Form CRS & Form ADV: What You Need to Know

During 2019, the Securities and Exchange Commission (“SEC”) issued an abundance of enforcement actions against financial firms, issuers, and auditors that involved disclosure deficiencies.[1] For financial firms, a majority of these circled around inaccurate, incomplete, or lack of disclosures involving conflicts of interest.

In June 2019, the SEC also demonstrated its focus on ensuring that firms provide appropriate disclosures to retail investors [2] by adopting Form CRS for investment advisers and broker-dealers.[3] The SEC stated in the document’s release [4] that Form CRS is designed to provide: “succinct information about the relationships and services the firm offers to retail investors, fees and costs that retail investors will pay, specified conflicts of interest and standards of conduct, and disciplinary history, among other things.”

In this Risk Management Update, we discuss important conflict areas that need to be disclosed in Form ADV and provide guidance and compliance steps on creating, filing, and maintaining your Form CRS.

Table of Contents

Conflict Disclosures

There are several business practices that create conflicts of interest between an advisory firm and its clients. Below is a list of some of the more common ones that affect many firms:

Discretionary Management
- Charging different advisory fees based on investment strategies or types of clients
- Investing clients in securities that provide compensation or benefit to the firm or its employees
Allocation of Investments
- Allocating to proprietary and/or performance fee accounts
- Allocating limited offerings (e.g., IPOs and private investments)
Trading Practices
- Use of soft dollars
- Principal and/or cross transactions
Code of Ethics
- Employees investing in the same securities as clients
- Outside business activities/affiliations
Broker-Dealer Affiliations
- Advisory personnel that also serve as registered representatives
- Placing advisory client transactions for execution
Service Provider Relationships
- Fee-sharing arrangements
- Business and/or ownership affiliations
Valuation and Billing
- Fair valuation of private investments
- Charging fees inclusive of margin balances
Compensation Arrangements
- Receiving fees and/or commissions on recommended investment products
- Obtaining indirect benefits from custodian arrangements

Noteworthy is the fact that none of the activities mentioned above are specifically prohibited by regulation. However, they can cause firms to provide advice to clients that is not solely in their best interest, so advisory firms must implement mitigation steps surrounding these conflicts, with the first and foremost being detailed disclosure.

For a conflict disclosure to be adequate, it needs to clearly outline the practice that creates the conflict and the steps the firm takes to address the conflict (e.g., applicable policies, procedures, and controls). It’s very important to avoid using the words “may” or “potential” when describing existing conflicts. It’s also important to always err on the side of disclosure when a conflict exists that doesn’t necessarily fit into any of the topics required to be addressed within the Form ADV.

The SEC mandates this through Form ADV Part 2 Instructions [5], which state:

“Under federal and state law, you are a fiduciary and must make full disclosure to your clients of all material facts relating to the advisory relationship. As a fiduciary, you also must seek to avoid conflicts of interest with your clients, and, at a minimum, make full disclosure of all material conflicts of interest between you and your clients that could affect the advisory relationship. This obligation requires that you provide the client with sufficiently specific facts so that the client is able to understand the conflicts of interest you have and the business practices in which you engage, and can give informed consent to such conflicts or practices or reject them. To satisfy this obligation, you therefore may have to disclose to clients information not specifically required by Part 2 of Form ADV or in more detail than the brochure items might otherwise require.”

The SEC published frequently asked questions that provide guidance on disclosure by investment advisers on compensation arrangements and the applicable conflicts.[6] In these FAQs, the SEC recapitulated that: (i) advisers are required to eliminate or at least expose, through full and fair disclosures, all conflicts of interest that might incline them to render advice that is not disinterested, (ii) disclosures must include “sufficiently specific facts” to allow clients to understand applicable conflicts and give informed consent or reject them, and (iii) disclosing that the firm “may” have a conflict when there actually is a conflict is not adequate disclosure.

Overview and Purpose of Form CRS

Also referred to as Form ADV Part 3 or the Client Relationship Summary, Form CRS is a foundational disclosure form born out of the SEC’s Regulation Best Interest (Reg BI) package. Its primary purpose is to provide the reader with a concise, plain English summary of a firm’s business, standard of conduct, and conflicts of interest.

Unlike the dense legal text often found in larger compliance documents, the relationship summary is specifically structured in a prescribed order to make it easy for retail investors to compare different financial professionals, understand the scope of their best interest obligations, and make informed decisions about their financial futures. For dual registrants (firms registered as both an investment adviser and a broker-dealer), the form plays an especially critical role in delineating the differences between brokerage and investment advisory services.

Contents and Disclosures in Form CRS

Form CRS is designed to serve as a short-form retail investor disclosure document.[7] The document must contain five items, in order, addressing specific information about the client-advisor relationship. Below is a summary of the disclosures investors can expect to find in each section:[8]

Item 1: Introduction – Company information, including the name, the registration status, and a clear statement that brokerage and investment advisory services and fees differ, and it’s important for the retail investor to understand the differences. This section must also include a reference to the Investor.gov/CRS website.
Item 2: Relationship and Services – A description of services, including monitoring of accounts, investment authority, limited investment offerings, and account minimums along with other requirements that pertain to retail accounts.
Item 3: Fees, Costs, Conflicts, and Standards of Conduct – An outline of principal and other fees and costs associated with the services offered that are applicable to retail accounts. You must also discuss the firm’s standard of conduct, giving specific examples of how the firm makes money and the associated conflicts of interest.
Item 4: Disciplinary History – Include any disciplinary history outlined in Item 11 of Form ADV Part 1 and Item 9 of your Form ADV Part 2A Brochure. You must direct the reader to visit the SEC Investor.gov/CRS website, and direct them to the BrokerCheck search tool for researching financial professionals.
Item 5: Additional Information – Outline where retail investors can find additional information about the firm and the services, and provide a telephone number where the retail investor can request current information and a copy of Form CRS.

In addition, Items 2 through 5 of the form must include specific questions referred to as “Conversation Starters”, which are geared to prompt the retail investor to proactively discuss these topics with their adviser.

Delivery and Timing of Form CRS

Understanding the regulatory requirements surrounding the timing and manner of delivery to investors is critical. Firms are required to file their Form CRS with the Securities and Exchange Commission (SEC) electronically. Investment advisers submit theirs through the IARD system, while broker-dealers file via the Central Registration Depository (Web CRD). Dual-registrants are required to file through both systems.

From a client-facing perspective, investment advisers must deliver the Client Relationship Summary to each new or prospective retail investor before or at the time they enter into an investment advisory contract. Furthermore, firms must re-deliver the form to existing clients within 30 days whenever a significant “triggering event” occurs—such as opening a new account different from the retail investor’s existing accounts, or recommending a rollover of assets from a retirement plan.

Notable Updates to Forms ADV and CRS (2019–2026)

The regulatory landscape governing disclosures is continually evolving. Over the last several years, the SEC has introduced several significant updates and enforcement priorities regarding Form ADV and Form CRS:

2019–2020: Reg BI and Pandemic Relief. The SEC formally adopted Regulation Best Interest (Reg BI) and Form CRS (Form ADV Part 3) in 2019 to improve transparency for retail investors. In early 2020, as the COVID-19 pandemic disrupted operations, the SEC issued conditional relief providing a 45-day filing extension for registered investment advisers unable to meet their deadlines, provided they notified the SEC and posted a disclosure to their website.
2021–2022: The Modernized Marketing Rule. The SEC introduced major changes to its advertising rules, culminating in the new Marketing Rule. This prompted significant updates to Form ADV Part 1A (specifically Item 5), requiring advisers to report detailed information about their marketing practices, including the use of testimonials, endorsements, and third-party ratings.
2023–2024: Form CRS Scrutiny and Internet Advisers. Through various Risk Alerts, the SEC’s Division of Examinations highlighted common Form CRS compliance deficiencies, such as missing “Conversation Starters,” failing to use plain English, and inadequate descriptions of conflicts. Additionally, in 2024, the SEC amended the Internet Adviser Exemption, requiring those relying on it to maintain an operational interactive website, which necessitated further reporting updates in Form ADV.
2025–2026: Continued Focus on Accurate Disclosures. SEC enforcement continues to heavily target inaccurate disclosures surrounding fees, conflicts of interest, and compensation arrangements. Advisers are routinely reminded that their annual updating amendment (due within 90 days of the fiscal year-end) requires a holistic review. Updates must ensure that the firm’s Form ADV, Client Relationship Summary, and internal compliance manual perfectly align with actual business operations.

Practical and Compliance Considerations

Form ADV season represents an ongoing compliance challenge for firms preparing, updating, and maintaining these disclosures to meet regulatory expectations. While you are working on gathering data and drafting updates to maintain the Reg BI standard of conduct, implement the following compliance steps:

Review the Instructions: Review the Form CRS instructions issued by the SEC to fully understand all requirements.
Start Early: Begin drafting your disclosures and relationship summary now; don’t wait until the deadline.
Senior Review: Have senior management review the draft prior to filing.
Team Training: Train advisory and client service representatives on how best to handle client interactions and answer all Conversation Starters contained within Form CRS.
Standardize Policies: Adopt internal policies and procedures that explicitly outline the content, filing, and delivery requirements for Form CRS to ensure ongoing compliance.

Need Expert Guidance on Your SEC Filings?

Transparency through disclosures remains the mantra of regulators, and it doesn’t appear that this will change any time soon. The more you disclose, the better-informed your clients will be. Take the time to truly consider what conflicts apply to your business and ensure they are properly addressed and disclosed in your Form ADV and Form CRS.

The Core Compliance team has many years of experience helping firms identify conflicts, draft meticulous disclosures, and navigate the complexities of SEC registration.

Ensure your firm’s disclosures are fully compliant and fit for the future. Learn more about our Regulatory Filings and Registrations services and schedule a consultation today.

Author: Tina Mitchell, Lead Sr. Compliance Consultant; Core Compliance & Legal Services (“Core Compliance”). Core Compliance works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity firms and banks on regulatory compliance issues.

This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional.

[1] See SEC Provides Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (COVID-19) https://www.sec.gov/news/press-release/2020-53?utm_source=hs_email&utm_medium=email&_hsenc=p2ANqtz-8Rr0gyQ2HRYNQcTx2gL3l8-wN-TxLPWU_fNlbjE2u3VNX3zOEQviQK6QnMX5TG9Rn5AdOE

[2] See SEC Release No. 5436. https://www.sec.gov/rules/other/2020/ia-5463.pdf

[3] See SEC’s “Division of Enforcement 2019 Annual Report” at https://www.sec.gov/files/enforcement-annual-report-2019.pdf

[4] Defined by the SEC as any “natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.”

[5] Form CRS currently only applies to broker-dealers registered under section 15 of the Securities Exchange Act of 1934 and investment advisers registered under section 203 of the Investment Advisers Act of 1940.

[6] See “Form CRS Relationship Summary; Amendments to Form ADV” at https://www.sec.gov/rules/final/2019/34-86032.pdf

[7] See https://www.sec.gov/about/forms/formadv.pdf

[8] See https://www.sec.gov/investment/faq-disclosure-conflicts-investment-adviser-compensation

[9] Form CRS is limited to only two pages, unless the firm is dually registered, then it can be up to 4 pages.

[10] Full details are contained in the Form CRS Instructions at https://www.sec.gov/rules/final/2019/34-86032-appendix-b.pdf