implemented in PDF by creating a bookmark for each of the headings of
the relationship summary that matches the text of the heading and that
has the heading as its destination. We believe this promotes
aggregation and comparison of responses to specific items across
different relationship summaries but also limits the costs of preparing
the relationship summary. This is consistent with the Commission's
ongoing efforts to modernize our forms by taking advantage of
technological advances both in the manner in which information is
reported to the Commission and how it is provided to investors and
other users.\665\ These

instructions are not intended to require firms to prepare a
relationship summary in paper format. A firm that prepares and delivers
a relationship summary only in an electronic format could, for example,
file a rendering of the electronic disclosures with the Commission.
---------------------------------------------------------------------------

    \663\ See CFA Letter I (``[P]ast experience regarding investors'
limited use of existing databases, such as IARD and BrokerCheck,
cautions against placing too much reliance on investors' accessing
the documents directly. We therefore urge the Commission to require
that the documents be filed, not just in a text-searchable format,
but in a machine-readable format.''); Schnase Letter (``[T]he data
contained in the Relationship Summary should be required to be filed
in a structured data format, so the document can be utilized as a
stand-alone human-readable document and serve as the source for a
machine-readable data set.'').
    \664\ CFA Letter I (``We can envision a time when third parties
could develop online tools to help investors search for a firm or
account that meets their preferred parameters, much like the tools
Kelly Blue Book or Edmunds provide to help car buyers narrow their
selections.''); Schnase Letter (``Retail investors may not be able
or inclined to build their own algorithms and spreadsheets to
manipulate machine-readable data themselves, but third-party
providers will likely step in when demand exists to provide
investors publicly accessible comparison tools fueled by the
machine-readable data made available by the SEC.'').
    \665\ See, e.g., Inline XBRL Filing of Tagged Data, Advisers Act
Release No. 10514 (Jun. 28, 2018) [83 FR 40846] (Aug. 16, 2018);
Optional internet Availability of Investment Company Shareholder
Reports, Investment Company Act Release No. 33115 (Jun. 5, 2018) [83
FR 29158] (Jun. 22, 2018) (``Shareholder Reports Release'');
Investment Company Reporting Modernization, Investment Company Act
Release No. 32314 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)].
---------------------------------------------------------------------------

    In a change from the proposal, broker-dealers will file through Web
CRD[supreg] instead of EDGAR. Investment advisers will file their
relationship summaries through IARD in the same manner as they
currently file Form ADV Parts 1A and 2A, as proposed.\666\ Whether dual
registrants prepare a single relationship summary or two, they will
file their relationship summaries using both IARD and Web
CRD[supreg].\667\ We are requiring filing of the relationship summary
through Web CRD[supreg] and IARD because they are currently used by and
familiar to broker-dealers and investment advisers, respectively. This
should minimize the systems changes firms would need to make, because
they would not need to establish new systems in order to file their
relationship summaries with the Commission. One commenter supported
using EDGAR for analyzing and comparing fee information.\668\ Several
commenters, however, generally preferred Web CRD[supreg], arguing that
Web CRD[supreg] is more accessible for broker-dealers, which already
make filings through Web CRD[supreg], and that Web CRD[supreg] data
provided on BrokerCheck is more familiar to retail investors.\669\ In
light of comments, we have determined that requiring broker-dealers to
file their relationship summaries through Web CRD[supreg] should
streamline broker-dealer filing requirements relative to requiring
broker-dealers to file on EDGAR. Broker-dealers already use Web
CRD[supreg] for filing their own registration records and those of
their associated persons, and retail investors already can find broker-
dealers' disciplinary history and other information on BrokerCheck. In
addition, Investor.gov already has a prominent search tool on its main
landing page that links to BrokerCheck and IAPD, which investors can
use to search for information about firms and financial professionals.
This minimizes the implementation changes needed to make relationship
summaries easily accessible through Investor.gov because new search
tools would not need to be created and existing search tools could be
linked to the Investor.gov/CRS web page referenced in the relationship
summary.
---------------------------------------------------------------------------

    \666\ General Instruction 7.A.(i) to Form CRS. Several
commenters supported using IARD as the filing system for investment
advisers. See, e.g., Trailhead Consulting Letter; Schnase Letter.
Investment advisers may instead file a paper copy of the Form ADV
with the Commission if they apply for a hardship exemption by filing
Form ADV-H.
    \667\ General Instruction 7.A.(i) to Form CRS. Information for
investment advisers on how to file with IARD is available on the
SEC's website at www.sec.gov/iard. Information for broker-dealers on
how to file through Web CRD[supreg] is available on FINRA's website
at http://www.finra.org/industry/web-crd/web-crd-system-links. See
General Instruction 7.A.(ii) to Form CRS.
    \668\ See Morningstar Letter (advocating for fee information to
be filed in a standard table with brief examples ``in the EDGAR
system in a standardized data format facilitating analysis and
comparison'').
    \669\ See Schnase Letter (``[I]t is not clear why BDs should be
filing their Relationship Summary through a different filing system
than IAs (IARD, which is operated by FINRA) and through a different
filing system than BDs already use for Form BD (CRD, also operated
by FINRA).''); NASAA Letter (``[B]roker-dealers should file Form CRS
on the WebCRD platform maintained by FINRA for its BrokerCheck
reports (and which is related to IARD).''); Institute for Portfolio
Alternatives Letter (``CRD and its public-facing BrokerCheck is a
system familiar to both the brokerage industry as well as investors.
We believe that CRD/BrokerCheck will address potential investor
confusion and streamline broker requirements.'').
---------------------------------------------------------------------------

    We also received comment that dual registrants should file only on
one system, instead of on both EDGAR and IARD as proposed.\670\ One
commenter, however, implicitly supported the requirement that dual
registrants file on two systems.\671\ The final instructions require
dual registrants to file their relationship summaries using both
systems--Web CRD[supreg] and IARD.\672\ This approach ensures a
complete and consistent filing record for each firm and facilitates the
Commission's data analysis, examinations, and other regulatory efforts.
Firms offering brokerage or investment advisory services through
affiliates will follow the same filing requirements as standalone
firms.
---------------------------------------------------------------------------

    \670\ See, e.g., Prudential Letter (``The Commission should
clarify that a single filing [for dual registrants], in either IARD
or EDGAR, would constitute compliance with the filing
requirement.'').
    \671\ See Schwab Letter III (providing sample Form CRS
instructions for dual registrants to file on IARD and EDGAR).
    \672\ General Instruction 7.A.(i) to Form CRS.
---------------------------------------------------------------------------

    For investment advisers, we are also adopting clarifications in the
General Instructions to Form ADV that relate to the amending and filing
of the relationship summary.\673\ First, investment advisers may file
an amended relationship summary as an other-than-annual amendment or by
including the relationship summary as part of an annual updating
amendment, within the 30 days in which they are required to file the
amendment.\674\ Second, the instructions provide that advisers may, but
are not required to, submit amended versions of their relationship
summary as part of their annual updating amendment and include
additional technical references to implement this instruction.\675\
Third, we added provisions to mirror the requirements of the General
Instructions to Form CRS as to when amendments and exhibits showing
changes to Part 3 must be made and filed.\676\ We believe that
investment advisers will benefit from these clarifications. Finally, we
are adopting certain amendments to the General Instructions to Form ADV
to add conforming technical changes and references to the Form ADV,
Part 3.\677\
---------------------------------------------------------------------------

    \673\ See infra Section II.C.4 generally for a discussion of
amendments to the relationship summary.
    \674\ See amended General Instruction 4 to Form ADV (revised to
add the following language: ``If you are registered with the SEC,
you must amend Part 3 of your Form ADV within 30 days whenever any
information in your relationship summary becomes materially
inaccurate by filing with the SEC an additional other-than-annual
amendment or by including the relationship summary as part of an
annual updating amendment.''). Compare Proposed General Instruction
4 to Form ADV (``You must amend your relationship summary and file
your relationship summary amendments in accordance with the Form
ADV, Part 3 (Form CRS), General Instructions, 6.'').
    \675\ See amended General Instruction 4 to Form ADV (revised
with language that investment advisers must update responses to all
items ``in Part 1A, 1B, 2A and 2B (as applicable),'' and ``You may,
but are not required, to submit amended versions of the relationship
summary required by Part 3 as part of your annual updating
amendment.'').
    \676\ See infra footnotes 769-774, 781-783, and accompanying
text.
    \677\ See amended General Instruction 3 to Form ADV (indicating
that Form ADV, as amended to add Part 3, now contains five instead
of four parts); amended General Instruction 4 to Form ADV (``Part 3
requires advisers to create a relationship summary (Form CRS)
containing information for retail investors. The requirements in
Part 3 apply to all investment advisers registered or applying for
registration with the SEC, but do not apply to exempt reporting
advisers. Every adviser that has retail investors to whom it must
deliver a relationship summary must include in the application for
registration a relationship summary prepared in accordance with the
requirements of Part 3 of Form ADV. See Advisers Act Rule 203-1.'');
amended General Instruction SEC's Collection of Information section
(removing ``promptly'' to reflect filing requirements for
relationship summary changes).
---------------------------------------------------------------------------

3. Delivery Requirements
a. Form of Delivery
    The final instructions provide, as proposed, that firms will be
able to deliver the relationship summary (including updates) within the
framework of the Commission's existing guidance regarding electronic
delivery.\678\ This framework consists of

the following elements: (i) Notice to the investor that information is
available electronically; (ii) access to information comparable to that
which would have been provided in paper form and that is not so
burdensome that the intended recipients cannot effectively access it;
and (iii) evidence to show delivery, i.e., reason to believe that
electronically delivered information will result in the satisfaction of
the delivery requirements under the federal securities laws.\679\ In
the Proposing Release, we also provided proposed guidance that a firm
would be able to deliver the relationship summary to new or prospective
clients or customers in a manner that is consistent with how the retail
investor requested information about the firm or financial
professional, and that this method of initial delivery for the
relationship summary would be consistent with the Commission's
electronic delivery guidance.\680\ We have included this provision in
the final instructions to provide additional clarity and certainty on
what is permissible for initial delivery of the relationship
summary.\681\ This approach applies only to the initial delivery of the
relationship summary to new or prospective clients or customers, and
not to any other delivery obligation of any other required disclosure.
With respect to existing clients or customers, as proposed, firms
should deliver the relationship summary in a manner consistent with the
firm's existing arrangement with that client or customer and with the
Commission's electronic delivery guidance. The above delivery
instructions are based on the assumption that retail investors are able
to access and prefer to receive communications and disclosures through
the same medium in which they request information from the firm or
financial professional. If this assumption is not correct, retail
investors can request a copy of the relationship summary in a format
they prefer, as discussed below, and can establish their delivery
preferences with the firm once they have entered into a relationship.
---------------------------------------------------------------------------

    \678\ See Use of Electronic Media by Broker-Dealers, Transfer
Agents, and Investment Advisers for Delivery of Information;
Additional Examples Under the Securities Act of 1933, Securities
Exchange Act of 1934, and Investment Company Act of 1940, Exchange
Act Release No. 37182 (May 9, 1996) [61 FR 24644 (May 15, 1996)]
(``96 Guidance''); see also Use of Electronic Media, Exchange Act
Release No. 42728 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)]
(``2000 Guidance''); and Use of Electronic Media for Delivery
Purposes, Exchange Act Release No. 36345 (Oct. 6, 1995) [60 FR 53458
(Oct. 13, 1995)] (``95 Guidance''). Recognizing the growth of
different forms of electronic media, other technological
developments, and the passage of time since these releases were
issued, the Commission plans to revisit its existing guidance
regarding electronic delivery.
    \679\ 96 Guidance, supra footnote 678.
    \680\ See Proposing Release, supra footnote 5, at nn.344-45 and
accompanying text; see also 2000 Guidance, supra footnote 678, at 65
FR 25845-46; 96 Guidance, supra footnote 678, at 61 FR 24647; and 95
Guidance, supra footnote 678, at 60 FR 53461.
    \681\ General Instruction 9.B. to Form CRS (``You may deliver
the relationship summary to new or prospective clients or customers
in a manner that is consistent with how the retail investor
requested information about you or your financial professional.'').
---------------------------------------------------------------------------

    Numerous commenters expressed support for electronic delivery,
including for modifications to the instructions to make electronic
delivery a more accessible option for the relationship summary as well
as other disclosures.\682\ A number of commenters further advocated for
the ``notice plus access'' model, in which posting the relationship
summary to the firm's website, in combination with a notice to the
retail investor that the relationship summary is available there, would
constitute delivery.\683\ Some of these commenters argued that this
approach should suffice for delivery, even if the retail investor had
not previously consented to electronic delivery in an affirmative
way.\684\ A few commenters cited to the Commission's recently adopted
rule 30e-3 under the Investment Company Act \685\ as a possible model
for delivering the relationship summary.\686\ Some of these commenters
also advocated for a more comprehensive updating of the Commission's
guidance concerning electronic delivery, not just for the relationship
summary but for other disclosures as well.\687\ Commenters advocating
for more widespread use of electronic delivery cited to arguments
including the potential cost savings and improved security of delivery
to investors.\688\
---------------------------------------------------------------------------

    \682\ See, e.g., CFA Institute Letter I (``Whatever design is
finalized for CRS, it should accommodate electronic delivery to
investors. We also believe a design with interactive components is
needed in today's electronically savvy investor base.''); TIAA
Letter (``the SEC could make the disclosure requirements in . . .
Form CRS more flexible, such that broker-dealers have more options
with respect to the method of delivery of required disclosures. . .
.''); MassMutual Letter; SIFMA Letter; SPARK Letter; Morgan Stanley
Letter; Cetera Letter II; Fidelity Letter.
    \683\ See, e.g., Primerica Letter; Cetera Letter II; Schwab
Letter (advocating a notice plus access model for annual or more
frequent updates to the relationship summary); Pickard Djinis and
Pisarri Letter; IAA Letter I; SIFMA Letter; MassMutual Letter;
Comment Letter of the Money Management Institute (Aug. 7, 2018)
(``MMI Letter''); Wells Fargo Letter.
    \684\ See, e.g., LPL Financial Letter (supporting an implicit
consent model on the basis that, among other things ``It simply is
not feasible to obtain an investor's affirmative consent to
electronic delivery before the investor makes a final decision about
the [investment relationship]''); FSI Letter I (supporting a
negative consent model, rather than an opt-in approach); IAA Letter
I (supporting an implied consent model).
    \685\ 17 CFR 270.30e-3 (internet availability of reports to
shareholders); Shareholder Reports Release, supra footnote 665.
    \686\ See, e.g., T. Rowe Letter (``In cases where no email
address is on file with the firm, we think a notice and access
protocol akin to Rule 30e-3 is appropriate.''); SPARK Letter (``The
SEC has recently demonstrated a willingness to embrace electronic
disclosure as the default delivery method for other disclosures and
we encourage the SEC to consider whether the disclosures added by
the SEC's Proposal, including Form CRS, should be able to tap into
the benefits of electronic delivery.'').
    \687\ See, e.g., LPL Financial Letter (``Modern communication
practices underscore the need for the Commission to provide more
flexibility to broker-dealers and investment advisers to satisfy
their document delivery obligations by delivering materials to
customers and clients who have implicitly consented to electronic
delivery as well as to current customers and clients who have
affirmatively consented to electronic delivery in a manner
contemplated by the existing guidance.''); SPARK Letter (``strongly
urges the SEC to permit . . . electronic delivery as the default
delivery method for satisfying the disclosure requirements under
[Regulation Best Interest, as well as Form CRS].''); Cetera Letter
II (``We believe that adoption of Reg. BI and the Form CRS
represents something of a watershed moment. . . .''); Pickard Djinis
and Pisarri Letter; IAA Letter I; MMI Letter.
    \688\ See, e.g., Cetera Letter II (asserting that electronic
delivery is safer and more environmentally friendly); IRI Letter;
SPARK Letter; Primerica Letter.
---------------------------------------------------------------------------

    On the other hand, some commenters expressed reservations about a
notice plus access equals delivery approach and supported the
Commission's proposed approach.\689\ The RAND 2018 survey and another
investor survey also showed mixed results relating to electronic
delivery, with many participants indicating that they would prefer to
receive the disclosures in paper.\690\ Similarly, the IAC has stated
that nearly half of investors (49%) still prefer to receive paper
disclosures through the mail, compared with only 33% who prefer to
receive disclosures electronically, either through email (27%) or by
accessing them online (6%).\691\ Additionally, we are aware,

based on our filing data, that a number of firms do not host public
websites and would not be able to make available an updated, electronic
version of their relationship summary for their retail investors at all
times.\692\ Some commenters noted that some retail investors may lack
readily available internet access.\693\
---------------------------------------------------------------------------

    \689\ CFA Letter I (``We greatly appreciate that, in discussing
this issue, the Release specifically references the obligation to
provide `evidence to show delivery.' This should help to clarify
that firms could not meet the disclosure requirement simply by
making the disclosures accessible on a public website and providing
notice of their availability, under an `access equals delivery'
model. . . .''); AARP Letter (``The SEC should prohibit advisers
from simply providing an electronic address for disclosures. . . . A
paper copy should be provided to the retail investor.'').
    \690\ See supra footnote 699.
    \691\ IAC Electronic Delivery Recommendation, supra footnote 153
(citing FINRA Investor Education Foundation, Investors in the United
States 2016 (Dec. 2016), available at http://www.usfinancialcapability.org/downloads/NFCS_2015_Inv_Survey_Full_Report.pdf). While the FINRA 2016
Investors Study was conducted prior to the Form CRS proposal (and
does not specify what disclosure materials are contemplated in the
survey, e.g., shareholder reports, summary prospectuses, statutory
prospectuses, account statements, etc.), it presents general
investor survey data regarding investor disclosure preferences.
    \692\ Based on IARD system data, 8.4% of investment advisers
with individual clients do not report at least one public website.
    \693\ See, e.g., Comment Letter of C. Frederick Reish (Sept. 12,
2018); SIFMA Letter (acknowledging that firms would need to provide
linked disclosures to customers and prospective customers who do not
have internet access); LPL Financial Letter (citing Investment
Company Institute, 2015 Investment Company Fact Book, (55th ed.
2015), at 129, available at https://www.ici.org/pdf/2015_factbook.pdf. The study found the following with respect to
internet access in mutual fund owning households: (i) Head of
household age 65 or older, 14% lack access; (ii) education level of
high school diploma or less, 16% lack access; and (iii) household
income of less than $50,000, 16% lack access.).
---------------------------------------------------------------------------

    The relationship summary is designed to be delivered when a retail
investor selects a firm or financial professional and which services to
receive, including updated versions upon certain events when retail
investors are again making decisions about whether to invest through an
advisory account or a brokerage account. These selections affect all of
the retail investor's subsequent investments under that relationship.
In comparison, documents such as shareholder reports and prospectuses
typically relate to investment decisions on single products; once the
product is purchased, reporting is most commonly delivered at regular
intervals, unlike the relationship summary. We are preserving an
investor's ability to receive the relationship summary in paper, by
maintaining the protections provided by the Commission's electronic
delivery guidance.\694\
---------------------------------------------------------------------------

    \694\ See supra footnote 678.
---------------------------------------------------------------------------

    We recognize the benefits to retail investors of receiving the
relationship summary as early as possible when considering a firm or
financial professional and that electronic communication can facilitate
earlier delivery, provided that retail investors can readily access the
form of communication used. As noted above, we have adopted the
instruction that delivery of the relationship summary to new or
prospective clients or customers in a manner that is consistent with
how that retail investor requested information about the firm or
financial professional would be consistent with the Commission's
electronic delivery guidance.\695\ This approach applies only to the
initial delivery of the relationship summary to new or prospective
clients or customers, and not to any other delivery obligation of any
other required disclosure. Moreover, to ensure that a relationship
summary delivered electronically is noticeable for retail investors and
not hidden among other disclosures, we are adopting a new instruction
that a relationship summary delivered electronically must be presented
prominently in the electronic medium and must be easily accessible for
retail investors.\696\ For example, a firm can use a direct link or
provide the relationship summary in the body of an email or
message.\697\ We are also requiring firms to post the current version
of the relationship summary prominently on their public website, if
they have one, as proposed.\698\
---------------------------------------------------------------------------

    \695\ See Proposing Release, supra footnote 5, at nn.344-45 and
accompanying text; see also 2000 Guidance, supra footnote 678, at 65
FR 25845-46; 96 Guidance, supra footnote 678, at 61 FR 24647; and 95
Guidance, supra footnote 678, at 60 FR 53461.
    \696\ General Instruction 10.C. to Form CRS.
    \697\ General Instruction 10.C. to Form CRS.
    \698\ Advisers Act rule 204-5(b)(3) and Exchange Act rule 17a-
14(c)(3); General Instruction 10.A. to Form CRS. The most recent
versions of firms' relationship summaries will be accessible through
Investor.gov. Firms will be required to include in their
relationship summaries a phone number where investors can request
up-to-date information and (if applicable) request a copy of the
relationship summary. See Item 5.B. of Form CRS. Firms also could
include their relationship summaries on other electronic media, such
as mobile apps and other similar technologies.
---------------------------------------------------------------------------

    We understand that, while many investors prefer receiving
disclosures about investment advice in electronic format, many also
value the option to receive them in paper.\699\ We are adopting several
additional requirements relating to relationship summaries in paper
format. First, in a relationship summary that is delivered in paper
format, firms may link to additional information by including URL
addresses, QR codes, or other means of facilitating access to such
information.\700\ Second, if a relationship summary is delivered in
paper format as part of a package of documents, the firm must ensure
that the relationship summary is the first among any documents that are
delivered at that time, substantially as proposed.\701\ All firms will
be required to make a copy of the relationship summary available upon
request without charge.\702\ However, we are not requiring that firms
make the relationship summary available in paper format. We understand
that some firms' business models--for example, those of advisers
providing automated investment advisory services and broker-dealers
that provide services only online--are based on delivering
substantially all disclosures and conducting substantially all
correspondence with clients and customers electronically. We do not
intend to change these practices and believe that retail investors that
prefer paper communications will have the opportunity to establish
relationships with firms that accommodate paper delivery.
---------------------------------------------------------------------------

    \699\ See RAND 2018, supra footnote 13 (when surveyed about how
and when they would prefer to receive the relationship summary,
``two-fifths reported that they would be most likely to view a paper
document''); Schwab Letter I (Koski) supra footnote 21 (26% of
survey participants preferred to receive disclosures about
investment advice on paper; 46% preferred online or digital
disclosures with the option for paper).
    \700\ General Instruction 3.B. to Form CRS.
    \701\ General Instruction 10.D. to Form CRS. Cf. Proposed
General Instruction 8.(c) to Form CRS (``If the relationship summary
is delivered on paper and not as a standalone document, you must
ensure that the relationship summary is the first among any
documents that are delivered at that time.'').
    \702\ General Instructions 1.C. to Form CRS.
---------------------------------------------------------------------------

b. Initial Delivery
    The final instructions require an investment adviser registered
with the SEC to deliver a relationship summary to each retail investor
before or at the time the firm enters into an investment advisory
contract, even if the agreement is oral, as proposed.\703\ The timing
for standalone investment advisers to deliver the relationship summary
to new or prospective retail clients generally tracks the initial
delivery requirement for Form ADV Part 2A.\704\ As described further
below, we are changing the instruction for broker-dealers to require
delivery before or at earliest of one of three triggers.\705\ In

comparison, under the proposal, broker-dealers would have delivered the
relationship summary before or at the time the retail investor first
engages their services.\706\ Under the final rules, dual registrants,
and affiliated broker-dealers and investment advisers that jointly
offer their services to retail investors, must deliver at the earlier
of the initial delivery triggers for an investment adviser or a broker-
dealer, including a recommendation of account type.\707\ This applies
whether the dual registrant or affiliated firms prepare one single
relationship summary describing both brokerage and investment advisory
services, or two separate relationship summaries describing each type
of service.
---------------------------------------------------------------------------

    \703\ General Instruction 7.B.(i) to Form CRS. The final
instructions for investment advisers are streamlined from the
proposal, but remain substantively the same. Compare to Proposed
Advisers Act rule 204-5(b)(1) and Proposed General Instruction 5.(b)
to Form CRS (``You must give a relationship summary to each retail
investor, if you are an investment adviser, before or at the time
you enter into an investment advisory agreement with the retail
investor, or if you are a broker-dealer, before or at the time the
retail investor first engages your services. See Advisers Act rule
204-5(b)(1) and Exchange Act rule 17a-14(c)(1). You must deliver the
relationship summary even if your agreement with the retail investor
is oral.''). We replaced the word ``agreement'' with ``contract'' to
mirror the wording in the current Advisers Act rules and Form ADV
instructions. See, e.g., Item 5.D of Part 2.A. of Form ADV. We also
clarified that the delivery requirements apply to investment
advisers registered with the SEC.
    \704\ See General Instruction 1 to Part 2A of Form ADV.
    \705\ General Instruction 7.B.(ii) to Form CRS (``If you are a
broker-dealer, you must deliver a relationship summary to each
retail investor, before or at the earliest of: (i) A recommendation
of an account type, a securities transaction, or an investment
strategy involving securities; (ii) placing an order for the retail
investor; or (iii) the opening of a brokerage account for the retail
investor.''). As described below, dual registrants will continue to
deliver the relationship summary at the earlier of the requirements
for investment advisers or broker-dealers. General Instruction
7.B.(iii) to Form CRS (``A dual registrant must deliver the
relationship summary at the earlier of the timing requirements in
General Instruction 7.B.(i) or (ii).'').
    \706\ See Proposed Exchange Act rule 17a-14(c)(1); Proposed
General Instruction 5.(b) to Form CRS.
    \707\ General Instruction 7.B.(iii) to Form CRS (``A dual
registrant must deliver the relationship summary at the earlier of
the timing requirements in General Instruction 7.B.(i) or (ii).'').
---------------------------------------------------------------------------

    Some commenters supported keeping the initial delivery requirements
as proposed.\708\ Other commenters expressed concern that under the
proposal, the relationship summary would be delivered only after the
investor has already made a decision about which firm to engage and
which type of account to open, and recommended variations on the
proposed initial delivery requirements, including mandating even
earlier delivery.\709\ The variations include, for example, delivery at
the point of first contact or inquiry between the retail investor and
firm, whenever possible; \710\ at the earlier of when a customer
contacts the firm or enters into an advisory agreement or engagement of
services; \711\ and upon the first interaction with a prospective
retail investor.\712\ For dual registrants, one commenter recommended
requiring delivery no later than the point at which a recommendation is
made regarding which type of account to open.\713\ One commenter
asserted that the Commission should not permit delivery ``at'' the time
of service but rather should always require delivery ``before'' the
provision of service.\714\ The IAC recommended providing ``a uniform,
plain English disclosure document . . . to customers and potential
customers of broker-dealers and investment advisers at the start of the
engagement, and periodically thereafter.'' \715\
---------------------------------------------------------------------------

    \708\ See, e.g., Trailhead Consulting Letter; Schnase Letter
(agreeing that the relationship summary should be required to be
delivered along the lines proposed in the Proposing Release); SIFMA
Letter (``For the initial delivery most brokerage firms likely will
include [the relationship summary] with account applications or
other account opening materials, while investment advisers will
include it with their Form ADV.'').
    \709\ See, e.g., CFA Letter I; CFA Institute Letter I; AARP
Letter; NASAA Letter; Consumers Union Letter; Consumer Reports
Letter. In the RAND 2018 survey, supra footnote 13, 70% of
respondents reported that they would prefer to receive the
relationship summary at the outset of the relationship, i.e.,
``before or at the time you first engage the investment
professional'' and slightly more than 30% of respondents would
prefer to receive the relationship summary ``before the investment
professional first recommends a transaction or investment
strategy''; see also Schwab Letter I (Koski), supra footnote 21
(when asked ``[w]hich of the following best describes your
preference for when you would like to receive information about how
a Brokerage Firm or a Registered Investment Adviser (RIA) does
business with you?'', 41% preferred ``[a]t or before I open my
account, plus any updates on an annual basis,'' 22% preferred
``[a]vailable on an ongoing basis, such as on a firm's website,''
19% preferred at ``[a]t or before I open my account only,'' and 17%
preferred ``[e]very single time I receive investment advice.'').
    \710\ See CFA Letter I.
    \711\ See CFA Institute Letter I.
    \712\ See AARP Letter.
    \713\ See CFA Letter I.
    \714\ See NASAA Letter.
    \715\ See IAC Broker-Dealer Fiduciary Duty Recommendations,
supra footnote 10.
---------------------------------------------------------------------------

    A few commenters supported requiring a period of time between
delivery of the relationship summary and the beginning of the
relationship.\716\ One commenter suggested allowing time for retail
investors to review the relationship summary, subsequent to delivery
when the firm first interacts with a retail investor.\717\ A number of
investors at Commission-held roundtables also supported a waiting
period.\718\ Other commenters, however, opposed a mandated delay
between delivery of the relationship summary and engaging in
services.\719\
---------------------------------------------------------------------------

    \716\ See, e.g., AARP Letter; CFA Institute Letter I; NASAA
Letter.
    \717\ See AARP Letter.
    \718\ See, e.g., Houston Roundtable, at 51 (one investor
suggesting a ``cool-off period''); Washington, DC Roundtable, at 58
(at least two investors supporting a ``lapse'' of time between
receipt of a relationship summary and having to sign it).
    \719\ Comment Letter of John Neil Conkle (Aug. 7, 2018) (arguing
that a waiting period is not necessary for the relationship summary
to fulfill its purpose); Edward Jones Letter (arguing that a waiting
period could harm investors by preventing them from meeting IRA
contribution or rollover deadlines, for example, or at a minimum
cause frustration); SIFMA Letter (arguing that the relationship
summary is designed to be contemporaneously read and understood).
---------------------------------------------------------------------------

    Various commenters explained logistical and recordkeeping issues if
firms were required to deliver the relationship summary at first
contact or prior to engaging a firm's services.\720\ For example, one
commenter stated that it would not be feasible to obtain an investor's
affirmative consent to electronic delivery before the investor decides
to engage the firm.\721\ Tracking whether or not prospective customers
had consented to electronic delivery of the relationship summary would
be difficult because prospective customers who do not open accounts
would not have account numbers or other unique identifiers for the
firm's recordkeeping purposes.\722\ Other commenters argued that
keeping records of when a relationship summary was given to a
prospective retail investor would be unnecessarily burdensome for firms
and would likely provide de minimis benefits.\723\ Still other
commenters discussed the difficulty of defining when a customer first
engages the firm's services, the terminology used in the proposal.\724\
---------------------------------------------------------------------------

    \720\ See, e.g., Edward Jones Letter (asserting that requiring
firms to record the delivery of the relationship summary to
prospective clients that subsequently become clients would impose a
significant burden without providing meaningful benefits to
investors); SIFMA Letter (``[I]t would be very burdensome and not
practical in many instances to keep track of Forms CRS that are
provided to retail investors who never seek to establish a
relationship with a firm.''); Primerica Letter; LPL Financial
Letter.
    \721\ See LPL Financial Letter.
    \722\ See LPL Financial Letter.
    \723\ See infra footnote 803; see also infra footnotes 798-816
and accompanying text regarding recordkeeping requirements.
    \724\ See, e.g., Fidelity Letter; SIFMA Letter; Primerica
Letter; TIAA Letter.
---------------------------------------------------------------------------

    We encourage investment advisers and broker-dealers to deliver the
relationship summary far enough in advance of a prospective retail
investor's final decision to engage the firm to allow for meaningful
discussion between the financial professional and retail investor,
including by using the conversation starters, so that the retail
investor has time to understand the relationship summary and to weigh
available options. We believe that prospective clients or customers
would benefit from receiving the relationship summary as early as
possible when deciding whether to engage the services of a firm or
financial professional. In response to comments on initial delivery,
including those relating specifically to broker-dealers, we are
modifying the broker-dealer initial delivery requirements, as discussed
below. However, we are declining to mandate a delivery requirement
based on first contact or inquiry, or to impose a waiting period.
First, ``first contact or inquiry'' may include circumstances that are
not limited to the seeking of investment services, such as business

interactions for other purposes or social interactions, and therefore
could create compliance uncertainty. Second, we believe the
availability of each firm's relationship summary through Investor.gov
and on its own website, if the firm has one, helps to address the
concern that investors will not have the opportunity to review and
compare relationship summaries before entering into an investment
advisory contract or receiving services from a broker-dealer.\725\
Third, some investors may not want to wait to begin services,\726\ and
those who do can always take as much time as needed to review the
relationship summary and wait to sign an advisory agreement or begin
receiving brokerage services at a later time. Fourth, firms will be
permitted to deliver the relationship summary well before they enter
into an advisory agreement or provide brokerage services, and as noted,
we encourage firms to deliver the relationship summary early in the
process. Finally, dual registrants, and affiliated broker-dealers and
investment advisers that jointly offer their services to retail
investors, must deliver their relationship summaries at the earlier of
the delivery triggers for broker-dealers or investment advisers. To the
extent the initial delivery requirements for a broker-dealer are
earlier than the delivery requirements would be for an investment
adviser, the earlier requirements will apply to an investment adviser
that is a dual registrant or that offers services jointly with a
broker-dealer affiliate. We believe this will provide a significant
benefit to retail investors, given the substantial percentage of
regulatory assets under management (``RAUM'') managed by dual
registrants and investment advisers with broker-dealer affiliates,
relative to the total RAUM managed by investment advisers overall.\727\
---------------------------------------------------------------------------

    \725\ See CFA Institute Letter I (``We strongly support the
requirement that firms with public websites must post their CRSs on
their sites in an easily accessible location and format. . . .
Investors can review the disclosures provided there before deciding
on a service provider and showing up for a meeting. Then when
presented with the CRS `before or at the time' of entering into an
agreement or engaging a firm's services, an investor will have
already had an opportunity to review the disclosures and come armed
with questions.'').
    \726\ See, e.g., Edward Jones Letter (stating that some
investors have a very specific timeframe for opening a new account,
such as meeting an IRA contribution or rollover deadline); SIFMA
Letter (stating that requiring a waiting period would frustrate a
retail customer's efforts to begin his or her relationship with a
financial services provider).
    \727\ As of December 31, 2018, 1,878 SEC-registered investment
advisers report in their Form ADV an affiliate that is a broker-
dealer also registered with the SEC. These 1,878 SEC-registered
investment advisers manage approximately $58.48 trillion, or
approximately 70% of total RAUM managed by SEC-registered investment
advisers. Furthermore, 359 SEC-registered investment advisers that
are also dually-registered as broker-dealers manage approximately
$5.18 trillion, or 6.12% of total RAUM. Thus, SEC-registered
investment advisers that report registered broker-dealer affiliates
and dual registrants together manage over 75% of RAUM. See also
infra footnotes 855, 888-889, and accompanying text.
---------------------------------------------------------------------------

    To facilitate earlier delivery, as discussed above, the final
instructions allow firms to deliver the relationship summary to a new
or prospective client or customer in a manner that is consistent with
how the retail investor requested information about the firm or
financial professional, clarifying that this approach would be
consistent with the SEC's electronic delivery guidance.\728\ We believe
this approach alleviates concerns expressed by commenters that
obtaining the consent of prospective clients or customers to receive
electronic delivery and maintaining records of that consent would be
challenging.\729\ While we recognize recordkeeping burdens relating to
the delivery of the relationship summary to prospective clients--for
example, we are not imposing a delivery requirement upon first contact
or inquiry by a retail investor, as discussed above--we disagree that
they are insurmountable and would outweigh the benefits to retail
investors. As discussed further in Section II.E. below, investment
advisers and broker-dealers have experience with similar recordkeeping
requirements.\730\ Moreover, we believe there is considerable benefit
to retail investors in receiving the relationship summary before
deciding to engage a firm, to allow time for questions and discussion
with the financial professional, to understand the relationship
summary, and to weigh available options.
---------------------------------------------------------------------------

    \728\ General Instruction 10.B. to Form CRS.
    \729\ See supra footnotes 720-722 and accompanying text.
    \730\ See infra footnotes 809-810 and accompanying text.
---------------------------------------------------------------------------

    Commenters suggested modifications to the proposed initial delivery
requirements specifically for broker-dealers. Several commenters
requested that we require broker-dealers to deliver the relationship
summary at the point of first contact, inquiry, or interaction with a
retail investor.\731\ A number of commenters also raised questions
about the meaning of ``engaging the services'' of a broker-dealer,
noting that it was unclear when that may ultimately occur and that it
is a new and undefined concept in the context of a customer
relationship with a broker-dealer.\732\ Other commenters suggested that
we exclude or exempt certain types of broker-dealers that provide
limited services to retail investors from the requirement to deliver
the relationship summary or from the requirements of Form CRS more
generally.\733\
---------------------------------------------------------------------------

    \731\ See CFA Institute Letter I; AARP Letter; and NASAA Letter.
    \732\ See Primerica Letter; SIFMA Letter; and Fidelity Letter.
    \733\ See, e.g., Fidelity Letter (recommending ``that the SEC
exclude limited-purpose broker-dealers acting solely as mutual fund
general distributors from the obligation to deliver Form CRS to
direct mutual fund investors that invest on an unsolicited basis,
and shareholders investing through an intermediary (such as a full
service broker-dealer or bank) that has an independent obligation to
deliver such information to its client'' and suggesting ``that the
SEC explicitly exempt from the Form CRS requirement certain
categories of broker-dealers, including clearing firms, principal
underwriters, and distributors of mutual funds, as these firms do
not have a direct relationship with the end investor based on their
business models''); ICI Letter; Wells Fargo Letter; Invesco Letter;
ACLI Letter; Comment Letter of Great-West Financial (Aug. 6, 2018);
T. Rowe Letter and Oppenheimer Letter.
---------------------------------------------------------------------------

    In response to these concerns, we are modifying the initial
delivery requirements for broker-dealers. Instead of ``at the time the
retail investor first engages a broker-dealer's services,'' broker-
dealers will be required to deliver the relationship summary to each
retail investor before or at the earliest of: (i) A recommendation of
an account type, a securities transaction, or an investment strategy
involving securities; (ii) placing an order for the retail investor; or
(iii) the opening of a brokerage account for the retail investor.\734\
We believe that these more concrete initial delivery triggers for
broker-dealers avoid the uncertainty of when a retail investor first
engages a broker-dealer's services and include scenarios that encompass
earlier delivery, in response to commenters' concerns.
---------------------------------------------------------------------------

    \734\ See Exchange Act rule 17a-14(c)(1); General Instruction
6.B.(ii) to Form CRS.
---------------------------------------------------------------------------

    As noted, the proposal would have required broker-dealers to
deliver the relationship summary before or at the time the retail
investor first engages the firm's services. This proposed requirement
was intended to capture the earliest point in time at which a retail
investor engages the services of a broker-dealer, including instances
when a customer opens an account with the broker-dealer, or effects a
transaction through the broker-dealer in the absence of an account, for
example, by purchasing a mutual fund through the broker-dealer via
``check and application''. The proposed rule would not have required
delivery to a retail investor to whom a broker-dealer makes a
recommendation, if that retail investor did not open or have an account
with

the broker-dealer, or that recommendation did not lead to a transaction
with that broker-dealer.\735\ If the recommendation led to a
transaction with the broker-dealer who made the recommendation, the
retail investor would have been considered to be ``engaging the
services'' of that broker-dealer at the time the customer places the
order or an account is opened, whichever occurred first. Instead, in
response to comments advocating for earlier delivery, the final
requirement expands on the proposed initial delivery requirement and
potentially pushes it earlier, to require delivery (even where a
brokerage account has not been established) before or at the time a
broker-dealer recommends an account type, a securities transaction, or
an investment strategy involving securities without regard to whether
the retail investor acts on the recommendation. We believe that
revising the delivery requirement in this way will give retail
investors the opportunity to consider the information included in the
relationship summary earlier in the process of determining whether to
establish a brokerage relationship with the broker-dealer, as well as
in evaluating the recommendation.
---------------------------------------------------------------------------

    \735\ Proposing Release, supra footnote 5.
---------------------------------------------------------------------------

    Compared to the proposal, the final requirement also pushes earlier
the time at which broker-dealers must deliver the relationship summary
in instances in which the retail investor does not open an account but
still engages in a securities transaction such as the ``check and
application'' example described above. Under these circumstances,
broker-dealers must deliver the relationship summary before or at the
time an order is placed for the retail investor, instead of before or
at the time the transaction is effected, as proposed. This delivery
obligation would be triggered to the extent this type of transaction
were unsolicited, because, as described above, if a recommendation
preceded this type of transaction, delivery would have been triggered
before or at the time of the recommendation.
    To the extent the broker-dealer had not already made a
recommendation of an account type, a securities transaction or an
investment strategy involving securities, or placed an order for the
retail investor, delivery would be triggered before or at the time the
retail investor opens a brokerage account with the broker-dealer. As
revised, we believe that the initial delivery triggers for broker-
dealers avoid the uncertainty of the proposed initial delivery standard
and include scenarios that encompass earlier delivery, in response to
commenters' concerns.
    In response to the comments requesting exemptions or exclusions
from the relationship summary obligations generally and the delivery
obligations for certain broker-dealers that engage in limited
activities, we are clarifying that we do not intend for the Form CRS
requirements to apply to certain types of relationships between a
broker-dealer and a retail investor. Pursuant to Exchange Act Rule 17a-
14, the scope of the Form CRS requirement applies ``to every broker or
dealer registered with the Commission pursuant to section 15 of the Act
that offers services to a retail investor'' (emphasis added). Solely
for purposes of Form CRS, we are describing here the types of
relationships between a broker-dealer and a retail customer that we
would not consider to be ``offer[s] [of] services to a retail
investor''.
    Specifically, clearing and carrying broker-dealers that are solely
providing services to third party or affiliated introducing broker-
dealers would not be considered to be offering services to a retail
investor for purposes of Exchange Act Rule 17a-14, and would not be
subject to the Form CRS requirements when acting in such capacity. As
described above, the relationship summary is designed to make it easier
for retail investors to get the facts they need when deciding among
investment firms or financial professionals and the accounts and
services available to them. When a retail investor is establishing or
has a relationship with an introducing broker-dealer, we believe that
the retail investor would benefit most from focusing on that broker-
dealer's services, fees, standard of conduct, conflicts of interest and
disciplinary history. In these circumstances, we believe that receiving
an additional relationship summary from a clearing or carrying broker-
dealer could create confusion and detract from the goals of this
disclosure.
    Additionally, we would not consider a broker-dealer that is serving
solely as a principal underwriter to a mutual fund or variable annuity
or variable life insurance contract issuer to be offering services to a
retail investor for purposes of Exchange Act Rule 17a-14, when acting
in such capacity. As with clearing and carrying broker-dealers, broker-
dealers serving solely as principal underwriters do not typically
establish the kind of relationship with retail investors that Form CRS
has been designed to address. To the extent such broker-dealers
interact with a retail customer in a different capacity (beyond serving
as a principal underwriter to the mutual fund or variable contract that
the retail investor owns), we believe the nature of their relationship
could become one where delivery of the Relationship Summary would be
useful. Accordingly, Form CRS's obligations would apply in those
instances.\736\
---------------------------------------------------------------------------

    \736\ For example, we would expect the requirements of Form CRS
to apply in the event the broker-dealer makes a recommendation of an
account type, securities transaction or investment strategy
involving securities, the retail investor places an order for the
purchase of different securities, or the retail investor opens a new
brokerage account with the broker-dealer.
---------------------------------------------------------------------------

    We are adopting as proposed the approach to delivery for dual
registrants, whereby they must deliver the relationship summary to a
new or prospective retail investor at the earlier of the delivery
triggers applicable to investment advisers and broker-dealers.\737\ One
commenter argued that a dual registrant should be required to deliver
the relationship summary at the earlier of providing an investment
recommendation or the time a retail investor opens an account with the
firm.\738\ We believe that the broker-dealer initial delivery
requirements, as adopted, accommodate this comment. Another commenter
asserted that dual registrants should be required to deliver the
relationship summary no later than when a recommendation is made as to
the type of account to open.\739\ We believe that the final initial
delivery requirements accommodate this comment also. 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.\740\ Investment advisers
will be required to deliver the relationship summary before or at the
time of entering into an investment advisory contract with the retail
investor.\741\ Dual registrants will be required to deliver the
relationship summary when recommending an account type to the retail
investor if it is the earliest occurrence among the initial delivery
triggers for broker-dealers and investment advisers, which we believe
will typically precede the opening of a brokerage account or

entering into an investment advisory contract.\742\
---------------------------------------------------------------------------

    \737\ Advisers Act rule 204-5(b)(1) and Exchange Act rule 17a-
14(c)(1); see also General Instruction 7.B.(iii) to Form CRS.
    \738\ See State Farm Letter.
    \739\ See CFA Letter I.
    \740\ See Exchange Act rule 17a-14(c)(1); General Instruction
7.B.(ii) to Form CRS.
    \741\ See Advisers Act rule 204-5(b)(1); General Instruction
7.B.(i) to Form CRS.
    \742\ See General Instruction 7.B.(iii) to Form CRS.
---------------------------------------------------------------------------

c. Additional Delivery Requirements to Existing Clients and Customers
    We are adopting requirements for firms to re-deliver the
relationship summary to existing clients and customers under certain
circumstances, with some modifications from the proposal. We continue
to believe that these investors will benefit from being reminded of the
information contained in the relationship summary, including about the
different services and fees that the firm offers, when they are again
making decisions about whether to invest through an advisory account or
a brokerage account. Specifically, after an initial delivery of the
relationship summary to existing clients and customers who are retail
investors, firms will be required to deliver the most recent version of
the relationship summary to a retail investor if they (i) open a new
account that is different from the retail investor's existing
account(s); (ii) recommend that the retail investor roll over assets
from a retirement account into a new or existing account or investment;
or (iii) recommend or provide a new brokerage or investment advisory
service or investment that does not necessarily involve the opening of
a new account and would not be held in an existing account, for
example, the first time purchase of a direct-sold mutual fund or
insurance product that is a security through a ``check and
application'' process, i.e., not held directly within an account.
    In comparison, as proposed, the instructions would have required a
firm to deliver a relationship summary to existing clients or customers
when: (i) A new account is opened that is different from the retail
investor's existing account, or (ii) changes are made to the existing
account that would materially change the nature and scope of the
relationship. The proposed instructions provided that whether a change
was material for these purposes would depend on the specific facts and
circumstances and gave as examples transfers from an investment
advisory account to a brokerage account, transfers from a brokerage
account to an investment advisory account, and moves of assets from one
type of account to another in a transaction not in the normal,
customary or already agreed course of dealing.
    In the RAND 2018 survey, 50% of respondents reported that they
would like to receive an updated relationship summary ``whenever there
is a material change in the Relationship Summary, such as a change in
fees or commission structure,'' about 30% would prefer to receive the
relationship summary periodically and almost 40% preferred to receive
the summary on request.\743\ One commenter supported the additional
delivery requirements to existing clients and customers as proposed,
agreeing that investors are again making decisions about relationships
and account types under these circumstances and would benefit from the
information the relationship summary provides.\744\ Another commenter
recognized the value of delivering the relationship summary to existing
clients and customers but recommended specific limitations to the
requirements.\745\ One commenter supported once a year or periodic
updates and continued availability of a current version on a firm's
website,\746\ while another commenter opposed any requirement to
provide periodic updates.\747\ Several commenters argued that some or
all of the additional delivery requirements are not necessary, given
the prior initial delivery and online availability of relationship
summaries.\748\ A few commenters argued that the additional delivery
requirements could confuse investors because of either an apparent
duplication or difference from delivery requirements of existing
disclosures.\749\ One commenter also stated that the proposed
additional delivery requirements could overwhelm investors in a
counterproductive way.\750\ Furthermore, commenters requested
additional guidance or examples for what would ``materially change''
the relationship.\751\
---------------------------------------------------------------------------

    \743\ RAND 2018, supra footnote 13.
    \744\ See CFA Letter I (``We support this proposal and agree
with the Commission that, in these instances, `retail investors are
again making decisions about whether to invest through an advisory
account or a brokerage account and would benefit from information
about the different services and fees that the firm offers to make
an informed choice.' '').
    \745\ See SIFMA Letter (arguing that a ``material change''
should be defined as changes from an advisory account to a brokerage
account or vice versa, and not include asset movements from one type
of account to another or ``other material changes'').
    \746\ See Schwab Letter I; Schwab Letter III.
    \747\ See CFN Letter.
    \748\ See, e.g., LPL Financial Letter (``It is not clear what
additional benefits obtain from delivering an identical copy of a
document an investor has already received.''); SIFMA Letter (``[W]e
do not believe these additional trigger points [other than changing
from one type of account to another] are necessary because customers
will receive Form CRS at periodic intervals throughout the
relationship, and customers will have continual online access to a
firm's Form CRS via a website posting, making the need to ``push
out'' the Form CRS at additional points unnecessary.''); Institute
for Portfolio Alternatives Letter (``We suggest that delivery of a
new or updated Form CRS with every transaction would be excessive,
impractical and without commensurate investor benefit''); UBS Letter
(``If a client already has both a brokerage account and an advisory
account and is transferring assets from one to another . . . the
client already would have the critical disclosures applicable to
both account types . . . .'').
    \749\ See, e.g., Comment Letter of AXA (Aug. 7, 2019)
(``[E]xisting customers have already decided which firm to work
with, so requiring firms to send the Relationship Summary to those
customers is likely to cause customer confusion.''); Pickard Djinis
and Pisarri Letter (``The disharmony between the existing ADV
brochure delivery requirements and the proposed requirements under
Rule 204-5 are likely to confuse clients. . . .''); UBS Letter
(``[R]eceiving the Form CRS again in such circumstances would likely
lead to confusion rather than an improved understanding.'').
    \750\ See SIFMA Letter (``Providing Form CRS to investors beyond
[changes from one type of account to another] could overwhelm them
with duplicative or redundant information,'' making it ``less likely
they will digest the information.'').
    \751\ See, e.g., Prudential Letter (``[M]ore guidance is needed
on this point; additional examples of triggering events would
provide clarity.''); TIAA Letter (``SEC should identify additional
instances beyond account changes that would trigger re-delivery.'');
Cambridge Letter (requesting further guidance on a material change
to the nature and scope of the relationship and encouraging SEC to
provide a broad set of examples); SIFMA Letter (``[I]t is not clear
what `other material' changes or assets movements `not in the
normal, customary, or already agreed course of dealing' would be'');
Institute for Portfolio Alternatives Letter (requesting guidance on
what facts and circumstances would trigger a ``material'' change and
require delivery of a new, or updated, Form CRS); Comment Letter of
Sorrento Pacific Financial, LLC (Aug. 7, 2018).
---------------------------------------------------------------------------

    In addition, some commenters expressed concerns about
administrative and operational burdens relating to the proposed
additional delivery requirements.\752\ For example, one commenter
asserted that firms would be required to build entirely new operational
and supervisory processes to identify asset movements divorced from any
account opening process that could trigger an additional delivery
requirement.\753\ This commenter also argued that the review that would
be required prior to effecting potentially triggering asset movements
could cause delays that are detrimental to the retail

investor.\754\ Similarly, another commenter explained that most of the
proposed additional delivery triggers would be relatively easy to
identify and address through existing processes, such as new account
openings and when a brokerage account is converted to an investment
advisory account and vice versa.\755\ Other potential delivery
triggers, however, such as investments of inheritances or proceeds of a
property sale, or a significant migration from savings to investment,
would present operational challenges and compliance costs.\756\ These
commenters recommended limiting additional delivery requirements to
circumstances in which a brokerage account is converted to an
investment advisory account and vice versa.\757\
---------------------------------------------------------------------------

    \752\ See SIFMA Letter; LPL Financial Letter; Institute for
Portfolio Alternatives Letter; Pickard Djinis and Pisarri Letter
(additional delivery requirements ``would impose unjustifiable
administrative burdens on advisers, the majority of whom are small
businesses.'').
    \753\ See SIFMA Letter (explaining that, because additional
delivery triggers could be divorced from any account opening
process, entirely new operational and supervisory processes would
need to be designed (i) to identify potentially triggering asset
movements; (ii) to review for whether a proposed asset movement is
not in the normal, customary, or already agreed course of dealing;
and (iii) depending on whether delivery were required, create and
preserve either a record of the delivery or of the conclusion that
no such delivery was required).
    \754\ See SIFMA Letter.
    \755\ See LPL Financial Letter.
    \756\ See LPL Financial Letter (explaining that its existing
systems are not designed to monitor and record dates of non-ordinary
course events or to distinguish those events from routine account
changes).
    \757\ See SIFMA Letter; LPL Financial Letter.
---------------------------------------------------------------------------

    We disagree that delivery of the relationship summary to existing
clients and customers is unnecessary if the investor has already
received one. As noted above, when investors are again making decisions
about whether to choose an investment advisory or brokerage account, we
believe they will benefit from being reminded that different options
are available and where they can get more information to inform their
choice. We are not requiring that the relationship summary be delivered
at periodic intervals or at every transaction; thus we disagree with
comments that the additional delivery obligations will not provide
commensurate benefit to investors, or will confuse or overwhelm
investors. We are therefore adopting additional delivery requirements
that apply to a firm's existing clients and customers, with some
modifications from those proposed.
    First, as proposed (and supported by two commenters as noted
above), we are adopting the requirement that a firm deliver the
relationship summary when opening any new account that is different
from the retail investor's existing account(s).\758\ Second, in
response to comments we are replacing the proposed standard of
``materially change the nature and scope of the relationship'' with
two, more specific and easily identifiable, triggers that we believe
would not implicate the same operational or supervisory burdens
described by commenters to meet the proposed requirement.\759\ Instead,
firms will be required to deliver a relationship summary to existing
clients and customers when recommending that the retail investor roll
over assets from a retirement account, or recommending or providing a
new brokerage or investment advisory service or investment that does
not necessarily involve the opening of a new account and would not be
held in an existing account, for example, the first-time purchase of a
direct-sold mutual fund or insurance product (e.g., variable annuities)
that is a security through a ``check and application'' process, i.e.,
not held directly within an account.\760\ While these requirements will
still impose operational and supervisory burdens, we believe they are
more easily identified and monitored, such that firms will not need to
create new systems or processes to the extent that commenters said
would be necessary to comply with the proposed ``material change''
standard. These more specific triggers are intended to provide investor
protection under these circumstances in a more cost-effective manner,
while still addressing the objectives that the ``material changes''
language sought to address, that is, to ensure that a firm does not
switch existing customers or clients into accounts or services without
explaining or giving them the opportunity to consider other available
options.\761\ Also, as proposed, we are adopting the instruction that
firms must deliver the relationship summary to a retail investor within
30 days upon the retail investor's request.\762\ While some commenters
requested changes to the proposed delivery requirements, they
nonetheless supported requiring delivery upon request.\763\
---------------------------------------------------------------------------

    \758\ General Instruction 9.A. to Form CRS.
    \759\ See supra footnotes 752-757 and accompanying text.
    \760\ General Instruction 9.A. to Form CRS.
    \761\ Recommendations of account types to existing customers and
clients also are addressed in the Regulation Best Interest Release
and Fiduciary Release, supra footnote 47.
    \762\ General Instruction 9.B. to Form CRS.
    \763\ See Fidelity Letter; SIFMA Letter.
---------------------------------------------------------------------------

    Finally, delivery of the relationship summary will not necessarily
satisfy any other disclosure obligations the firm has under the federal
securities laws or other laws or regulations, as proposed. The
relationship summary requirement will be in addition to, and not in
lieu of, other disclosure and reporting requirements or other
obligations for broker-dealers and investment advisers.\764\ One
commenter suggested that we require that the relationship summary
include a prominent statement that it does not replace, but rather
should be read in conjunction with, Form ADV or Form BD.\765\ This
commenter also suggested that the relationship summary should include a
hyperlink to the appropriate Form ADV or Form BD, as applicable.\766\
We believe that the required links in the Additional Information
section, discussed in Section II.B.5. above, addresses these comments.
---------------------------------------------------------------------------

    \764\ For example, the relationship summary would not
necessarily satisfy the disclosure requirements under Regulation
Best Interest. See Regulation Best Interest Release, supra footnote
47.
    \765\ See Financial Engines Letter.
    \766\ See Financial Engines Letter.
---------------------------------------------------------------------------

    Some commenters argued that investment advisers should not be
required to deliver a relationship summary to retail clients because
they already deliver a Form ADV Part 2A brochure.\767\ We disagree. By
requiring both investment advisers and broker-dealers to deliver a
relationship summary that discusses at a high level both types of
services and their differences in a comparable format, the relationship
summary would help all retail investors compare not only among
investment advisory services, but also between investment advisory and
brokerage services. We do not believe that existing disclosures provide
this level of transparency and comparability across investment
advisers, broker-dealers, and dual registrants. Form CRS is a summary
disclosure designed to provide a high-level overview of services, fees,
costs, conflicts of interest, standard of conduct, and disciplinary
history, to retail investors in order to help them decide whether to
engage a particular firm or financial professional, including deciding
whether to seek investment advisory or brokerage services. Form ADV
Part 2A, in contrast, requires more detailed disclosures specific to
advisory services. If a firm does not have retail investor clients or
customers and is not required to deliver a relationship summary to any
clients or customers, the firm will not be required to prepare or file
a relationship summary, as proposed.\768\
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    \767\ Comment Letter of Registered Advisor Services (Apr. 20,
2018); Comment Letter of Franklin Templeton Investments (Aug. 6,
2018); IAA Letter I; Triad Letter; Pickard Djinis and Pisarri
Letter; Prudential Letter; see also State Farm Letter (arguing that
investment advisers should be required to include in their
relationship summaries only those disclosures that are not otherwise
available, provided that a representative heading or introductory
statement and a hyperlink to such disclosures are provided in the
Relationship Summary).
    \768\ See amended Advisers Act rule 203-1, note to paragraph
(a)(1); Exchange Act rule 17a-14(a), (b). See introduction of
General Instructions to Form CRS.

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4. Updating Requirements
    We are adopting substantially as proposed a requirement for firms
to update the relationship summary within 30 days whenever the
relationship summary becomes materially inaccurate.\769\ Firms also
must post the latest version on their website (if they have one), and
electronically file the relationship summary with the Commission.\770\
Although some commenters expressed different views on the requirement
to communicate updated information to retail investors, as discussed
below, most commenters did not object to the proposed requirements to
update the relationship summary within 30 days of a material change and
the associated posting and filing obligations.\771\ On the other hand,
one commenter advocated that firms be allowed 60 days to update the
relationship summary to address operational issues, but did not
describe the specific operational challenges.\772\ Based on our
experience with other similar filings, we believe the proposed approach
is consistent with the current requirements for investment advisers to
update the Form ADV Part 2A brochure,\773\ and with broker-dealers'
current obligations, including to update Form BD if its information is
or becomes inaccurate for any reason.\774\ We continue to believe that
allowing 30 days for firms to make updates provides sufficient time for
firms to make the necessary revisions. Therefore, we are adopting these
requirements as proposed.
---------------------------------------------------------------------------

    \769\ Advisers Act rule 204-1(a)(2) and Exchange Act rule 17a-
14(b)(3); General Instruction 8.A. to Form CRS. For investment
advisers, we are also adopting amendments to the General
Instructions to Form ADV to mirror this requirement and to clarify
the filing type. See amended General Instruction 4 to Form ADV
(revised to add the following language: ``If you are registered with
the SEC, you must amend Part 3 of your Form ADV within 30 days
whenever any information in your relationship summary becomes
materially inaccurate by filing with the SEC an additional other-
than-annual amendment or by including the relationship summary as
part of an annual updating amendment.''); see also supra footnotes
673-677 and accompanying text.
    \770\ Advisers Act rules 203-1(a)(1), 204-5(b)(3) and Exchange
rules 17a-14(b)(2), 17a-14(c)(3); General Instructions 8.A., 8.C.,
and 10.A. to Form CRS.
    \771\ See, e.g., Trailhead Consulting Letter (``If the form is
kept to a more generalized and educational nature, material changes
shouldn't occur too often.''); NASAA Letter; LPL Financial Letter;
Prudential Letter; Primerica Letter.
    \772\ See Morgan Stanley Letter (30 days ``may not be sufficient
to address the related operational issues'').
    \773\ See, e.g., Advisers Act rule 204-5(b)(4); General
Instruction 8 to Form CRS. Generally, an investment adviser
registered with the SEC is required to amend its Form ADV promptly
if information provided in its brochure becomes materially
inaccurate. See Advisers Act rule 204-1(a)(2); General Instruction 4
to Form ADV.
    \774\ See, e.g., Exchange Act rule 15b3-1.
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    The proposed instructions also would have required firms, without
charge to the retail investor, to communicate updated information by
delivering the amended relationship summary or by communicating the
information another way.\775\ As noted above, commenters expressed
different views regarding this approach. Some commenters advocated for
posting the relationship summary on a firm's website in order to meet
the communication requirement.\776\ On the other hand, one commenter
advocated for requiring firms to deliver updated relationship summaries
whenever a change is made, rather than permitting firms to communicate
the information in another way.\777\ We are adopting slightly revised
final instructions to eliminate the proposed wording ``another way'' in
order to clarify that a firm may communicate the information through
another disclosure, and that disclosure must be delivered to the retail
investor.\778\ In other words, merely providing notice of or access to
another disclosure or the relationship summary would not satisfy this
final instruction. For example, if an investment adviser communicated a
material change to information contained in its relationship summary to
a retail investor by delivering an amended Form ADV brochure or Form
ADV summary of material changes that also contained the updated
information, this would support a reasonable belief that the
information had been communicated to the retail investor, and the
investment adviser will not be required to deliver an updated
relationship summary to that retail investor. This requirement provides
firms the flexibility to disclose changes to the relationship summary
without requiring them to incur additional delivery costs.
---------------------------------------------------------------------------

    \775\ See Proposed General Instruction 6.(b) to Form CRS.
    \776\ See, e.g., Fidelity Letter (``We also support the SEC's
position that with respect to material changes of information
provided in a Form CRS, firms must either provide an updated Form
CRS to retail investors or communicate the changes in another way
such as posting on the firm's website.''); Morgan Stanley Letter;
Primerica Letter.
    \777\ See NASAA Letter.
    \778\ General Instruction 8.B. to Form CRS (``You can make the
communication by delivering the amended relationship summary or by
communicating the information through another disclosure that is
delivered to the retail investor.'').
---------------------------------------------------------------------------

    In another modification from the proposal, the rules as adopted
will allow firms to communicate the information in an amended
relationship summary to retail investors who are existing clients or
customers within 60 days after the updates are required to be made,
instead of 30 days as proposed.\779\ Two commenters advocated that
allowing 60 days for the communication would increase the likelihood
that firms could deliver an updated relationship summary along with
other disclosures that firms commonly deliver on a quarterly basis,
rather than in a separate delivery.\780\ Delivery with other
disclosures is consistent with the instructions regarding the way in
which relationship summary updates may be communicated. We are
clarifying this, as noted above, and adopting the requirement that
firms must communicate updates to the relationship summary within 60
days after the updates are required to be made.
---------------------------------------------------------------------------

    \779\ Advisers Act rule 204-5(b)(4) and Exchange Act rule 17a-
14(c)(4); Proposed General Instruction 6.(b) to Form CRS.
    \780\ See LPL Financial Letter; Morgan Stanley Letter. For
example, NASD Rule 2340 requires broker-dealers to deliver account
statements generally on a quarterly basis.
---------------------------------------------------------------------------

    In a further change from the proposal, firms must highlight the
changes in an amended relationship summary by, for example, marking the
revised text or including a summary of material changes and attaching
the changes as an exhibit to the unmarked amended relationship
summary.\781\ The unmarked amended relationship summary and exhibit
must be filed with the Commission.\782\ We believe that including this
exhibit is important in assisting retail investors to assess changes
that may impact their accounts or their relationships with their firm
or financial professional. A retail investor will be able to find the
latest version of the relationship summary through Investor.gov and on
the firm's website, if it has one, and firms will be required to
deliver a relationship summary within 30 days upon the retail
investor's request, as proposed.\783\
---------------------------------------------------------------------------

    \781\ General Instruction 8.C. to Form CRS (``Each amended
relationship summary that is delivered to a retail investor who is
an existing client or customer must highlight the most recent
changes by, for example, marking the revised text or including a
summary of material changes. The additional disclosure showing
revised text or summarizing the material changes must be attached as
an exhibit to the unmarked amended relationship summary.''). As an
addition to the proposal, we are also amending General Instruction 4
to Form ADV to mirror this requirement (``You must include an
exhibit highlighting the most recent changes required by Form ADV,
Part 3 (Form CRS), General Instruction 8.C.''); see also supra
footnotes 673-677 and accompanying text.
    \782\ General Instruction 8.A. to Form CRS; see also General
Instruction 4 to Form ADV.
    \783\ Advisers Act rules 204-5(b)(3) and 204-5(b)(5) and
Exchange Act rules 17a-14(c)(3) and 17a-14(c)(5); General
Instruction 9.B. to Form CRS.
---------------------------------------------------------------------------

    As discussed in the proposal, for purposes of the requirement to
communicate updates to the

relationship summary, it is important that broker-dealers identify
their existing customers who are retail investors and recognize that a
customer relationship may take many forms. For example, a broker-dealer
will be required to provide the relationship summary to customers who
have so-called ``check and application'' arrangements with the broker-
dealer, under which a broker-dealer directs the customer to send the
application and check directly to the issuer. We continue to believe
this approach will facilitate broker-dealers building upon their
current compliance infrastructure in identifying existing customers
\784\ and will enhance investor protections to retail investors
engaging the financial services of broker-dealers.
---------------------------------------------------------------------------

    \784\ For example, broker-dealers may already have compliance
infrastructure to identify customers pursuant to FINRA's suitability
rule, which applies to dealings with a person (other than a broker
or dealer) who opens a brokerage account at a broker-dealer or who
purchases a security for which the broker-dealer receives or will
receive, directly or indirectly, compensation even though the
security is held at an issuer, the issuer's affiliate or custodial
agent, or using another similar arrangement. See Guidance on FINRA's
Suitability Rule, FINRA Regulatory Notice 12-55 (Dec. 2012), at
Q6(a).
---------------------------------------------------------------------------

D. Transition Provisions

    To provide adequate notice and opportunity to comply with the
adopted relationship summary filing requirements, firms that are
registered, or investment advisers who have an application for
registration pending, with the Commission prior to June 30, 2020 will
have a period of time beginning on May 1, 2020 until June 30, 2020 to
file their initial relationship summaries with the Commission.\785\ On
and after June 30, 2020, newly registered broker-dealers will be
required to file their relationship summary with the Commission by the
date on which their registration with the Commission becomes effective,
and the Commission will not accept any initial application for
registration as an investment adviser that does not include a
relationship summary that satisfies the requirements of Form ADV, Part
3: Form CRS.\786\ The adopted transition period is longer than we
proposed. The proposal would have required broker-dealers to comply
with their relationship summary obligations beginning six months after
the effective date of the new rules and rule amendments.\787\
Similarly, in the proposal, investment advisers or dual registrants
would have been required to comply with the new filing requirements as
part of the firm's next annual updating amendment to Form ADV that
would have been required after six months after the rule's effective
date.\788\ The extended time to comply with the relationship summary
requirements reflects our consideration of comments we received from
firms and the modifications to the proposed requirements of the
relationship summary.
---------------------------------------------------------------------------

    \785\ See Exchange Act rule 17a-14(f), Advisers Act rules 203-
1(a)(2) and 204-1(e); Instruction 7.C. to Form CRS.
    \786\ See Exchange Act rule 17a-14(f) and Advisers Act rule 203-
1(a)(2); Instruction 7.C. to Form CRS.
    \787\ See Proposed Instruction 5.c. to Form CRS. See Advisers
Act proposed rule 203-1(a)(2) and Exchange Act proposed rule 17a-14
(f)(1).
    \788\ See id.
---------------------------------------------------------------------------

    In the proposal, we asked for comment on the proposed
implementation requirements and whether the six-month period was enough
time for newly registered broker-dealers and investment advisers to
prepare an initial relationship summary.\789\ A number of commenters
requested a longer implementation period, ranging from 12 to 24 months
from the effective date.\790\ One commenter suggested a phased-in
approach, such that requirements may be effected at different points in
time.\791\ Commenters cited a number of reasons for a longer
implementation period, including the time needed to hire additional
staff and create and deploy new disclosures, procedures, training, and
technology,\792\ as well as to have the opportunity to apply innovative
technology and designs.\793\
---------------------------------------------------------------------------

    \789\ See Proposing Release.
    \790\ See, e.g., IAA Letter I (requesting a 12 month
implementation period from the effective date); CCMC Letter
(requesting 18 months); IRI Letter (requesting 18-24 months);
Comment Letter of HD Vest Financial Services (Aug. 7, 2018)
(``HDVest Letter'') (requesting 18 months); Cetera Letter I; SIFMA
Letter (requesting at least 24 months from the date the final rules
are approved).
    \791\ See SIFMA Letter.
    \792\ See HDVest Letter.
    \793\ See IAA Letter I.
---------------------------------------------------------------------------

    We are mindful of the time needed to create the relationship
summary, as well as to update a firm's policies, procedures, and
systems in order to provide these new disclosures. We are, however,
lengthening the time that firms will have to comply relative to the
proposal after considering commenters' suggestions for a longer
implementation period. We expect that approximately twelve months will
be adequate for firms to conduct the requisite operational changes to
their systems and to establish internal processes to satisfy their
relationship summary obligations.
    Some commenters expressed the view that the proposed one-time,
initial delivery to existing clients and customers is not
necessary.\794\ One survey reported, on the other hand, that over 90%
of survey respondents with an existing financial professional
relationship stated that they knew more about their relationship with
the adviser after reading the proposed relationship summary.\795\ We
believe the information contained in the relationship summary could
improve existing investors' ability to monitor and make more informed
decisions related to their existing relationships with firms during
their duration, including whether to terminate a relationship. For
example, as discussed above in Section II.A., retail investors that may
learn of account types whose minimum requirements they did not meet
when they first opened their existing account, through a one-time,
initial delivery to existing clients and customers. Upon seeing this
range of options, existing clients and customers could seek to take
advantage of cost savings or additional services offered through these
other account types. We believe that existing clients and customers
would benefit from this one-time delivery of the relationship summary
and therefore are adopting the requirement as proposed. Firms will be
required to deliver their relationship summary to new and prospective
clients and customers who are retail investors as of the date by which
they are first required to electronically file their relationship
summary with the Commission.\796\ In addition, as proposed, firms will
be required, as part of the transition, to

deliver their relationship summaries to all existing clients and
customers who are retail investors on an initial one-time basis within
30 days after the date the firm is first required to file its
relationship summary with the Commission.\797\
---------------------------------------------------------------------------

    \794\ See, e.g., Fidelity Letter (existing customers are already
familiar with the services offered to them by their broker-dealer or
investment adviser. . . but can of course access a copy posted on
the firm's website); AXA Letter (delivering the relationship summary
to existing customers is likely to be confusing); Cetera Letter I
(firms should not be required to deliver a new or amended Form CRS
to [existing] clients except in limited circumstances, such as when
the client establishes a different type of account than they already
have).
    \795\ See Cetera Letter II (Woelfel), supra footnote 17 (84% of
respondents stated that they knew a lot or a little more about their
financial adviser after reviewing the Form CRS than they did before;
among respondents with current relationships with a broker or
adviser, over 90% said they knew more); see also CCMC Letter
(investor polling), supra footnote 21 (in a survey of investors with
investments outside of a work sponsored 401(k), pension or personal
real estate, 72% of participants responding to a question describing
that new rules could require financial professionals to deliver '' a
standardized four page document that explains the relationship
between the financial professional and clients'' agreed that the new
disclosure document ``will boost transparency and help build
stronger relationships between me and my financial professional''
and 62% indicated that they were ``very interested'' in reading the
document).
    \796\ See Advisers rule 204-5(e)(2) and Exchange Act rule 17a-
14(f)(4); Instruction 7.C.iii. to Form CRS.
    \797\ See Advisers rule 204-5(e)(1) and Exchange Act rule 17a-
14(c) and (f)(3); adopted Instruction 7.C.iv. to Form CRS.
---------------------------------------------------------------------------

E. Recordkeeping Amendments

    We are adopting amendments to the recordkeeping and record
retention requirements under Advisers Act rule 204-2 and Exchange Act
rules 17a-3 and 17a-4, as proposed. These rules set forth requirements
for firms to make, maintain, and preserve specified books and records.
Pursuant to paragraph (a)(14)(i) of Advisers Act Rule 204-2 as amended,
investment advisers will be required to make and preserve a record of
the dates that each relationship summary was given to any client or
prospective client who subsequently becomes a client.\798\ New
paragraph (a)(24) of Exchange Act Rule 17a-3 as adopted will require
broker-dealers to create a record of the date on which each
relationship summary was provided to each retail investor, including
any relationship summary provided before such retail investor opens an
account.\799\ In addition, paragraph (a)(14)(i) of Advisers Act rule
204-2, as amended, will require investment advisers to retain copies of
each relationship summary and each amendment or revision thereto while
paragraph (e)(10) of Exchange Act rule 17a-4, as amended, will require
broker-dealers to maintain and preserve a copy of each version of the
relationship summary as well as the records required to be made
pursuant to new paragraph (a)(24) of Exchange Act rule 17a-3 as adopted
by the Commission.\800\ The amended rules set forth the manner in which
and the period of time for which these record must be retained.\801\
These records will facilitate the Commission's ability to inspect for
and enforce compliance with the relationship summary requirements.
---------------------------------------------------------------------------

    \798\ See amended Advisers Act rule 204-2(a)(14)(i).
    \799\ See Exchange Act rule 17a-3(a)(24).
    \800\ The effect of the amended and adopted rules will require
both investment advisers and broker-dealers to maintain copies of
all versions of the relationship summary and the dates they are
provided or given to existing or prospective retail customers; see
also General Instruction 6.A. to Form CRS (requiring firms to
maintain a copy of each version of the relationship summary and make
it available to the SEC staff upon request). The Commission notes
that pursuant to Exchange Act rule 17a-3(e), for purposes of
transactions in municipal securities by municipal securities broker-
dealers, compliance with Rule G-8 of the Municipal Securities
Rulemaking Board (``MSRB'') will be deemed to be in compliance with
the recordkeeping requirements for broker-dealers. Accordingly, for
purposes of transactions in municipal securities, a broker-dealer
may satisfy its recordkeeping obligations under Exchange Act rule
17a-3(a)(24), as adopted, by complying with Rule G-8 of the MSRB.
See Exchange Act rule 17a-3(e).
    \801\ Investment advisers will be required to maintain and
preserve these records in an easily accessible place for a period of
not less than five years from the end of the fiscal year during
which the last entry was made on such record, the first two years in
an appropriate office of the investment adviser. See Advisers Act
rule 204-2(e)(1). Broker-dealers will be required to maintain these
records in an easily accessible place until six years after such
record or relationship summary is created. See Exchange Act rules
17a-3(a)(24) and 17a-4(e)(10) as amended.
---------------------------------------------------------------------------

    We received no comments on the proposed manner and time period for
records preservation or the requirement to maintain a copy of each
version of the relationship summary and each amendment or revision to
the relationship summary.\802\ We are adopting these requirements as
proposed. Some commenters expressed concern with the potential costs
and feasibility of complying with the proposed recordkeeping
requirements for broker-dealers.\803\ Several commenters argued that
keeping records of when a relationship summary was given to a
prospective retail investor would be unnecessarily burdensome for firms
and would likely provide de minimis benefits.\804\ Some investment
adviser and broker-dealer commenters stated that most firms'
recordkeeping systems and procedures are not designed to maintain
records relating to prospective clients and that conforming such
systems and procedures to the proposed rule requirements would be
burdensome and costly and would not result in an offsetting
benefit.\805\ Others noted they may have to retain records for an
indefinite length of time because their interactions with prospective
clients about engaging services often span weeks, months or years and
may include numerous phone calls, meetings or other forms of
contact.\806\
---------------------------------------------------------------------------

    \802\ See Exchange Act rule 17a-4(e)(10) as proposed to be
amended and Advisers Act rule 204-2(e)(1) (which would apply to
amended rule 204-2(a)(14)(i) as proposed to be amended). The
recordkeeping requirements for investment advisers will mirror the
current recordkeeping requirements for Form ADV Part 2. See Advisers
Act amended rule 204-2(a)(14)(i) as proposed to be amended and rule
204-2(e)(1).
    \803\ See, e.g., CCMC Letter; Committee of Annuity Insurers
Letter; Edward Jones Letter; Morgan Stanley Letter; Primerica
Letter; SIFMA Letter; IPA Letter.
    \804\ See id.
    \805\ See, e.g., Committee of Annuity Insurers Letter; Edward
Jones Letter; Morgan Stanley Letter; Primerica Letter; SIFMA Letter.
    \806\ See, e.g., Edward Jones Letter; Primerica Letter; SIFMA
Letter.
---------------------------------------------------------------------------

    As an alternative, commenters suggested that firms only be required
to maintain a record of the most recent date they delivered the
relationship summary to a prospective client that becomes an actual
client preceding the opening of an account.\807\ Commenters suggested
only requiring a record that the relationship summary was delivered at
account opening or when a retail investor becomes an investment
advisory client.\808\
---------------------------------------------------------------------------

    \807\ See, e.g., CCMC Letter; SIFMA Letter.
    \808\ See, e.g., SIFMA Letter; Morgan Stanley; Edward Jones
Letter.
---------------------------------------------------------------------------

    Based on our experience with similar recordkeeping requirements for
the Form ADV Part 2A brochure, requiring firms to create and maintain
records of the dates they provide or give a relationship summary to an
existing, new, or potential retail investor will facilitate examiners'
ability to inspect and examine for compliance with the relationship
summary delivery and content requirements. Specifically, the dates will
help examiners to identify the relationship summary disclosures that
retail investors may have relied on to decide whether to engage a
firm's services. Absent having these dates to examine, we believe that
it would be exceedingly difficult for examiners to evaluate firms'
compliance with the relationship summary delivery and content
requirement. These records also may assist firms in monitoring their
compliance with the relationship summary delivery requirements.
    Recordkeeping obligations for the relationship summary may be less
burdensome if firms' recordkeeping and compliance systems are already
capable of creating and maintaining records related to communications
with prospective clients. For example, investment advisers are required
to keep similar records for the delivery of the Form ADV Part 2A
brochure \809\ and broker-dealers, especially those registered with
FINRA, are subject to comparable recordkeeping requirements with
respect to communications and correspondence with prospective retail
investors.\810\
---------------------------------------------------------------------------

    \809\ See, e.g., Advisers Act rule 204-2.
    \810\ See, e.g., Exchange Act rule 17a-4(b)(4) requiring broker-
dealers to maintain a record of all communications sent relating to
its business as such; see also, e.g., FINRA Rule 2210(a)(5)
(defining ``retail communication'' to mean ``any written (including
electronic) communication that is distributed or made available to
more than 25 retail investors within any 30 calendar-day period.'');
FINRA Rule 2210(b)(4) (requiring all FINRA members to ``maintain all
retail communications and institutional communications for the
retention period required by SEA Rule 17a-4(b) and in a format and
media that comply with SEA Rule 17a-4 . . . [and] . . . all
correspondence in accordance with the record-keeping requirements of
[FINRA] Rules 3110.09 [on supervision, requiring FINRA members to
retain the internal communications and correspondence of associated
persons relating to the member's investment banking or securities
business for the period of time and accessibility specified in SEA
Rule 17a-4(b)] and 4511 [establishing general requirements for
members to ``preserve books and records as required under the FINRA
rules, the Exchange Act and the applicable Exchange Act rules'']).

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

    Several firms also requested clarification and expressed concern
regarding the potential recordkeeping implications related to the ``Key
Questions to Ask'' provision of the proposal.\811\ Some commenters
stated that requiring firms to make and maintain records of their
answers to the ``Key Questions to Ask'' and of supplemental information
cross-referenced in or linked from the relationship summary would
result in substantial and unnecessary burdens and/or might stifle
potentially beneficial discussions between firms, clients and/or
prospective clients.\812\ Commenters requested clarification that ``Key
Questions to Ask'' are intended to promote dialog between firms and
clients rather than creating any sort of recordkeeping requirement,
which commenters believed could lead to less robust discussions between
firms and clients.\813\
---------------------------------------------------------------------------

    \811\ See, e.g., CCMC Letter; TIAA Letter; LPL Financial Letter;
IPA Letter; NSCP Letter.
    \812\ See, e.g., Edward Jones Letter; CCMC Letter; NSCP Letter;
SIFMA Letter; Morgan Stanley Letter; TIAA Letter; LPL Financial
Letter.
    \813\ See, e.g., Edward Jones Letter; CCMC Letter; TIAA Letter;
LPL Financial Letter.
---------------------------------------------------------------------------

    As discussed above, the ``Key Questions to Ask'' section of the
relationship summary has been eliminated, but firms will be required to
include ``conversation starters'' in their relationship summary.\814\
We are not establishing new or separate recordkeeping obligations
related to the conversation starters or the answers provided by firms
in response to the conversation starters. We are also not adding
separate or new recordkeeping obligations related to the use of layered
disclosure in the relationship summary. Current recordkeeping rules for
investment advisers and broker-dealers already impose recordkeeping and
retention requirements related to a firm's disclosures and other
communications with retail investors, which will include responses to
conversation starters or information cross-referenced in the
relationships summary.\815\ Responses to conversation starters or
hyperlinked material may trigger recordkeeping requirements under other
federal securities statutes and rules or the rules of self-regulatory
organizations of which firms are members or registrants.\816\ Further,
firms may wish to develop scripts for their financial professionals in
responding to conversation starters to ensure the quality and
consistency of responses and then preserve the scripts for compliance
purposes.
---------------------------------------------------------------------------

    \814\ See supra Section II.A.4.
    \815\ For example, with respect to investment advisers, if a
conversation starter prompts a written communication that includes a
recommendation made or proposed to be made or any advice given or
proposed to be given by the investment adviser, such a communication
may be subject to the recordkeeping requirements of Advisers Act
rule 204-(2)(a)(7). Also, for example, broker-dealers, under
Exchange Act Rule 17a-4(b)(4), are required to maintain records of
the ``[o]riginals of all communications received and copies of all
communications sent (and any approvals thereof) by the member,
broker or dealer (including inter-office memoranda and
communications) relating to its business as such. . .''; see also
the recordkeeping requirements of FINRA Rule 2210.
    \816\ See id.
---------------------------------------------------------------------------

III. Disclosures About a Firm's Regulatory Status and a Financial
Professional's Association

    In connection with Form CRS, we recognized that the education and
information that Form CRS provides to retail investors could
potentially be overwhelmed by the way in which financial professionals
present themselves to potential or current retail investors, including
through advertising and other communications.\817\ This concern was
particularly acute where such communications could be misleading in
nature, or where advertising and communications precede the delivery of
Form CRS and may have a disproportionate impact on shaping or
influencing retail investor perceptions.\818\ To mitigate these
concerns, we proposed additional rules as part of the Proposing
Release. One of our proposed rules required disclosure of a firm's
regulatory status and a financial professional's association with a
firm. Specifically, we proposed rules under the Exchange Act and the
Advisers Act that would have required a broker-dealer and an investment
adviser to prominently disclose that it is registered as a broker-
dealer or investment adviser, as applicable, with the Commission in
print or electronic retail investor communications.\819\ The proposed
Exchange Act rule also would have required an associated natural person
of a broker or dealer to prominently disclose that he or she is an
associated person of a broker-dealer registered with the Commission in
print or electronic retail investor communications.\820\ Similarly, the
proposed Advisers Act rule would have required a supervised person of
an investment adviser registered under section 203 to prominently
disclose that he or she is a supervised person of an investment adviser
registered with the Commission in print or electronic retail investor
communications.\821\ As we discussed in the Proposing Release, we
believed that requiring a firm to disclose whether it is a broker-
dealer or an investment adviser in print or electronic retail investor
communications would assist retail investors in determining which type
of firm is more appropriate for their specific investment needs.\822\
For similar reasons, we noted that because retail investors interact
with a firm primarily through financial professionals, it is important
that financial professionals disclose the firm type with which they are
associated.\823\
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    \817\ See Proposing Release, supra footnote 5, at footnotes 374-
375 and accompanying text.
    \818\ See id.
    \819\ See id., at footnotes 437-439 and accompanying text.
    \820\ See id.
    \821\ See id.
    \822\ See Proposing Release, supra footnote 5, at footnotes 440-
441 and accompanying text.
    \823\ See id. We also proposed rules that would have restricted
broker-dealers and their associated persons from using the terms
``adviser'' or ``advisor'' as part of a name or title when
communicating with retail investors in certain circumstances. We are
not adopting those rules, as further discussed in the Regulation
Best Interest Release. See Regulation Best Interest Release, supra
footnote 47.
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    Several commenters expressed general support for the proposed
Affirmative Disclosures.\824\ Some of these commenters believed that
the rules could be beneficial in helping investors to understand the
legal distinctions between broker-dealers and investment advisers.\825\
Another commenter in support of the Affirmative Disclosures stated that
investors would benefit more if they were also provided with readily
accessible regulatory and disciplinary histories of the financial
professional.\826\ However, one commenter noted that while ``the
required disclosure could have some modest benefit, . . . it is
important not to overstate [its] likely value.'' \827\
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    \824\ See CFA Letter I; CFA Institute Letter I (stating that
``[r]equiring them to call themselves what they legally are will
enable investors to better understand the distinction''); Better
Markets Letter.
    \825\ See CFA Institute Letter I; CFA Letter I; LPL Financial
Letter.
    \826\ See Better Markets Letter.
    \827\ See CFA Letter I.
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    Several commenters also opposed the Affirmative Disclosures.\828\
Some commenters believed that the proposed rules were duplicative,
noting that

Regulation Best Interest, Form CRS, and/or other required disclosure
obligations (e.g., Form ADV, FINRA Rule 2210) would inform retail
investors of the capacity of a firm and its financial professionals,
obviating the need for the additional rules.\829\ Some of these
commenters stated that Form CRS alone or in combination with FINRA Rule
2210(d)(3) (providing specific requirements for disclosure of the
broker-dealer's name in retail communications and correspondence) would
provide retail investors with a firm's capacity and its name, making
the Affirmative Disclosures duplicative.\830\
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    \828\ Some commenters also opposed the proposed Affirmative
Disclosures because investors do not understand what it means to be
registered or what the legal terms mean. See Altruist Letter; IRI
Letter. See also LPL Financial Letter (noting that regulatory status
is not important to an investor when being casually introduced for
the first time to a financial professional and receiving a business
card); Bank of America Letter; SIFMA Letter.
    \829\ See, e.g., LPL Financial Letter (stating that Form ADV,
Form CRS, and Regulation Best Interest already ``communicate to
investors the capacity in which they are acting on behalf of the
investor and the material facts related to the investor's
relationship with the firm and its financial professionals.'');
SIFMA Letter (stating that ``information regarding regulatory status
is contained in Proposed Form CRS, and Proposed Form CRS is
available at all times on a firm's website, in addition to periodic
distribution to clients.''); IRI Letter; Committee of Annuity
Insurers Letter; Letter from Mari-Anne Pisarri, Pickard Djinis and
Pisarri LLP (``Pickard Letter'') (stating ``the Commission should
determine whether the existing Form ADV brochure supplement
adequately informs retail investors of the registration status of
the advisory representatives they deal with . . . .'')
    \830\ See, e.g., IRI Letter; Bank of America Letter; Committee
of Annuity Insurers Letter. See also SIFMA Letter (noting that Form
CRS resolves any confusion that may exist regarding whether a
financial professional or firm is a broker-dealer or an investment
adviser and would be available on a firm website and given
periodically to investors).
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    Several commenters also opposed the Affirmative Disclosures because
they believed the costs to implement and comply with the proposed rules
did not justify the benefits.\831\ In particular, these commenters
noted a range of cost-related impacts, such as replacing new and
existing business cards \832\ and amending numerous electronic and
print marketing materials.\833\ Several commenters also noted the
difficultly in implementing and supervising specific types of
communication including business cards, oral communications, and voice
overlay and on-screen text in televised or video presentations.\834\
---------------------------------------------------------------------------

    \831\ See, e.g., LPL Financial Letter; Bank of America Letter;
IRI Letter; SIFMA Letter.
    \832\ See IRI Letter. See also SIFMA Letter (noting also that
firms would need to reprint all business cards and modify ``firm
technologies and electronic communications'').
    \833\ See LPL Financial Letter (noting ``significant financial
costs'').
    \834\ See Bank of America Letter; IRI Letter; SIFMA Letter;
Altruist Letter. See also Committee of Annuity Insurers Letter
(noting also that there are operational challenges in situations
where marketing materials or account statements are used or
distributed by a product sponsor rather than the firm itself).
---------------------------------------------------------------------------

    After considering the comments received and the obligations we are
adopting under Regulation Best Interest and Form CRS, we have concluded
that the capacity disclosure requirement in Regulation Best Interest
and Form CRS are sufficient to achieve the objectives of the proposed
Affirmative Disclosures. These rules enhance retail investor awareness
of the firm and professional type that they are engaging or seeking to
engage and would therefore assist a retail investor in choosing the
type that best suits his or her financial goals.
    As discussed in the Regulation Best Interest Release, as part of
its disclosure obligations, a broker-dealer and its associated natural
persons must disclose when they are acting as a broker-dealer when
making a recommendation. This type of disclosure is designed to improve
awareness among retail customers such that a retail customer can more
readily identify and understand their relationship.\835\ This capacity
disclosure requires a broker-dealer and its financial professionals to
disclose that the firm or the financial professional is acting as a
broker-dealer, as a material fact relating to the scope and terms of
the relationship subject to its disclosure obligation.\836\ As noted in
the Regulation Best Interest Release, a broker-dealer and its financial
professionals must disclose the required information prior to or at the
time of a recommendation but Regulation Best Interest does not mandate
the form, specific time, or method of delivering disclosures pursuant
to its disclosure obligation.\837\ In fulfilling this obligation, a
broker-dealer that is not a dual registrant generally will be able to
satisfy the requirement to disclose the broker-dealer's capacity by
delivering the Relationship Summary to the retail customer. For broker-
dealers who are dually registered, and for associated persons who are
either dually licensed or are not dually licensed and only offer
broker-dealer services through a firm that is dually registered, the
information contained in the Relationship Summary will not be
sufficient to disclose their capacity in making a recommendation.\838\
As discussed in the Regulation Best Interest Release, although some
commenters expressed concerns about potential investor confusion caused
by ``additional'' disclosure regarding a dual registrant's capacity,
the disclosure obligations of Regulation Best Interest will not
duplicate or confuse, but instead will provide clarifying detail on
capacity to supplement the information contained in the Relationship
Summary.\839\
---------------------------------------------------------------------------

    \835\ See Regulation Best Interest Release, supra footnote 47,
at Section II.C.1.a.
    \836\ See id.
    \837\ See id.
    \838\ See id.
    \839\ See id.
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    Additionally, as discussed above, Form CRS includes a requirement
for firms to state their name and whether they are ``registered with
the Securities and Exchange Commission as a broker-dealer, investment
adviser, or both.'' \840\ Form CRS is required to be delivered before
or at the time the financial professional enters into an investment
advisory relationship or, for a broker-dealer, before or at the
earliest of a certain recommendation, the execution of a securities
transaction, or the opening of a brokerage account.\841\ Additionally,
Form CRS will need to be prominently posted on the firm's public
website, if it maintains one, in a location and format that is easily
accessible to retail investors \842\ and must be provided to retail
investors 60 days after a material change is made.\843\ These
requirements highlight for an investor's attention, and promote access
to, the capacity information at times that we believe are crucial to a
retail investor when seeking to make a choice of financial firms.
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    \840\ See Item 1.A. of Form CRS. See also supra Section II.B.1.
    \841\ See General Instruction 7.B to Form CRS. See also supra
Section II.C.
    \842\ See General Instruction 10.A. to Form CRS. See also supra
Section II.C.3.a.
    \843\ See General Instruction 8.B. to Form CRS. See also supra
Section II.C.4. In addition, the most recent versions of firms'
relationship summaries will be accessible through Investor.gov. See
supra footnote 698 and accompanying text.
---------------------------------------------------------------------------

    We recognize that the proposed Affirmative Disclosures would have
included capacity requirements on more communications than what is
required by Form CRS and capacity disclosure requirement in Regulation
Best Interest. Specifically, under the Affirmative Disclosures, all
forms of communications used by broker-dealers, investment advisers and
their financial professionals, such as business cards, letterheads,
social media profiles, and signature blocks would have included these
required capacity disclosures. However, several commenters questioned
whether the benefit provided by covering more communications justified
the costs of implementing the requirements.\844\

While commenters did not provide quantitative data that would
demonstrate the cost impact on firms, certain commenters did describe
the scope of the impact along with the operational challenges in
implementing the rule.\845\ One commenter stated that ``the costs of
such requirement would be significant'' as firms would need to reprint
all business cards to include this disclosure and make changes to firm
technology and electronic communications to make the disclosure.\846\
Additionally, another commenter stated that adding a voice overlay and
on-screen text for video presentations would be difficult to implement,
costly, and challenging to supervise.\847\
---------------------------------------------------------------------------

    \844\ See, e.g., IRI Letter (stating that the costs to amend
``tens of thousands of business cards to add the new required
disclosure outweighs any intended benefit, particularly since the
Form CRS already accomplishes the same objective . . .''); Committee
of Annuity Insurers Letter (stating that the Affirmative Disclosure
rules provide little benefit to investors and present operational
challenges with respect to marketing materials created by product
sponsors or issuers); LPL Financial Letter (noting that the benefits
of these rules are outweighed by the ``significant financial cost''
to amend ``numerous electronic and print marketing materials,
business cards, and other retail customer communications.'')
    \845\ See IRI Letter (noting that a voice overlay and on-screen
text may be difficult to implement and to effectively supervise.
Additionally, firms will incur ``significant costs and resources to
monitor such presentations'' for the required disclosures ``even
though that same client already received the Form CRS
disclosure.''); LPL Financial Letter. See also Bank of America
Letter (``the [Affirmative Disclosure rules] will impose significant
costs to implement since tens of thousands of business cards will
need to be amended in order to add the new required disclosures.'')
    \846\ See SIFMA Letter (noting that ``we do not believe the
regulatory status disclosure would have an obvious benefit to
investors. At the same time, the costs of such a requirement would
be significant.'')
    \847\ See Bank of America Letter (stating further that ``it
would be virtually impossible to supervise whether [the required]
disclosure was made in oral communications.''); see also Altruist
Letter (stating that including the disclosure in oral communications
would be ``awkward for a practitioner to implement.''); Committee of
Annuity Insurers Letter (stating that ``it may not be feasible for a
broker-dealer to include this information on marketing materials for
investment products created and provided by a product sponsor.'')
---------------------------------------------------------------------------

    After considering the comments received and the obligations we are
adopting under Regulation Best Interest and Form CRS, we have concluded
that the policy concerns underlying the Affirmative Disclosures are
addressed by the rulemaking package we are adopting, particularly the
disclosure obligations in Regulation Best Interest and Form CRS, as
discussed above.\848\ We therefore believe that the costs of the
Affirmative Disclosures do not justify any incremental benefit of
requiring registration status on all communications and as a result, we
are not adopting the Affirmative Disclosures.
---------------------------------------------------------------------------

    \848\ See Regulation Best Interest Release, supra footnote 47.
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IV. Economic Analysis

A. Introduction

    The Commission is sensitive to the economic effects, including the
benefits and costs and the effects on efficiency, competition, and
capital formation that will result from the new rules and amendments to
existing rules. Whenever the Commission engages in rulemaking and is
required to consider or determine whether an action is necessary or
appropriate in the public interest, section 3(f) of the Exchange Act
requires the Commission to consider whether the action would promote
efficiency, competition, and capital formation, in addition to the
protection of investors.\849\ Further, when making rules under the
Exchange Act, section 23(a)(2) of the Exchange Act requires the
Commission to consider the impact such rules would have on
competition.\850\ Section 23(a)(2) of the Exchange Act also prohibits
the Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.\851\
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    \849\ See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
    \850\ See 15 U.S.C. 78w(a)(2).
    \851\ Id.
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    Section 202(c) of the Advisers Act requires the Commission, when
engaging in rulemaking and required to consider or determine whether an
action is necessary or appropriate in the public interest, to also
consider whether the action will promote efficiency, competition, and
capital formation, in addition to the protection of investors.\852\ The
Commission provides both a qualitative assessment of the potential
effects and where feasible, quantitative estimates of the potential
aggregate initial and aggregate ongoing costs. In some cases, however,
quantification is not feasible due to lack of relevant data, or the
difficulty of predicting how market participants would act under the
conditions of the proposed rules. For example, to the extent that the
relationship summary will increase retail investors' understanding of