New FAQs for Regulation Best Interest and Form CRS provide guidance on how to handle accredited investors, what is a “recommendation”, how to define “retail investor”, and how to address affiliate services. RIAs and BDs must apply Regulation BI and send Form CRS to accredited investors because the definition of retail investor does not exclude high-net worth natural persons and accredited investors, according to the SEC’s Trading and Markets staff. A retail client does not include a legal representative (e.g. RIA, BD) of a retail client but would include non-professional legal representatives (e.g. trustees, executors, attorneys-in-fact). The FAQs also address several affiliate relationships, generally allowing the use of a single Form CRS so long as you can fit all the required disclosure in 4 pages. Certain investor education – general information about retirement planning, minimum distributions – would not be considered a recommendation. An RIA that provides services solely to another RIA would not have to deliver a Form CRS to its client’s retail clients.
Because the Form CRS is new and the “best interest” standard has no common law history (like the fiduciary standard), the SEC has its work cut out to define what’s required. Compli-pros must keep watch for future FAQs as the staff has already published three sets of FAQs since November.