Client Relationship Summary

Art by Tim Bower

QUESTION: I’m an investment adviser, registered with the Securities and Exchange Commission (SEC), who provides investment advisory services and/or investment management services to workplace retirement plan accounts. I know that I need to file a client relationship summary (Form CRS) with the SEC by June 30 and deliver it to “retail investors.” Does this delivery obligation apply to individuals, for their workplace retirement plan accounts?

ANSWER: It depends. Our response builds on our previous column (see “New Obligation to the SEC,” PLANADVISER, March/April 2020) regarding the Form CRS disclosure obligation that applies to rollover advice. If the services are for the account of a plan participant, the Form CRS obligation will apply. If, however, the services are provided to the plan fiduciary for the workplace retirement plan, the Form CRS obligation will usually not apply, though there are exceptions.

Form CRS must be delivered to a “retail investor.” There are two components to the definition of retail investor—that the investor: 1) must be a natural person or his/her legal representative, and 2) seeks to receive or receives services primarily for personal, family or household purposes. In its adopting release on the Form CRS rule, SEC Release No. 34-86032, the SEC explains that individuals seeking services for their retirement accounts should receive a Form CRS because retirement saving is a personal, family or household purpose. So Form CRS applies when you’re providing investment advisory and/or investment management services to participants regarding their workplace plan account.

If, however, the plan fiduciary has engaged you to provide advisory services about the investment options offered on the plan lineup, the Form CRS obligation will not generally apply, because the fiduciary is not seeking services primarily for personal, family or household purposes. This is true even if you help participants by providing education about plan investment options, e.g., at an enrollment or investment education meeting. As explained by the SEC in the release, under these circumstances, the plan participant is not “seeking or receiving services” as contemplated by Form CRS because the decision to hire you for these services was made by the fiduciary. If, however, you go beyond investment education and provide investment advice to a participant, then Form CRS must be delivered to that person.

What if the plan is established by a sole proprietor or other self-employed individual who decides the plan service arrangements and also participates in the plan?

The SEC explains that, in those circumstances, the self-employed individual would be a retail investor seeking services for personal, family or household purposes and must receive Form CRS.

For retail investors who are new clients, Form CRS must be delivered before or at the time you enter into the investment advisory contract. For retail investors who are existing clients on June 30, the form will need to be delivered by July 30. Also, as we pointed out previously, if you provide rollover advice to an existing client who has already received a Form CRS, you will need to deliver a new one for the arrangement related to the rollover recommendation.

Next Steps

Prior to June 30, you should take these steps to determine whether Form CRS applies to your workplace retirement plan clients. First, review your records to identify: 1) your advisory clients who are plan participants, and 2) your clients that are plan sponsors/fiduciaries with responsibility for the plan as a whole. Clients in category 1) will need to receive a Form CRS. Next, for service arrangements with the fiduciary, determine whether the fiduciary is a sole proprietor or other self-employed individual who also participates in the plan. These clients will also need to receive Form CRS.

Fred Reish is chairman of the financial services ERISA [Employee Retirement Income Security Act] practice at law firm Faegre Drinker Biddle & Reath LLP. A nationally recognized expert in employee benefits law, Fred has written four books and many articles on ERISA, pension plan disputes and audits by the IRS and Department of Labor. Joan Neri is counsel in the firm’s financial services ERISA practice, where she focuses on all aspects of ERISA compliance affecting registered investment advisers and other plan service providers.