated person of a
broker or dealer; and (B) Uses the recommendation primarily for
personal, family, or household purposes.'').
    \631\ Proposing Release, supra footnote 5, at Section II, at
n.29.
---------------------------------------------------------------------------

    Many commenters recommended that we use a single definition for
both ``retail investor'' and ``retail customer'' because consistent
definitions would facilitate compliance and administrative
efficiency.\632\ Commenters were concerned that differences between the
definitions could result in a requirement to deliver the relationship
summary to broker-dealer customers who may not be ``retail customers''
for purposes of Regulation Best Interest.\633\ Many commenters further
recommended that the definitions of ``retail investor'' and ``retail
customer'' should both be conformed to rules issued by FINRA, which use
a net worth test to distinguish institutional and ``retail''
customers.\634\ Commenters also asked us to clarify that the
relationship summary need not be delivered to certain professionals
retained to represent a natural person \635\ and address whether
participants in workplace retirement plans will be retail investors who
should receive the relationship summary.\636\
---------------------------------------------------------------------------

    \632\ See Committee of Annuity Insurers Letter (``a standardized
definition . . . would be more efficient and enable firms to more
easily comply''); ICI Letter (``a single definition . . . would
provide important administrative efficiencies, facilitate
compliance, and avoid confusion''); see also Bank of America Letter;
CFA Letter I; Cetera Letter I; Fidelity Letter; Comment Letter of
Franklin Resources, Inc. (Aug. 6, 2018); Invesco Letter; Comment
Letter of Morgan Stanley Smith Barney, LLC (Aug. 7, 2018) (``Morgan
Stanley Letter''); Oppenheimer Letter; Comment Letter of Raymond
James Financial (Aug. 7, 2018) (``Raymond James Letter''); SIFMA
Letter; TIAA Letter; Transamerica Letter.
    \633\ See, e.g., SIFMA Letter; TIAA Letter.
    \634\ See, e.g., SIFMA Letter (referring to FINRA Rule 2210);
Cetera Letter I; Investacorp Letter; Morgan Stanley Letter; TIAA
Letter; UBS Letter; Wells Fargo Letter.
    \635\ E.g., Comment Letter of the American Bankers Association
(Aug. 7, 2018) (``American Bankers Association Letter''); IAA Letter
I; ICI Letter; Oppenheimer Letter; Prudential Letter; T. Rowe
Letter; Wells Fargo Letter.
    \636\ E.g., Comment Letter of Empower Retirement (Aug. 2, 2018)
(``Empower Retirement Letter''); Fidelity Letter; Comment Letter of
Groom Law Group (Aug. 7, 2018) (``Groom Law Letter''); IAA Letter I;
ICI Letter; IRI Letter; Invesco Letter; Comment Letter of the
National Association of Government Defined Contribution Plans (Aug.
7, 2018) (``NAGDA Letter''); Oppenheimer Letter; Comment Letter of
SPARK Institute, Inc. (Aug. 7, 2018) (``SPARK Letter''); T. Rowe
Letter.
---------------------------------------------------------------------------

    In response to comments, the final instructions adopt a definition
of retail investor that is consistent with the definition of retail
customer in Regulation Best Interest, but differs to reflect
differences between the relationship summary delivery requirement and
the obligations of broker-dealers under Regulation Best Interest,
including that the relationship summary is required whether or not
there is a recommendation and covers any prospective and existing
clients and customers (i.e., a person who ``seeks to receive or
receives services'') of investment advisers as well as broker-
dealers.\637\ Specifically, under Regulation Best Interest, retail
customer will be defined as ``a natural person, or the legal
representative of such natural person, who: (A) Receives a
recommendation of any securities transaction or investment strategy
involving securities from a broker, dealer, or a natural person who is
an associated person of a broker or dealer; and (B) uses the
recommendation primarily for personal, family, or household purposes.''
\638\ Like the definition of retail customer in Regulation Best
Interest, the definition of retail investor in the final instructions
includes natural persons \639\ who seek to receive or receive services
``primarily for personal, family or household purposes'' and the
``legal representatives of such natural persons.'' In addition, we
provide an interpretation on who would be considered to be a ``legal
representative'' for purposes of this definition.
---------------------------------------------------------------------------

    \637\ See Regulation Best Interest Release, supra footnote 47,
at Section II.B.3.c.
    \638\ Exchange Act Rule 15l-1(b)(1).
    \639\ The proposed definition used the language ``a natural
person (an individual).'' While the final definition excludes the
parenthetical reference to ``an individual,'' we do not intend any
substantive change because a reference to a natural person typically
includes any individual.
---------------------------------------------------------------------------

    The proposed definition of retail investor did not include the
phrase ``personal, family or household purposes.'' No commenters
addressed whether or not to include this phrase in the Form CRS
definition of retail investor, other than commenting

generally that they supported conforming both definitions. Commenters
did comment and request clarification of this aspect of the definition
of ``retail customer'' in Regulation Best Interest.\640\
---------------------------------------------------------------------------

    \640\ See Regulation Best Interest Release, supra footnote 47,
at Section II.B.3a (describing comments).
---------------------------------------------------------------------------

    We believe the final definition of retail investor remains
consistent with our objective to provide all natural persons with
information to facilitate their understanding of their choices among
firms and types of accounts. Firms will be required to deliver the
relationship summary to individuals seeking brokerage and investment
advisory services in connection with any of the many different reasons
that an individual may seek these services, including, for example,
retirement, education and other personal, family or household saving
and investing objectives. The final definition of retail investor will
exclude natural persons seeking these services for commercial or
business purposes, such as, for example, where an employee seeks
services for an employer or an individual seeks services for a small
business or on behalf of another non-natural person entity such as a
charitable trust. However, firms must deliver the relationship summary
to natural persons who might be seeking services for a mix of personal
and commercial or other non-personal purposes, such as a sole
proprietor or small business owner who may engage a firm or financial
professional for multiple accounts and for personal as well as business
purposes. Where firms do not know whether a natural person is seeking
services for something other than personal, family, or household
purposes at the beginning of a relationship, they may treat that
natural person as a retail investor for purposes of delivery of the
relationship summary.\641\
---------------------------------------------------------------------------

    \641\ As explained in Regulation Best Interest Release, supra
footnote 47, at Section II.B.3a, we interpret ``personal, family or
household purposes'' as used in the definition of retail customer to
mean any recommendation to a natural person for his or her account,
and we believe that, pursuant to the Care Obligation of Regulation
Best Interest, broker-dealers are able to obtain sufficient facts to
determine the purpose for which a recommendation will be used.
---------------------------------------------------------------------------

    As in the proposal, the final retail investor definition will
capture natural persons without any distinction based on net worth.
While a number of commenters argued that firms should not be required
to deliver a relationship summary to investors that meet certain asset
or net worth thresholds,\642\ others opposed narrowing the definition
based on a net worth test or other test.\643\ We continue to believe
that the retail investor definition should not distinguish based on a
net worth or other asset threshold test and that all individual
investors would benefit from clear and succinct disclosure regarding
key aspects of available brokerage and advisory relationships. As noted
in the proposal, section 913 of the Dodd-Frank Act defines ``retail
customer'' to include natural persons and legal representatives of
natural persons without distinction based on assets or net worth.\644\
Further, we believe that it also may be impractical to include a net
worth or other test based on asset thresholds in the definition because
it could be difficult for firms to determine a retail investor's net
worth at the outset of the relationship when the relationship summary
must be provided.
---------------------------------------------------------------------------

    \642\ For example, SIFMA's comments refer to FINRA Rule 2210,
which treats accounts of natural persons with $50 million or more in
assets as institutional investors; SIFMA explains that these
investors are ``among the wealthiest and most sophisticated
customers and often have multiple professional fiduciaries and
advisers, apart from their broker-dealer relationships'' and ``do
not function as `retail customers' ''; see also Cetera Letter I;
Investacorp Letter; Morgan Stanley Letter; TIAA Letter; UBS Letter;
Wells Fargo Letter. Other commenters suggested different tests of
financial sophistication, e.g., Advisers Act Rule 205-3 definition
of ``qualified clients'' (a $2 million net worth test), see Comment
Letter of American Investment Council (Aug. 7, 2018) (``American
Investment Council Letter''); Comment Letter of Loan Syndications
and Trading Association (Aug. 7, 2018); Comment Letter of the
Managed Funds Association Alternative Investment Management
Association (Aug. 7, 2018); or the section 2(a)(51) of the
Investment Company Act definition of ``qualified purchaser'' ($5
million net worth test). See Fidelity Letter; Pickard Djinis and
Pisarri Letter.
    \643\ See, e.g., Morningstar Letter (``any unequal distribution
of this information would be arbitrary''); see also AARP Letter; CFA
Letter I; Trailhead Consulting Letter.
    \644\ Proposing Release, supra footnote 5, at Section II, at
text accompanying nn.31-32.
---------------------------------------------------------------------------

    To conform definitions, the final definition of retail investor
substitutes the language ``the legal representative of such natural
person'' for language in the proposal referring to ``a trust or other
similar entity that represents natural persons, even if another person
is a trustee or managing agent of the trust.'' \645\ We believe this is
a clarification and not a substantive change from the proposal because
it retains coverage of trusts and other similar legal entities that
represent natural persons, and the proposal contemplated that certain
legal representatives, e.g., a trustee or managing agent, would receive
a relationship summary on behalf of a trust or other similar legal
entity. Further, we clarify that we interpret a ``legal
representative'' of a natural person to cover only non-professional
legal representatives (e.g., a non-professional trustee that represents
the assets of a natural person and similar representatives such as
executors, conservators, and persons holding a power of attorney for a
natural person).\646\ In referring to non-professional legal
representatives, we intend to capture persons who are acting on behalf
of natural persons and are not regulated financial services
professionals retained by natural persons to exercise independent
professional judgment. This responds to those commenters who argued
that it should not be necessary to provide a relationship summary to
regulated professionals in the financial services industry, such as
registered investment advisers and broker-dealers, corporate
fiduciaries (e.g., banks, trust companies and similar financial
institutions) and insurance companies, and the employees or other
representatives of such advisers, broker-dealers, corporate fiduciaries
and insurance companies.\647\ Accordingly, non-professional legal
representatives would not include such regulated financial services
professionals. We agree with these commenters that delivery of the
relationship summary to such regulated financial services professionals
retained by natural persons to exercise independent judgment will not
further our objective of facilitating retail investors' understanding
of their account choices.\648\ Importantly, however, this will not
relieve firms or financial professionals retained to represent the
assets of natural persons from their own obligations to deliver the
relationship summary to clients or customers who are retail investors.
---------------------------------------------------------------------------

    \645\ General Instruction 11.E. to Form CRS.
    \646\ See ICI Letter (recommending that the Commission ``make
explicit in the definition of `retail investor' that a `legal
representative' of a natural person ``means an executor,
conservator, or a person holding a durable power of attorney for a
natural person'').
    \647\ See, e.g., American Bankers Association Letter; Bank of
America Letter; IAA Letter I; Invesco Letter; ICI Letter;
Oppenheimer Letter; Prudential Letter; T. Rowe Letter.
    \648\ See, e.g., American Bankers Association Letter; Bank of
America Letter; IAA Letter I; Invesco Letter; ICI Letter;
Oppenheimer Letter; Prudential Letter; T. Rowe Letter.
---------------------------------------------------------------------------

    Commenters offered varying points of view about whether
participants of workplace retirement plans should be treated as retail
investors who receive the relationship summary. Some recommended that
the definition of retail investor should include plan
participants.\649\ Others argued against

delivering a relationship summary to plan participants, explaining that
a relationship summary would confuse participants and would duplicate
other required disclosures.\650\ Several commenters suggested that only
plan participants that choose to retain a firm or financial
professional in connection with assets in his or her plan account
should receive a relationship summary.\651\ Commenters also asked us to
clarify whether the definition of retail investor would include
participants in plans not subject to ERISA, such as governmental or
other non-ERISA workplace retirement plans meeting requirements under
section 403(b) or 457 of the Internal Revenue Code of 1986, as amended
(``Internal Revenue Code'' or ``Code''), and individual retirement
accounts (``IRAs'') (including SEPs and SIMPLE IRAs).\652\
---------------------------------------------------------------------------

    \649\ See ICI Letter; Invesco Letter; Oppenheimer Letter;
Trailhead Consulting Letter; see also IRI Letter (permit delivery of
Form CRS using media approved by the plan sponsor).
    \650\ See Empower Retirement Letter (noting that plans covered
by ERISA ``have named fiduciaries responsible for ensuring each plan
is operated in the best interest of plan participants . . . [and
who] are already obligated pursuant to ERISA Sec.  404a-5 to provide
participants with detailed disclosures related to those investment
choices.''); Groom Law Letter (noting that ``the decision to engage
a broker-dealer for purposes of providing services to the plan is
made at the plan sponsor level and not at the participant level);
Comment Letter of Principal Financial Group (Aug. 7, 2018)
(``Principal Letter'').
    \651\ See T. Rowe Letter (noting that Form CRS should apply ``if
an individual chooses to retain a broker-dealer or advisor to
provide recommendations or management regarding his or her
retirement plan accounts . . . [but] ``if a plan fiduciary selects a
broker-dealer or adviser to provide such services to its plan
participants . . . we do not think Form CRS should apply);
Prudential Letter; SPARK Letter.
    \652\ See ICI Letter; Invesco Letter; Oppenheimer Letter; T.
Rowe Letter.
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    In response to comments, we are clarifying that the relationship
summary applies when retail investors seek services for their
retirement accounts as well as non-retirement accounts because
retirement savings is a personal, household or family purpose.
Accordingly, the definition of retail investor will include a natural
person seeking to select and retain a firm to provide brokerage or
advisory services for his or her own retirement account, including but
not limited to IRAs and individual accounts in workplace retirement
plans, such as 401(k) plans and other tax-favored retirement
plans.\653\ For example, firms will be required to deliver a
relationship summary to plan participants seeking advice about whether
to take a distribution from a 401(k) plan or other workplace retirement
plan and how to invest that distribution. Similarly, a firm will be
required to deliver a relationship summary to a plan participant
seeking to retain the firm to provide brokerage or advisory services
for the participant's individual account held in a 401(k) plan or other
workplace retirement plan.\654\
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    \653\ Such IRAs include, for example, individual retirement
accounts and individual retirement annuities described by section
408(a) and (b) of the Internal Revenue Code, ``simplified employee
pensions'' (or (SEPs) described by section 408(k) of the Code, and
simple retirement accounts described by section 408(p) of the Code
(SIMPLE IRAs). In response to commenters, we also clarify that
workplace retirement plans include any arrangement available at a
workplace that provides retirement benefits or allows saving for
retirement, including, for example, any 401(k) plan or other plan
that meets requirements for qualification under Code section 401(a),
deferred compensation plans of state and local governments and tax-
exempt organizations described by Code section 457, and annuity
contracts and custodial accounts described by Code section 403(b).
Likewise, the definition of retail investor includes natural persons
seeking brokerage or advisory services for other tax-favored savings
arrangements such as an Archer Medical Savings Account described by
Code section 220(d), a Health Savings Accounts described by Internal
Revenue Code section 223(d) and any similar tax-favored health plan
saving arrangement, a Coverdell education savings account described
by Code section 530 and a qualified tuition program or ``529 plan''
established pursuant to Code section 529.
    \654\ For example, we understand that, although not common, some
401(k) plans and other individual account plans provide participants
total discretion to choose an investment adviser or broker-dealer to
provide services for their individual plan account. See, e.g., 29
CFR 2550.404c-1(f), Example 9.
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    However, participants in 401(k) plans and other workplace
retirement plans will not be retail investors for purposes of the Form
CRS delivery obligation when making certain ordinary plan elections
that do not involve selecting or retaining a firm to provide brokerage
or advisory services. We understand, for example, that participants in
workplace retirement plans generally do not choose the firm that
provides brokerage or advisory services in connection with certain
ordinary plan elections, such as whether to enroll in the plan, make or
increase plan contributions, or how to allocate contributions and plan
account balances among a designated menu of plan investment options. We
designed the relationship summary to assist investors in understanding
their choices when they seek to engage a firm to provide brokerage and
advisory services. Even if a financial professional or other firm
representative assists a participant directly, e.g., at an enrollment
meeting or through a call center interaction, the participant generally
would not be making the type of account or firm choice contemplated by
a relationship summary because the plan's sponsor or another
representative designated by the terms of the plan (e.g., a trustee or
other fiduciary or other responsible party) (a ``plan representative'')
already has selected the firm, has negotiated the terms of service, and
remains responsible for supervising the firm.\655\ We agree with
commenters that delivering a relationship summary under these
circumstances could be confusing to participants and duplicative of
already required disclosures. Accordingly, plan participants should not
be viewed as ``seeking or receiving services'' for purposes of the Form
CRS definition of retail investor when they are merely electing among
plan features offered by firms and financial professionals retained and
supervised by a plan representative. This includes a participant's
decision to invest his or her account balance through an in-plan self-
directed brokerage account option or to select an in-plan managed
account service option, where a plan representative retains and
supervises the broker-dealer or investment advisory firm providing such
services to the plan.
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    \655\ This approach differs from our approach to defining retail
customer for purposes of Regulation Best Interest to recognize
differences between the relationship summary requirement and the
obligations of broker-dealers under Regulation Best Interest. As
discussed in the Regulation Best Interest Release, supra footnote
47, at Section II.B.3.a, a participant receiving recommendations for
the participant's individual account held in a 401(k) or other
workplace retirement plan would be a retail customer for purposes of
Regulation Best Interest.
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    Finally, commenters asked us to address whether workplace
retirement plans and their representatives (e.g., plan sponsors,
trustees, and other fiduciaries) and service providers will be retail
investors entitled to receive Form CRS. In the proposal, we excluded
workplace retirement plans and their representatives from the
definition of retail investor.\656\ Most commenters agreed with this
approach; some noting that workplace retirement plans and their
representatives would not benefit from receiving a Form CRS.\657\ Two

commenters argued that workplace retirement plans and their
representatives should receive Form CRS.\658\
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    \656\ Proposing Release, supra footnote 5, at Section II.
    \657\ See IAA Letter I (``Institutional trusts such as employee
benefit or pension plans . . . would not benefit from a Form CRS'');
T. Rowe Letter (``. . . where a plan fiduciary selects a broker-
dealer or adviser to provide such services to its plan participants
. . . we do not think Form CRS should apply. ERISA and governmental
plans are already subject to extensive disclosures to participants
and rules related to conflicts. Consequently, a Form CRS in this
context would be duplicative of existing disclosures and cause
potential confusion, without providing any additional benefits'');
see also Comment Letter of the American Retirement Association (Aug.
3, 2018) (professional investment experts retained by a plan to
perform investment advisory services in a fiduciary capacity should
not be included); Fidelity Letter (``establish a uniform definition
. . . [that] excludes ERISA and non-ERISA employer sponsored
retirement plans regardless of size, as well as their sponsors,
trustees and advisers . . .''); ICI Letter (a retail investor should
not include retirement plans, their sponsors or trustees or plan
fiduciaries); NAGDA Letter (requesting clarification); Prudential
Letter (```retail investor' for purposes of Form CRS should not
include retirement plan representatives''); Transamerica Letter
(same).
    \658\ See Comment Letter of Fisher Investments (Dec. 13, 2018)
(``many individuals overseeing retirement plans . . . would benefit
from a better understanding of concepts in proposed Form CRS'');
Trailhead Consulting Letter.
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    We understand that plan representatives of workplace retirement
plans typically are not seeking or receiving services primarily for
personal, family or household purposes when they consider whether to
engage a broker-dealer or investment adviser to provide services to a
retirement plan established, maintained and operated by an employer to
provide pension or retirement savings benefits to employees. Further,
the relationship summary--designed to provide succinct information
relevant to individual retail investors--is not designed to facilitate
account and firm choices by the representatives of these workplace
retirement plans. In this regard, we understand that plan
representatives typically seek brokerage and advisory services bundled
together with, or that will be complimentary with, other services
supporting the plan's establishment, maintenance and operation, such as
plan design, recordkeeping and other administrative services, and
compliance services to meet applicable requirements under the Internal
Revenue Code and ERISA (or applicable state law for non-ERISA
governmental plans).\659\
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    \659\ See, e.g., Groom Law Letter (describing business models of
firms offering brokerage and advice services to plans together with
other services); SPARK Letter (same).
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    Accordingly, the final definition of retail investor does not
include most workplace retirement plans or their plan representatives
seeking services for a plan established, maintained and operated by an
employer to provide pension or retirement savings benefits to
employees, because such plans and their representatives are not seeking
services primarily for personal, family or household purposes. We note,
however, that some plan representatives may participate under their
employer's workplace plan, e.g., in the case of a workplace IRA or
other workplace retirement plan is established and maintained by a sole
proprietor or other self-employed individual that includes one or more
employees in addition to the plan representative. If a plan
representative who decides the services arrangements for a workplace
retirement plan is a sole proprietor or other self-employed individual
who will participate in the plan, the plan representative also would be
a retail investor seeking services for personal, family or household
purposes and must receive a copy of the firm's relationship
summary.\660\
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    \660\ This is consistent with the final definition of retail
customer for purposes of Regulation Best Interest, which to the
extent that the plan representative who decides services
arrangements is a sole proprietor or other self-employed individual
who will participate in the plan, the plan representative will be a
retail customer for purposes of Regulation Best Interest to the
extent that the plan representative receives recommendations
directly from a broker-dealer primarily for personal, family or
household purposes. See Regulation Best Interest Release, supra
footnote 47, at Section II.B.3a.
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2. Filing Requirements
    As proposed, all broker-dealers and investment advisers will file
their relationship summaries with the Commission, and the relationship
summaries will be accessible via the Commission's public website,
Investor.gov,\661\ in addition to each firm's website. There are
several reasons we are requiring the relationship summaries to be filed
with the Commission. First, the public will benefit by being able to
access any firm's relationship summary by using one website,
Investor.gov. This should make it easier to make comparisons across
firms. Second, some firms may not maintain a website, and therefore
their relationship summaries will not otherwise be accessible to the
public. Third, by having firms file their relationship summaries with
the Commission, Commission staff can more easily monitor the filings
for compliance. Commenters generally supported requiring broker-dealers
and investment advisers to file their relationship summaries with the
Commission.\662\
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    \661\ For broker-dealers, relationship summaries will be filed
through Web CRD[supreg], and for investment advisers, relationship
summaries will be filed through IARD. Investors will be able to
access relationship summaries using BrokerCheck and IAPD, the public
interfaces of Web CRD[supreg] and IARD, respectively, and through
the Commission's Investor.gov website, which has a search tool that
links to both BrokerCheck and IAPD.
    \662\ See, e.g., CFA Letter I; Schnase Letter; Trailhead
Consulting Letter; Institute for Portfolio Alternatives Letter.
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    We are requiring that the filing be in a text-searchable format, as
proposed, and in addition, the final instructions will require that the
filing be structured with machine-readable headings. Two commenters
advocated that the relationship summary should be filed not only in a
text-searchable, but also machine-readable, format,\663\ in response to
our solicitation for comment on filing formats. Both commenters stated
that this would allow third parties to develop online comparison tools,
making it easier for retail investors to compare firms with one
another, including across key categories, such as fees.\664\ We agree
that requiring this formatting will enable investors and other data
users, industry participants, and the Commission and Commission staff
to better collect and analyze reported information and facilitate the
development of tools to aggregate and compare the information. We are
requiring that only the headings be machine-readable, given that firms
will use their own wording in the narrative responses for each of the
relationship summary items, and the responses will not be uniform. The
machine-readable, structured headings could, for example, be