Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the Use of Certain Names or Titles

1 15 U.S.C. 80b. Unless otherwise noted, when we refer to the Advisers Act, or any paragraph of the Advisers Act, we are referring to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we refer to rules under the Advisers Act, or any paragraph of these rules, we are referring to Title 17, Part 275 of the Code of Federal Regulations [17 CFR 275], in which these rules are published. 2 15 U.S.C. 78a. Unless otherwise noted, when we refer to the Exchange Act, or any paragraph of the Exchange Act, we are referring to 15 U.S.C. 78a, at which the Exchange Act is codified, and when we refer to rules under the Exchange Act, or any paragraph of these rules, we are referring to Title 17, Part 240 of the Code of Federal Regulations [17 CFR 240], in which these rules are published. SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240, 249, 275 and 279 [Release No. 34–83063; IA–4888; File No. S7–08–18] RIN 3235–AL27 Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the Use of Certain Names or Titles AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’) is proposing new and amended rules and forms under both the Investment Advisers Act of 1940 (‘‘Advisers Act’’) and the Securities Exchange Act of 1934 (‘‘Exchange Act’’) to require registered investment advisers and registered broker-dealers (together, ‘‘firms’’) to provide a brief relationship summary to retail investors to inform them about the relationships and services the firm offers, the standard of conduct and the fees and costs associated with those services, specified conflicts of interest, and whether the firm and its financial professionals currently have reportable legal or disciplinary events. Retail investors would receive a relationship summary at the beginning of a relationship with a firm, and would receive updated information following a material change. The relationship summary would be subject to Commission filing and recordkeeping requirements. The Commission also is proposing two rules to reduce investor confusion in the marketplace for firm services, a new rule under the Exchange Act that would restrict broker-dealers and associated natural persons of broker-dealers, when communicating with a retail investor, from using the term ‘‘adviser’’ or ‘‘advisor’’ in specified circumstances; and new rules under the Exchange Act and Advisers Act that would require broker-dealers and investment advisers, and their associated natural persons and supervised persons, respectively, to disclose, in retail investor communications, the firm’s registration status with the Commission and an associated natural person’s and/or supervised person’s relationship with the firm. DATES: Comments should be received on or before August 7, 2018. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s internet
  comment form (http://www.sec.gov/ rules/proposed.shtml); or
• Send an email to rule-comments@
  sec.gov. Please include File Number S7– 08–18 on the subject line. Paper Comments
• Send paper comments to Brent J.
  Fields, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to File Number S7–08–18. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (http://www.sec.gov/ rules/proposed.shtml). Comments also are available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Investors seeking to comment on the relationship summary may want to submit our short￾form tear sheet for providing feedback on the relationship summary, available at Appendix F. Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  Emily Rowland, Jennifer Songer, Gena Lai, Roberta Ufford, Jennifer Porter (Branch Chief), and Sara Cortes (Assistant Director), Investment Adviser Regulation Office at (202) 551–6787 or IArules@sec.gov, and Benjamin Kalish, Elizabeth Miller, Parisa Haghshenas (Branch Chief), and Holly Hunter-Ceci (Assistant Director), Chief Counsel’s Office at (202) 551–6825 or IMOCC@ sec.gov, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is proposing new rule 204– 5 under the Investment Advisers Act of 1940 [15 U.S.C. 80b],1 and is proposing to amend Form ADV to add a new Part 3: Form CRS [17 CFR 279.1] under the Advisers Act. The Commission is also proposing to amend rules 203–1 [17 CFR 275.203–1], 204–1 [17 CFR 275.204–1], and 204–2 [17 CFR 275.204–2] under the Advisers Act. The Commission is proposing new rule 17a– 14 under the Securities Exchange Act of 1934 [17 CFR 240.17a–14],2 and new Form CRS [17 CFR 249.640] under the Exchange Act. The Commission is also proposing to amend rules 17a–3 [17 CFR 240.17a–3] and 17a–4 [17 CFR 240.17a– 4] under the Exchange Act. The Commission is further proposing new rule 15l–2 under the Exchange Act [17 CFR 240.15l–2], new rule 15l–3 under the Exchange Act [17 CFR 240.15l–3], and new rule 211h–1 under the Advisers Act [17 CFR 275.211h–1].
  I. Background
  II. Form CRS Relationship Summary
  A. Presentation and Format B. Items
  1. Introduction
  2. Relationships and Services
  3. Obligations to the Retail Investor—
  Standard of Conduct
  4. Summary of Fees and Costs
  5. Comparisons
  6. Conflicts of Interest
  7. Additional Information
  8. Key Questions
  C. Delivery, Updating, and Filing
  Requirements
  1. Filing Requirements
  2. Delivery Requirements
  3. Updating Requirements
  D. Transition Provisions
  E. Recordkeeping Amendments
  III. Restrictions on the Use of Certain Names
  and Titles and Required Disclosures A. Investor Confusion B. Restrictions on Certain Uses of ‘‘Adviser’’ and ‘‘Advisor’’
  1. Firms Solely Registered as Broker￾Dealers and Associated Natural Persons
  2. Dually Registered Firms and Dual Hatted
  Financial Professionals

3See Staff of the U.S. Securities and Exchange Commission, Study on Investment Advisers and Broker-Dealers as Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Jan. 2011), at 10–11, available at www.sec.gov/news/studies/2011/913studyfinal.pdf (‘‘913 Study’’). As discussed below, we have considered the findings, conclusions and recommendations of the 913 Study in developing this proposal. Retail investors also can choose to receive advisory services from other sources, such as banks, that are not required to be registered with the Commission. 4 Investment advisers also may be registered with one or more states if, among other things, they have less than a certain amount of assets under management. See section 203A of the Advisers Act. References in this release to investment advisers generally refer only to SEC-registered investment advisers. 5See, e.g., 913 Study, supra note 3. See also Letter from Barbara Roper, Director of Investor Protection, Consumer Federation of America, et al., (Sept. 15, 2010) (‘‘CFA Survey’’) (submitting the results of a national opinion survey regarding U.S. investors and the fiduciary standard conducted by ORC/Infogroup for the Consumer Federation of America, AARP, the North American Securities Administrators Association, the Certified Financial Planner Board of Standards, Inc., the Investment Adviser Association, the Financial Planning Association and the National Association of Personal Financial Advisors); Siegel & Gale, LLC/ Gelb Consulting Group, Inc., Results of Investor Focus Group Interviews About Proposed Brokerage Account Disclosures (Mar. 5, 2005), available at http://www.sec.gov/rules/proposed/s72599/ focusgrp031005.pdf (‘‘Siegel & Gale Study’’); Angela A. Hung, et al., RAND Institute for Civil Justice, Investor and Industry Perspectives on Investment Advisers and Broker-Dealers (2008), available at https://www.sec.gov/news/press/2008/2008-1_ randiabdreport.pdf (‘‘RAND Study’’). 6See RAND Study, supra note 5; 913 Study, supra note 3; Duties of Brokers, Dealers, and Investment Advisers, Exchange Act Release No. 69013 (Mar. 1, 2013) [78 FR 14848 (Mar. 7, 2013)] (‘‘2013 Request for Data’’).
C. Alternative Approaches
D. Disclosures About a Firm’s Regulatory Status and a Financial Professional’s Association
IV. Economic Analysis
A. Baseline
1. Providers of Financial Services
2. Investor Account Statistics
3. Investor Perceptions About Broker￾Dealers and Investment Advisers
B. Form CRS Relationship Summary
1. Broad Economic Considerations
2. Economic Effects of the Relationship
Summary
3. Impact on Efficiency, Competition, and
Capital Formation
4. Alternatives to the Proposed
Relationship Summary
5. Request for Comments
C. Restrictions on the Use of Certain Names
and Titles and Required Disclosures
1. Broad Economic Considerations
2. Economic Effects of the Proposed
Restrictions on the Use of Certain Titles and Required Disclosures
3. Impact on Efficiency, Competition, and
Capital Formation
4. Alternatives to the Proposed Rules
5. Request for Comments
D. Combined Economic Effects of Form CRS Relationship Summary and Restrictions on the Use of Certain Titles and Required Disclosures About a Firm’s Regulatory Status
V. Paperwork Reduction Act Analysis
A. Form ADV
1. Respondents: Investment Advisers and
Exempt Reporting Advisers
2. Changes in Burden Estimates and New
Burden Estimates
3. Total Revised Burden Estimates for Form
ADV
B. Rule 204–2 Under the Advisers Act
1. Changes in Burden Estimates and New
Burden Estimates
2. Revised Annual Burden Estimates
C. Rule 204–5 Under the Advisers Act
1. Respondents: Investment Advisers
2. Initial and Annual Burdens
D. Form CRS and Rule 17a–14 Under the Exchange Act
1. Respondents: Broker-Dealers
2. Initial and Annual Burdens
E. Recordkeeping Obligations Under Rule 17a–3 of the Exchange Act F. Record Retention Obligations Under Rule 17a–4 of the Exchange Act
1. Changes in Burden Estimates and New
Burden Estimates
2. Revised Annual Burden Estimates
G. Rule 151–3 Under the Exchange Act
1. Respondents: Broker-Dealers and
Associated Natural Persons
2. Initial and Annual Burdens
H. Rule 211h–1 Under the Advisers Act
1. Respondents: Investment Advisers and
Supervised Persons
2. Initial and Annual Burdens
I. Request for Comment
VI. Initial Regulatory Flexibility Analysis
A. Reason for and Objectives of the Proposed Action
1. Proposed Form CRS Relationship
Summary
2. Proposed Rules Relating to Restrictions
on the Use of Certain Terms and Required Disclosure of Regulatory Status and a Financial Professional’s Firm Association B. Legal Basis
C. Small Entities Subject to the Rule and
Rule Amendments
1. Investment Advisers
2. Broker-Dealers
D. Projected Reporting, Recordkeeping and Other Compliance Requirements
1. Initial Preparation of Form CRS
Relationship Summary
2. Rule 15l–2 Relating to Restrictions on
the Use of Certain Terms in Names and Titles
3. Rules 15l–3 and 211h–1 Relating to
Disclosure of Commission Registration Status and Financial Professional Association E. Duplicative, Overlapping, or Conflicting Federal Rules F. Significant Alternatives
1. Form CRS Relationship Summary
2. Rule 15l–2 Relating to Restrictions on
the Use of Certain Terms in Names and Titles
3. Rule 15l–3 Relating to Disclosure of
Commission Registration Status and Financial Professional Association G. Solicitation of Comments
VII. Consideration of the Impact on the
Economy
VIII. Statutory Authority
IX. Text of Rule and Form
Appendices
Appendix A: Form ADV: General
Instructions
Appendix B: [Form ADV, Part 3:] Instructions
to Form CRS
Appendix C: Dual Registrant Mock-Up
Appendix D: Broker-Dealer Mock-Up
Appendix E: Investment Adviser Mock-Up
Appendix F: Feedback on the Relationship
Summary
I. Background
Individual investors rely on the services of broker-dealers and investment advisers when making and implementing investment decisions. Such ‘‘retail investors’’ can receive investment advice from a broker-dealer, an investment adviser, or both, or decide to make their own investment decisions.3 A number of firms are dually registered with the Commission as broker-dealers and investment advisers, and offer both types of services.4 Broker￾dealers, investment advisers and dually registered firms all provide important services for individuals who invest in the markets. Studies show that retail investors are confused about the differences among them.5 These differences include the scope and nature of the services they provide, the fees and costs associated with those services, conflicts of interest, and the applicable legal standards and duties to investors. We recognize the benefits of retail investors having access to diverse business models and of preserving investor choice among brokerage services, advisory services, or both. We also believe that retail investors need clear and sufficient information in order to understand the differences and key characteristics of each type of service. Providing this clarity is intended to assist investors in making an informed choice when choosing an investment firm and professional, and type of account to help to ensure they receive services that meet their needs and expectations. The Commission, as the primary regulator of both broker-dealers and investment advisers, has considered ways to address this confusion and preserve investor choice for some time, including through the RAND study of investor perspectives commissioned in 2006, the 913 Study conducted in 2010– 2011, and a solicitation of data and other relevant information in 2013.6 A number of approaches with a range of formats have been considered to address this issue, such as a statement by broker-dealers that an account is a brokerage account and not an advisory

7See, e.g., Certain Broker-Dealers Deemed Not to Be Investment Advisers, Exchange Act Release No. 51523 (Apr. 12, 2005) [70 FR 20424, 20435 (Apr. 19, 2005)], at n.124 and accompanying text (‘‘2005 Broker Dealer Release’’). 8See, e.g., Comment letters of Sammons Retirement Solutions (Jun. 4, 2013) and Insured Retirement Institute (Jul. 3, 2013) (recommending a short summary disclosure document together with a longer disclosure document similar to Form ADV, to be offered by both broker-dealers and investment advisers); Comment letter of AARP (Jul. 25, 2013); Comment letter of American Council of Life Insurers (Jul. 5, 2013) (incorporating by reference its comment letter, dated Aug. 30, 2010); Comment letter of Financial Services Institute (Jul. 5, 2013). 9See, e.g., Comment letter of Committee of Annuity Insurers (Jul. 5, 2013); Comment letter of Edward D. Jones and Co., L.P. (Jul. 12, 2013); Comment letter of North American Securities Administrators Association, Inc. (Jul. 5, 2013); Comment letter of PFS Investments, Inc. (Jul. 5, 2013). 10See 913 Study, supra note 3, at 114–117. The 913 Study contemplated that the general relationship guide would be akin to Part 2A of Form ADV, which is generally referred to as an investment adviser’s ‘‘brochure’’ and is the form investment advisers use to register with the Commission and states, which is provided to advisory clients. The 913 Study identified a number of potential disclosures that the Commission should consider including in such relationship guide. See also Recommendation of the Investor Advisory Committee: Broker-Dealer Fiduciary Duty, available at https://www.sec.gov/spotlight/investor-advisory￾committee-2012/fiduciary-duty-recommendation￾2013.pdf (‘‘Broker-Dealer Fiduciary Duty Recommendations’’). The recommendation of the Investor Advisory Committee suggested that the disclosure be provided at the start of the engagement and periodically thereafter, and that it cover basic information about the nature of the services offered, fees and compensation, conflicts of interest, and disciplinary record. 11For example, DOL regulations relating to ‘‘reasonable plan service arrangements’’ require firms providing advisory and other services to workplace retirement plans covered by the Employee Retirement Income Security Act of 1974 (‘‘ERISA’’) and the prohibited transaction provisions under section 4975 of the Internal Revenue Code (‘‘Code’’) to disclose in writing (among other things) a description of services and applicable fees. See 29 CFR 2550.408b-2. See also 29 CFR 2550.408g–1 (regulation requires fiduciary advisers to plans and individual retirement accounts (‘‘IRAs’’) seeking to rely on the statutory exemption for participant investment advice to provide certain disclosures, among other conditions). See also infra Section IV.A.1.c, which further describes disclosure obligations under DOL regulations and exemptions, including the DOL’s ‘‘Best Interest Contract Exemption’’ (the ‘‘BIC Exemption’’).
12 Disclosure of Services, Conflicts and Duties, FINRA Notice 10–54 (Oct. 2010), available at http:// www.finra.org/sites/default/files/NoticeDocument/ p122361.pdf (‘‘FINRA Notice 10–54’’). 13Public Comments from Retail Investors and Other Interested Parties on Standards of Conduct for Investment Advisers and Broker-Dealers, Chairman Jay Clayton (Jun. 1, 2017), available at https://www.sec.gov/news/public-statement/ statement-chairman-clayton-2017-05-31 (‘‘Chairman Clayton’s Request for Comment’’). 14See, e.g., Comment letter of T. Rowe Price (Oct. 12, 2017) (‘‘T. Rowe 2017 Letter’’); Comment letter of Vanguard (Sept. 29, 2017) (‘‘Vanguard 2017 Letter’’); Comment letter of Teachers Insurance and Annuity Association of America (Sept. 26, 2017) (‘‘TIAA 2017 Letter’’); Comment letter of the Investment Adviser Association (Aug. 31, 2017) (‘‘IAA 2017 Letter’’); Comment letter of Stifel, Nicolaus & Co. (Jul. 25, 2017) (‘‘Stifel 2017 Letter’’); Comment letter of Bernardi Securities, Inc. (Sept. 11, 2017) (‘‘Bernardi Securities 2017 Letter’’); Comment letter of UBS Financial Services Inc. (Jul. 21, 2017) (‘‘UBS 2017 Letter’’); Comment letter of SIFMA (Jul 21, 2017) (‘‘SIFMA 2017 Letter’’); Comment letter of the Equity Dealers of America (Sept. 11, 2017) (‘‘Equity Dealers of America 2017 Letter’’); Comment letter of AARP (Sept. 6, 2017) (‘‘AARP 2017 Letter’’); Comment letter of Financial Services Institute (Oct. 30, 2017); Comment letter of Financial Services Roundtable (Oct. 17, 2017) (‘‘FSR 2017 Letter’’); Comment letter of Consumer Federation of America (Sept. 14, 2017) (‘‘CFA 2017 Letter’’). 15See, e.g., Stifel 2017 Letter; Equity Dealers of America 2017 Letter; Comment letter of Michael Kiley (Jul. 6, 2017) (‘‘Kiley 2017 Letter’’); Comment letter of the American Council of Life Insurers (Oct. 3, 2017) (‘‘ACLI 2017 Letter’’); Comment letter of Allianz Life Insurance Company of North America (Oct. 13, 2017) (‘‘Allianz 2017 Letter’’); AARP 2017 Letter; Comment letter of Robert Shaw (Jun. 5, 2017) (‘‘Shaw 2017 Letter’’); Comment letter of Alan Syzdek (Jul. 2 2017); Comment letter of Americans for Financial Reform (Sept. 22, 2017) (‘‘AFR 2017 Letter’’). 16See, e.g., SIFMA 2017 Letter; Comment letter of the Investment Company Institute (Feb. 5, 2018); IAA 2017 Letter; Comment letter of Fidelity Investments (Aug. 11, 2017) (‘‘Fidelity 2017 Letter’’); Vanguard 2017 Letter; T. Rowe 2017 Letter; FSR 2017 Letter; UBS 2017 Letter; TIAA 2017 Letter; Comment letter of Wells Fargo & Company (Sept. 20, 2017) (‘‘Wells Fargo 2017 Letter’’); Bernardi Securities 2017 Letter; Comment letter of State Farm Mutual Automobile Insurance Company (Aug. 21, 2017) (‘‘State Farm 2017 Letter’’); Comment letter of PFS Investments Inc. (Dec. 10, 2017); Comment letter of Davis & Harman LLP (Jan. 18, 2018); Comment letter of LPL Financial LLC (Feb. 22, 2018). 17See, e.g., CFA 2017 Letter; Comment letter of the Public Investors Arbitration Bar Association (Aug. 11, 2017) (‘‘PIABA 2017
Letter’’); IAA 2017 Letter; Comment letter of Pefin (Sept. 13, 2017) (‘‘Pefin 2017 Letter’’); Comment letter of Jackson National Life Insurance Company (Nov. 1, 2017) (‘‘Jackson 2017 Letter’’); Comment letter of CFA Institute (Jan. 10, 2018); Comment letter of First Ascent Asset Management (Jan. 10, 2018) (‘‘First Ascent 2018 Letter’’). 18See e.g., CFA 2017 Letter; IAA 2017 Letter; Comment letter of the National Employment Law Project (Oct. 20, 2017) (‘‘National Employment Law Project 2017 Letter’’). 19See, e.g., SIFMA 2017 Letter; UBS 2017 Letter; Stifel 2017 Letter; AARP 2017 Letter; Bernardi Securities 2017 Letter; Fidelity 2017 Letter; Allianz 2017 Letter. 20See, e.g., Staff of the Securities and Exchange Commission, Study Regarding Financial Literacy Among Investors as required by Section 917 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Aug. 2012), at iv, v, xiv, 37, 73, 121– 23 and 131–32, available at https://www.sec.gov/ news/studies/2012/917-financial-literacy-study￾part1.pdf (‘‘917 Financial Literacy Study’’). account, and encouraging investors to ask questions.7 Through these initiatives, we have heard and considered the views of a wide range of commenters—financial firms, investors, consumer advocates, academics, and others. Improving retail investors’ understanding of their different options for investment-related services through better disclosure is one key area on which commenters have focused. Commenters have suggested a range of presentations. Some commenters recommended a short disclosure document that explains the firm’s services, fees, certain conflicts of interest, and the scope and nature of its services to the retail investor.8 Others recommended a longer, more comprehensive narrative document such as the Form ADV Part 2 brochure that investment advisers are required to deliver to their clients.9 Similarly, the staff in the 913 Study and the Commission’s Investor Advisory Committee, as part of its recommendation that the Commission adopt a fiduciary duty for broker￾dealers, recommended uniform, simple, and clear summary disclosures to retail customers about the terms of their relationships with broker-dealers and investment advisers, including any material conflicts of interests.10 Disclosure has also been a feature of other regulatory efforts that address investment advice, including those of the U.S. Department of Labor (‘‘DOL’’) applicable to services provided by broker-dealers and investment advisers,11 and rules applicable to broker-dealers issued by the Financial Industry Regulatory Authority (‘‘FINRA’’).12 In 2017, Commission Chairman Clayton continued the discourse on these issues by outlining a series of questions and welcoming the public to submit their views on standards of conduct and related disclosures for investment advisers and broker-dealers. More than 250 commenters responded.13 Many commenters recommended enhanced disclosures in addition to regulations that would raise the standard
of conduct for broker￾dealers providing advice.14 Some recommended that both broker-dealers and investment advisers should provide a uniform disclosure document to retail investors,15 while others suggested new disclosure requirements only for broker￾dealers.16 Commenters also noted that investor confusion based on financial professionals’ titles persists, and made a range of suggestions.17 Specifically, some commenters believed that particular titles cause investors to either form misimpressions about whether the services received are those of an investment adviser and subject to a fiduciary duty, or these investors are misled by financial professionals to form such beliefs.18 Many commenters recommended a short disclosure document addressing the nature and scope of services, fees and material conflicts of interest.19 These suggestions are consistent with our staff’s financial literacy study,20

21See, e.g., 917 Financial Literacy Study, supra note 20, at iv, x–xiii, xxi, 37, 66–67, 73, 119. 22See, e.g. Comment letter of Mark D. Moss (Jun. 2, 2017); Comment letter of Gimme Credit (Aug. 8, 2017); PIABA 2017 Letter; AFL–CIO 2017 Letter; IAA 2017 Letter; Pefin 2017 Letter; Jackson 2017 Letter; AFR 2017 Letter; National Employment Law Project 2017 Letter; First Ascent 2018 Letter. 23For investment advisers, Form CRS would be required by Form ADV Part 3. For broker-dealers, Form CRS would be required by proposed new rule 17a–14 under the Exchange Act. When we refer to Form CRS in this release, we are referring to Form CRS for both broker-dealers and investment advisers. 24Regulation Best Interest, Exchange Act Release No. 34–83062 (Apr. 18, 2018) (‘‘Regulation Best Interest Proposal’’). 25For purposes of the relationship summary, we propose to define dual registrant as a firm that is dually registered as a broker-dealer and an investment adviser and offers services to retail investors as both a broker-dealer and investment adviser. Proposed General Instruction 9.(b) to Form CRS. Accordingly, a firm that is registered with the Commission as a broker-dealer and with one or more states as an investment adviser would be a dual registrant. 26We propose to amend Form ADV, which investment advisers must file to register with the Commission and with state securities regulators, to include a new Part 3: Form CRS that describes the requirements for the relationship summary, and we propose conforming technical amendments to the General Instructions of Form ADV. See proposed amendments to Advisers Act rule 203–1; proposed amendments to General Instructions to Form ADV. We also propose a rule 17a–14 to require a Form CRS for broker-dealers registered with the Commission. See Exchange Act proposed rule 17a–
14. Advisers use Form ADV to apply for registration
with us (Part 1A) or with state securities authorities (Part 1B), and must keep it current by filing periodic amendments as long as they are registered. See Advisers Act rules 203–1 and 204–1. Form ADV has two parts. Part 1(A and B) of Form ADV provides regulators with information to process registrations and to manage their regulatory and examination programs. Part 2 is a uniform form used by investment advisers registered with both the Commission and the state securities authorities. See Instruction 2 of General Instructions to Form ADV. This release discusses the Commission’s proposal of Form ADV Part 3: Form CRS and related rules applicable to advisers registered with the Commission. To the extent that state securities authorities could consider making similar changes that affect advisers registered with the states, we can forward comments to the North American Securities Administrators Association (‘‘NASAA’’) for consideration by the state securities authorities. 27Proposed General Instruction 9.(d) to Form CRS. 28Proposed General Instruction 9.(e) to Form CRS. 29Advisers Act proposed rule 204–5(d)(2) and Exchange Act proposed rule 17a–14(e)(2); proposed General Instruction 9.(e) to Form CRS. We recognize that the definition of ‘‘retail investor’’ would differ from that of ‘‘retail customer,’’ as used in Regulation Best Interest. ‘‘Retail customer’’ for broker-dealers under Regulation Best Interest would be defined as ‘‘a person, or the legal representative of such person, who: (1) Receives a recommendation of any securities transaction or investment strategy involving securities from a broker, dealer or a natural person who is an associated person of a broker or dealer, and (2) uses the recommendation primarily for personal, family, or household purposes.’’ Regulation Best Interest Proposal, supra note 24, section II.C.4. We believe it is beneficial to require firms to provide a relationship summary to all natural persons to Continued which found that retail investors favor a summary document and find these categories of disclosures, plus a financial intermediary’s disciplinary history, to be important in choosing financial intermediaries.21 Regarding investor confusion based on titles, commenters also recommended, for example, prohibiting the use of certain terms in titles, and prohibiting a firm not registered as an investment adviser from holding itself out in a manner that implies it is an investment adviser.22 We agree that it is important to ensure that retail investors receive the information they need to understand the services, fees, conflicts, and disciplinary history of firms and financial professionals they are considering. Likewise, we believe that we should reduce the risk that retail investors could be confused or misled about the financial services they will receive as a result of the titles that firms and financial professionals use, and mitigate potential harm to investors as a result of that confusion. We also believe the
information should be reasonably concise. Accordingly, we are proposing new rules to require broker-dealers and investment advisers to deliver to retail investors a customer or client relationship summary (‘‘Form CRS’’) that would explain general information about each of these topics.23 Second, we are proposing rules that would (i) restrict the use of the terms ‘‘adviser’’ and ‘‘advisor’’ by broker-dealers and their associated financial professionals, and (ii) require broker-dealers and investment advisers to disclose in retail investor communications the firm’s registration status while also requiring their associated financial professionals to disclose their association with such firm. Together, these requirements would complement a separate release that the Commission is proposing concurrently to enhance existing broker-dealer conduct obligations (‘‘Regulation Best Interest’’).24 Regulation Best Interest would establish a standard of conduct for broker-dealers and associated natural persons of broker-dealers to act in the best interest of a retail customer when making a recommendation of a securities transaction or investment strategy involving securities. While Regulation Best Interest would enhance the standard of conduct owed by broker￾dealers to retail customers, it would not make that standard of conduct identical to that of investment advisers, given important differences between investment advisers and broker-dealers. The requirements we are proposing in this release would help an investor better understand these differences, and distinguish among different firms in the marketplace, which in turn should assist the investor in making an informed choice for the services that best suit her particular needs and circumstances.
II. Form CRS Relationship Summary
We are proposing to require registered investment advisers and registered broker-dealers to deliver a relationship summary to retail investors. In the case of an investment adviser, initial delivery would occur before or at the time the firm enters into an investment advisory agreement with the retail investor; in the case of a broker-dealer, initial delivery would occur before or at the time the retail investor first engages the firm’s services. Dual registrants would deliver the relationship summary at the earlier of entering into an investment advisory agreement with the retail investor or the retail investor engaging the firm’s services.25 The relationship summary would be as short as practicable (limited to four pages or equivalent limit if in electronic format), with a mix of tabular and narrative information, and contain sections covering: (i) Introduction; (ii) the relationships and services the firm offers to retail investors; (iii) the standard of conduct applicable to those services; (iv) the fees and costs that retail investors will pay; (v) comparisons of brokerage and investment advisory services (for standalone broker-dealers and investment advisers); (vi) conflicts of interest; (vii) where to find additional information, including whether the firm and its financial professionals currently have reportable legal or disciplinary events and who to contact about complaints; and (viii) key questions for retail investors to ask the firm’s financial professional. Form CRS would be required by Form ADV Part 3 and rule 204–5 of the Advisers Act for investment advisers, and by Form CRS and rule 17a–14 of the Exchange Act for broker-dealers.26 We are proposing to define ‘‘relationship summary’’ as a written disclosure statement that firms must provide to retail investors.27 A ‘‘retail investor’’ would be defined as a prospective or existing client or customer who is a natural person (an individual).28 All natural persons would be included in the definition, regardless of the individual’s net worth (thus including, e.g., accredited investors, qualified clients or qualified purchasers).29 The definition would

facilitate their understanding of account choices, regardless of whether they will receive investment advice primarily for personal, family, or household purposes. The relationship summary is intended for an earlier stage in the relationship between an investor and a financial professional, potentially before discussing the investment purposes of the investor. In contrast, Regulation Best Interest focuses on recommendations to ‘‘retail customers’’ who have chosen to engage the services of a broker￾dealer after receiving the relationship summary. 30Advisers Act proposed rule 204–5(d)(2) and Exchange Act proposed rule 17a–14(e)(2); proposed General Instruction 9.(e) to Form CRS. 31See Federal Research Division, Library of Congress, Financial Literacy Among Retail Investors in the United States (Dec. 30, 2011), available at https://www.sec.gov/news/studies/2012/917- financial-literacy-study-part2.pdf (‘‘Library of Congress Report’’). The Library of Congress Report is incorporated by reference into the 917 Financial Literacy Study, supra note 20, at Appendix 1. 32See, e.g., 917 Financial Literacy Study, supra note 20, at viii (‘‘In addition, surveys demonstrate that certain subgroups, including women, African￾Americans, Hispanics, the oldest segment of the elderly population, and those who are poorly educated, have an even greater lack of investment knowledge than the average general population.’’); Library of Congress Report, supra note 31, at 1. 33See infra Section II.C. 34 15 U.S.C. 80b–7. 35 15 U.S.C. 78r. 36See Exchange Act section 15(l)(2) and Advisers Act section 211(h)(2) (providing that the Commission shall examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, among other things, for brokers, dealers, and investment advisers that the Commission deems contrary to the public interest and the protection of investors). 37 In a previous study, Commission staff found that most of the retail investors agreed that it was important to read a summary prospectus prior to investing in a mutual fund, and a majority of the retail investors surveyed on the mutual fund summary prospectus panel agreed that the actual summary prospectus they reviewed highlighted important information, was well-organized, written using words that they understood, clear and concise, and user friendly, and agreed that summary prospectuses contain the ‘right amount’ of information. 917 Financial Literacy Study, supra note 20, at xvii and xix. 38See Proposed General Instruction 3 to Form CRS. Broker-dealers and investment advisers have disclosure and reporting obligations under state and federal law, and broker-dealers are also subject to disclosure obligations under the rules of self￾regulatory organizations. Delivery of the relationship summary would not necessarily satisfy a firm’s other disclosure obligations. 39Proposed General Instruction 2 to Form CRS. 40Proposed General Instruction 2 to Form CRS. See, e.g., PIABA 2017 Letter;
State Farm 2017 Letter; Fidelity 2017 Letter; Comment letter of BlackRock (Aug. 7, 2017); Comment letter of the include a trust or other similar entity that represents natural persons, even if another person is a trustee or managing agent of the trust.30 We believe that this definition is appropriate because section 913 of the Dodd-Frank Act defines ‘‘retail customer’’ to include natural persons and legal representatives of natural persons without distinction based on net worth, and because financial literacy studies report deficiencies in financial literacy among the general population.31 While studies also report variability in financial literacy among certain sub-sections of the general population,32 we believe that all individual investors would benefit from clear and succinct disclosure regarding key aspects of their advisory and brokerage relationships. As discussed further below, the relationship summary would be in addition to, and not in lieu of, current disclosure and reporting requirements for broker-dealers and investment advisers.33 The relationship summary would alert retail investors to important information for them to consider when choosing a firm and a financial professional, and would prompt retail investors to ask informed questions. In addition, the content of the relationship summary would facilitate comparisons across firms that offer the same or substantially similar services. We are promoting these goals through specifying much of the content and presentation of Form CRS in the form’s instructions (‘‘Instructions’’); while firms will be required to include firm￾specific information in Form CRS, they will have limited discretion in the scope and presentation of that information. We are proposing that firms electronically file the relationship summary and any updates with the Commission, and therefore such filings would be subject to section 207 of the Advisers Act 34 and section 18 of the Exchange Act.35 Investment advisers would file on the Investment Adviser Registration Depository (‘‘IARD’’), broker-dealers would file on the Commission’s Electronic Data Gathering, Analysis and Retrieval System (‘‘EDGAR’’), and dual registrants would file on both IARD and EDGAR. To aid firms in understanding the type of disclosures we propose to require, we have created mock-ups of a relationship summary for an investment advisory firm, a brokerage firm, and a dual registrant, and have included them as Appendices C–E to this release. The mock relationship summaries are for illustrative purposes only, reflect the business models of hypothetical firms, and are not intended to imply that they reflect a ‘‘typical’’ firm. They do not provide a safe harbor and, depending on the circumstances of a particular firm, a relationship summary that merely copies the mock-ups may not provide sufficient or accurate information about the firm, including for purposes of meeting the firm’s obligations under the antifraud provisions of the federal
securities laws. Investors seeking to comment on the relationship summary may want to submit our short-form tear sheet for providing feedback on the relationship summary, available at
Appendix F. Below we request
comments on all requirements of the relationship summary, including format, content, method of filing, method of delivery, updating, and other aspects as discussed below. We preliminarily believe that providing this information before or at the time a retail investor enters into an investment advisory agreement or first engages a brokerage firm’s services, as well as at certain points during the relationship (e.g., switching or adding account types), as further discussed below, is appropriate and in the public interest and will improve investor protection, and will deter potentially misleading sales practices by helping retail investors to make a more informed choice among the types of firms and services available to them.36 A. Presentation and Format We are proposing requirements designed to make the relationship summary short and easy to read. We believe that the required disclosure provides an overview of information that would help retail investors when choosing a firm, financial professional, and account type. The proposed formatting requirements would help retail investors, many of whom may not be sophisticated in legal or financial matters, to understand the information in the relationship summary and be in a better position to ask informed questions. The proposal is also informed by our experience with the mutual fund summary prospectus, which has illustrated the benefits of highlighting certain information in summary form, coupled with layered disclosure and disclosure designed to facilitate comparisons across investments.37 We encourage firms to use innovative technology to create a relationship summary that is user-friendly, concise, easy-to-read, and more interactive than paper, and request comment below on ways to do so. The relationship summary would be provided to retail investors in addition to, and not in lieu of, any other required disclosures.38 As noted in the General Instructions, the requirements of the relationship summary are designed to promote effective communication between the firm and its retail investors.39 First, as several commenters have recommended, we propose requiring that firms use ‘‘plain language’’ principles for the organization, wording, and design of the entire relationship summary, taking into consideration retail investors’ level of financial sophistication.40 Specifically,

Investor Advisory Committee (Aug. 24, 2017); CFA 2017 Letter; AFR 2017 Letter; ACLI 2017 Letter; FSR 2017 Letter. 41Proposed General Instruction 2 to Form CRS. 42Proposed General Instruction 2 to Form CRS. 43Proposed General Instruction 2 to Form CRS. 44Proposed General Instruction 1.(c) to Form CRS. 45See, e.g., Shaw 2017 Letter; SIFMA 2017 Letter; AFL–CIO 2017 Letter; AARP 2017 Letter; CFA 2017 Letter; AFR 2017 Letter; TIAA 2017 Letter; Vanguard 2017 Letter; ACLI 2017 Letter; FSR 2017 Letter; Allianz 2017 Letter. 46See, e.g., 917 Financial Literacy Study, supra note 20, at xiii and 32. 47See Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)], at 24 (‘‘Enhanced Mutual Fund Disclosure Adopting Release’’). 48Firms would be required to include cross￾references to where investors could find additional information, such as in the Form ADV Part 2 brochure and brochure supplement for investment advisers or on the firm’s website or in the account opening agreement for broker-dealers. For electronic versions of the relationship summary, we would require firms to use hyperlinks to the cross￾referenced document if it is available online. See proposed Items 7.E.1. and 7.E.2. of Form CRS; proposed General Instruction 1.(g) to Form CRS. 49See proposed Item 8 of Form CRS. 50See, e.g., 917 Financial Literacy Study, supra note 20, at 23–24 (citing CFA 2012 Letter, at 4–5). 51For purposes of the relationship summary, we propose to define a standalone investment adviser as a registered investment adviser that offers services to retail investors and (i) is not dually registered as a broker-dealer or (ii) is dually registered as a broker-dealer but does not offer services to retail investors as a broker-dealer. We propose to define a standalone broker-dealer as a registered broker-dealer that offers services to retail investors and (i) is not dually registered as an investment adviser or (ii) is dually registered as an investment adviser but does not offer services to retail investors as an investment adviser. Proposed General Instruction 9.(f) to Form CRS. We are including certain dual registrants in these proposed definitions because we understand that dual Continued firms would be required to be concise and direct and to use short sentences, active voice, and definite, concrete, everyday words.41 Firms would not be permitted to use legal jargon, highly technical business terms or multiple negatives.42 Firms should write the relationship summary as if addressing the retail investor, using ‘‘you,’’ ‘‘us,’’ or ‘‘our firm.’’ 43 Second, we are proposing to require that, whether in electronic or paper format, the relationship summary should be no more than four 81⁄2 x 11 inch pages if converted to Portable Document Format (‘‘PDF’’), using at least an 11 point font size, and margins of at least 0.75 inches on all sides.44 For
example, if delivered directly in the text of an email or in a mobile viewing format on the firm’s website, the content of the relationship summary should not exceed this four-page PDF-equivalent length. This approach is consistent with our experience and commenters’ suggestion that brief disclosure is more effective than a long-form narrative to focus retail investors on relevant information, and with suggestions from commenters who advocated for a clear, concise disclosure.45 If delivered in paper, the paper size, font, and margin requirements would also encourage a clear presentation for retail investors, for example, by presenting important disclosures in a readable font-size and eliminating fine print.46 Recognizing, however, that many firms deliver disclosures in electronic format and employ a variety of technologies to interact with prospective and existing retail investors, the Commission is requesting comment on formatting and other features of the relationship summary in electronic form. In the past, the Commission has declined to impose page limits on disclosures required by the Investment Company Act of 1940 (‘‘Investment Company Act’’), including the summary prospectus, expressing concern that
page limits could constrain appropriate
disclosure and lead funds to omit material information about fund offerings.47 The proposed relationship summary is intended to serve different purposes than the summary prospectus, including to provide a general overview of firms that could prompt a more detailed, individualized, and open conversation between the retail investor and his or her financial professional. The Commission preliminarily believes that the utility and effectiveness of the relationship summary lie in its brevity and conciseness; accordingly, we believe a page limit (or equivalent limit if in electronic format) is appropriate. Brief disclosure would also facilitate a layered approach to disclosure in which firms would include certain information in the relationship summary, along with references and links to other disclosure where interested investors can find additional information.48 The proposed relationship summary also would encourage retail investors to seek additional information in other ways, including through suggested questions for retail investors to ask their financial professional, as discussed further below.49 These requirements are intended to create a concise summary that points out relevant areas for retail investors to focus on as they consider financial services, and the cross references and suggested questions facilitate investors’ ability to choose to seek additional information. In addition, providing retail investors with a relationship summary containing specified information about the firm in a standardized format should aid retail investors’ ability to compare firms at a higher level. The suggested questions and cross references to more information would enable them to more easily find and compare these details about the firms. We considered requiring more detailed disclosure for broker-dealers similar to many items in the Form ADV brochure that advisers currently must deliver to clients. This longer disclosure would provide, for example, more information about fee amounts for specific accounts and products and more detailed descriptions of a wider range of conflicts of interest. We believe, however, that brief disclosure that focuses on the proposed topics would be more effective in capturing the attention of retail investors, encouraging them to explore certain key areas further, including by asking questions, and allowing them to make a quick comparison among a number of options.50 We also encourage the use of methods, such as embedded hyperlinks, to direct retail investors to additional disclosures. Alternatively, we considered shorter disclosure, such as a one-page document (or equivalent length if in electronic format) that would provide either a much abbreviated general description of a firm’s services, fees, and conflicts, or a list of suggested questions for retail investors to discuss with their financial professional. We are concerned, however, that these approaches might not provide retail investors with enough information to compare
firms and types of accounts. In addition, we are concerned that providing only a list of questions, without sufficient background information for investors to know why the question is important to ask, could make it less likely that investors would ask the questions or have an informed conversation. Only providing questions also would not ensure a standardized minimum of information that retail investors would receive across firms and therefore would not facilitate comparing firms or account types. The relationship summary would require eight separate items covering: (i) Introduction; (ii) relationships and services the firm provides to retail investors; (iii) standard of conduct applicable to those services; (iv) the fees and costs that retail investors will pay; (v) comparisons of brokerage and investment advisory services (for standalone broker-dealers and investment advisers); 51 (vi) conflicts of

registrants do not always offer both brokerage and advisory accounts to retail investors. For example, some dual registrants offer advisory accounts to retail investors, but offer brokerage broker-dealer services only to institutions (e.g., for their underwriting services). 52See proposed Items 1–8 of Form CRS. 53Proposed General Instruction 1.(b) and (e) to Form CRS. See also e.g., proposed Items 2.A., 3.A., 4.A., 5.A. and 5.B., 6.A., 7.A., and 8 of Form CRS. 54Proposed General Instruction 1.(d) to Form CRS. 55Although performance disclosure is a subject on which the Commission focuses, including to promote accuracy, consistency, and comparability, such disclosure is not the subject of this initiative. 56See, e.g., proposed General Instruction 1.(f) to Form CRS (‘‘You may use charts, graphs, tables, and other graphics or text features to explain the required information, so long as the information (i) is responsive to and meets the requirements in these instructions (including space limitations); (ii) is not inaccurate or misleading; and (iii) does not, because of the nature, quantity, or manner of presentation, obscure or impede understanding of the information that must be included. When using interactive graphics or tools, you may include instructions on their use and interpretation.’’); proposed Items 2.B., 2.C., and 6.B. of Form CRS. 57Firms should keep in mind the applicability of the antifraud provisions of the federal securities laws, including section 206 of the Advisers Act,
section 17(a) of the Securities Act, and section 10(b)
of the Exchange Act and rule 10b–5 thereunder, in preparing the relationship summary. 58See proposed General Instruction 3 to Form CRS. Firms may omit or modify prescribed wording or other statements required to be part of the relationship summary if such statements are inapplicable to a firm’s business or would be misleading to a reasonable retail investor. 59See 917 Financial Literacy Study, supra note 20, at iv, xx, 21–22; see also Benbasat & Dexter, infra note 592. 60Empirical evidence suggests that visualization improves individual perception of information (see Hattie, infra note 591) and that tabular reports may lead to better decision making (see Benbasat & Dexter, infra note 592). 61 Dual registrants must present the information in Items 2 through 4 and Item 6 in a tabular format, comparing advisory services and brokerage services side-by-side. In the column discussing brokerage services, firms must include the heading ‘‘Broker￾Dealer Services’’ and the sub-heading ‘‘Brokerage Accounts.’’ In the column discussing investment advisory services, firms must include the heading ‘‘Investment Adviser Services’’ and the sub-heading ‘‘Advisory Accounts.’’ See proposed General Instruction 1.(e) to Form CRS. 62Standalone broker-dealers and investment advisers would be required to include the sub￾heading ‘‘You can receive advice in either type of account, but you may prefer paying:’’ and present prescribed information comparing a transaction￾based fee and an asset-based fee in side-by-side columns, in a tabular format. See proposed Items 5.A.4. and 5.B.6. of Form CRS. 63Proposed General Instruction 1.(f) to Form CRS. 64 Id. 65Empirical evidence suggests that users are better able to make coherent, rational decisions when they have comparative, standardized disclosure that allows them to assess relevant trade￾offs. See infra note 593 and accompanying text. 66Accredited investors include natural persons who (i) have a net worth over $1 million, either individually or together with a spouse (excluding the value of the primary residence); (ii) had an individual income greater than $200,000 (or $300,000 together with a spouse) in each of the two most recent years, and has a reasonable expectation of reaching the same income level in the current year; or (iii) for purposes of a securities offering of a particular issuer, are directors, executive officers, or general partners of that issuer. Accredited investors also include non-natural persons, such as, banks, broker-dealers, insurance companies, investment companies registered under the Investment Company Act of 1940, and certain partnerships, corporations, nonprofit entities, retirement plans, and trusts. 17 CFR 230.501. 67A qualified client is a client that meets one or more of the following criteria: (i) Is a natural person interest; (vii) where to find additional information, including whether the firm and its financial professionals currently have reportable legal or disciplinary events and who to
contact about complaints; and (viii) key questions for retail investors to ask the firm’s financial professional.52 In order to promote comparison across firms, we would require firms to present this information under prescribed headings in the same order.53 Firms also would be prohibited from including any information other than what the Instructions and the applicable item require or permit.54 We believe that allowing only the required and specified permitted information would promote consistency of information presented to investors, allow retail investors to focus on information that we believe would be particularly helpful in deciding among firms, and help retail investors to decide what further information is needed. It would also encourage impartial information by preventing firms from adding information commonly used in marketing materials, such as performance.55 For certain items, firms will have some flexibility in how they include the required information.56 For others, we are requiring firms to use prescribed wording, as discussed in the following sections. Firms may not include disclosure in the relationship summary other than disclosure that is required or permitted by the Instructions. We believe that this approach balances the need to provide firms flexibility in making the presentation of information consistent with their particular business model while ensuring that all investors receive certain information regardless of the firm. The information in the relationship summary must accurately reflect the characteristics of the particular firm and the services that it offers. Accordingly, all information in the relationship summary must be true and may not omit any material facts necessary to make the required disclosures not misleading.57 If a statement is inapplicable to a firm’s business or would be misleading to a reasonable retail investor, the firm may omit or modify that statement.58 Based on studies that indicate the effectiveness of graphical presentation for retail investors,59 we are prescribing the use of graphical formats in specified circumstances. For example, dual registrants would be required to present all of the information required by Items 2 through 4 and Item 6 in a tabular format,60 comparing advisory services and brokerage services side-by-side, with prescribed headings.61 Similarly, standalone broker-dealers and investment advisers would be required to provide general information about fee types in tabular format, in a separate comparison section.62 All firms would be permitted to use charts, graphs, tables, and other graphics or text features to explain the information, so long as the information is responsive to and meets the requirements in the Instructions (including the space limitations).63 The use of a graphical presentation would be prohibited if it is inaccurate or misleading or, because of its nature, quantity, or manner of presentation, obscures or impedes understanding of the information that is
required to be included. Firms that choose to use interactive graphics or tools may include Instructions on their use and interpretation.64 We believe that standardizing the relationship summaries among firms by specifying the headings, sequence, and content of the topics; prescribing language for firms to use as applicable; and limiting the length of the relationship summary will provide comparative information in a user-friendly manner that helps retail investors with informed decision￾making.65 We request comment on the following for the relationship summary.

• Should firms only be required to
  deliver the relationship summary to retail investors? Or should they be required to deliver one to other types of investors, too, such as individuals representing sole proprietorships or other small businesses, or institutional investors that are not natural persons, including workplace retirement plans and funds? Would such investors have the need for the information in the relationship summary to facilitate a choice among different firms, financial professionals, and account types? Or would these investors rely directly on the more detailed disclosures in the Form ADV Part 2 brochure or pursuant to Regulation Best Interest?
• Should retail investors be defined
  for purposes of Form CRS to include all natural persons, as proposed? Should we instead exclude certain categories of natural persons based on their net worth or income level, such as accredited investors,66 qualified clients,67 or

or company that has at least $1 million in assets under management with the adviser immediately after entering into an investment advisory contract with the adviser; (ii) the adviser reasonably believes the natural person has a net worth (together with assets held jointly with a spouse) of more than $2.1 million immediately prior to entering into an advisory contract (excluding the value of the primary residence); (iii) the adviser reasonably believes the natural person or company is a ‘‘qualified purchaser’’ as defined in section 2(a)(51)(A) of the Investment Company Act at the time an advisory contract is entered into; (iv) is an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the adviser; or (v) is an employee of the adviser who participates in the investment activities of the adviser, and has performed investment activities for at least twelve months. The dollar thresholds under the definition of qualified client are subject to inflation adjustments every five years. 17 CFR 275.205–3(d)(1); Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205– 3 under the Investment Advisers Act of 1940, Investment Advisers Act Release No. 4421 (Jun. 14,
2016) [81 FR 39985 (Jun. 20, 2016)].
68The term ‘‘qualified purchaser’’ has been defined for purposes of the Investment Company Act and for the Securities Act. Under the Investment Company Act, the term ‘‘qualified purchaser’’ includes any natural persons who or certain family-owned companies that own not less than $5 million in investments; certain trusts; and any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25 million in investments. 15 U.S.C. 80a–2(a)(51)(A). For purposes of section 18(b)(3) of the Securities Act, the term ‘‘qualified purchaser’’ means any person to whom securities are offered or sold pursuant to a Tier 2 offering as defined in Regulation A. 17 CFR 230.256. Tier 2 offerings generally may be sold only to (i) accredited investors; (ii) natural persons for whom the aggregate purchase price to be paid by the purchaser for the securities is no more than 10% of the purchaser’s annual income or net worth; or (iii) non-natural persons for which the aggregate purchase price to be paid by the purchaser for the securities is no more than 10% of its revenue or net assets for the most recently completed fiscal year. 17 CFR 230.251. 69A wrap fee program would be defined as an advisory program under which a specified fee or fees not based directly upon transactions in a retail investor’s account is charged for investment advisory services and the execution of retail investor transactions. Proposed General Instruction 9.(g) to Form CRS. See infra note 173. qualified purchasers? 68 If we did exclude certain categories of natural persons based on their net worth, what threshold should we use for measuring net worth? Should we exclude certain categories of natural persons for other reasons?

• Should we conform the definition
  of retail investor to the definition of retail customer as proposed in Regulation Best Interest, which would include non-natural persons who use the recommendation primarily for personal, family, or household purposes? Should the definition of retail investor include trusts or similar entities that represent natural persons, as proposed? Are there other persons or entities that should be covered? Should we expand the definition to cover plan participants in workplace retirement plans who receive services from a broker-dealer or investment adviser for their individual accounts within a plan?
• Should we include any additional
  definitions of terms or phrases in the relationship summary? Should we omit any definitions we have proposed for the relationship summary? Should any of the proposed definitions be changed? If so, why?
• Will the length and presentation
  proposed for the relationship summary be effective for retail investors? Are there other approaches we should consider? What are the benefits and drawbacks of shorter or longer disclosure for retail investors relative to the proposed approach?
• We are proposing that the
  relationship summary discuss all of the firm’s advisory and brokerage services in one relationship summary. Should we instead permit firms to prepare a separate relationship summary for different business lines or different programs or types of accounts and/or services that a broker-dealer or investment adviser offers? If we adopt such an approach, how could we modify the requirements to allow for comparison among account options within and across firms? For example, should we require that each such separate summary refer to the other summaries and include hyperlinks or other electronic features if presented on a firm’s website? Should we require the use of hyperlinks that direct the investor directly to specific disclosure (i.e., a ‘‘deep link’’) or a more general landing
  page? How would delivery obligations
  be formulated to ensure that retail investors receive sufficient but still user-friendly information?
• In the alternative, should we permit
  or require firms to prepare one relationship summary for the entire affiliated group or firm complex, i.e., to summarize the services offered to retail investors of all affiliated companies together in a single relationship summary? What factors should dictate whether affiliates should be permitted or required to prepare a single relationship summary? For example, should we base any permissive instruction or requirement on whether the affiliates typically market services of multiple investment advisers and broker-dealer entities together? What about investment advisers and broker￾dealers that are not affiliates but have partnership agreements, are part of one wrap fee program,69 or other arrangements? Should they be required or permitted to cross-reference to other firms?
• Should we permit the relationship
  summary, or any part of it, to substitute for other disclosure obligations that broker-dealers or investment advisers have, if the disclosure obligations overlap? If so, for what disclosures could the relationship summary substitute? If not, why not?
• Does the proposal sufficiently
  encourage electronic design and delivery? Are there other ways we can modify the requirements to make clear that paper-based delivery is not the only permissible or desired delivery format?
• With respect to firms that use paper
  delivery to meet investor preferences, are the proposed presentation and content requirements appropriate for a relationship summary provided in paper or in PDF (e.g., 11 point font, and have margins of at least 0.75 inches on all sides)? Would they be helpful in encouraging relationship summaries that address retail investors’ preferences for concise and user-friendly information? If not, what requirements would improve the document’s utility and accessibility for retail investors? In particular, are there any areas where requiring the use of a specific check-the￾box approach, bullet points, tables, charts, graphs or other graphics or text features would be helpful in presenting any of the information or making it more engaging to retail investors? Should we include different requirements for font size, margins and paper size? Should we restrict certain types or sizes of font, color choices or the use of footnotes?
• Are there special technical
  specifications we should consider for other forms of electronic or online delivery on phones, tablets and other devices, and for information conveyed via videos, interactive graphics, or tools and calculators? Are the Instructions to the relationship summary sufficiently flexible to permit delivery on phones, tablets and other devices and to accommodate information conveyed via videos, interactive graphics, or tools and calculators? Should we require that firms make the relationship summary available by specific forms of electronic delivery or certain electronic devices? How can the Commission encourage investment advisers and broker-dealers to make fuller use of innovative technology to enable more interactive, user-friendly relationship summary disclosure, while still creating a short, easy-to-read relationship summary that includes the proposed content? Are there potential tools that the Commission should encourage or require firms to use in order to make

70A QR code is a two-dimensional barcode capable of encoding information such as a website address, text information, or contact information. These codes are becoming increasingly popular in print materials and can be read using the camera on a smartphone. 71Proposed Items 1.B., 1.C. and 1.D. of Form CRS. their disclosures more interactive and understandable? For instance, should we permit or require a firm to use pop￾ups or hovers to provide retail investors with additional information required or permitted by the relationship summary, without retail investors having to scroll to find the information in another
section of the relationship summary?
Would this tool be useful for firms to use, for example, in the Introduction
section of the relationship summary, so
that a retail investor could access upfront additional information about the terms used (advisory and brokerage accounts) that is presented in other sections of the relationship summary? Instead of requiring and permitting hyperlinks in certain circumstances (e.g., to link to an adviser’s Form ADV or a fee schedule), are there other technological tools that would better help an investor find information that is cross-referenced in the relationship summary? Should we permit or require other technologies (such as QR codes 70) in addition to or in lieu of hyperlinks to connect to such information?

• Would retail investors be more
  likely to read a firm’s relationship summary if we required or permitted firms to use certain design elements— such as larger font sizes or greater use of white space, colors, or visuals? Could this be accomplished while still providing retail investors with the information we are proposing to require in a short and easy-to-read relationship summary?
• We are proposing that the firm use
  plain language principles and the Instructions refer to the SEC’s Plain English Handbook. Should we modify any of these principles? Should the Instructions refer to any other principles to promote understandable wording?
• Do firms commonly market to non￾English speakers or provide
  information—including marketing materials—in languages other than English? To what extent would firms expect to deliver a relationship summary in a language other than English? Should we propose requirements to prepare relationship summaries in languages other than English? For example, should we require that firms prepare, file, and deliver a relationship summary in any language in which they disseminate marketing materials? Are there concerns with translating the relationship summary without also having to translate the firm’s other disclosures? If so, what are those concerns?
• Should we limit the relationship
  summary to four pages (or equivalent limit if in electronic format), as proposed? Is this enough space for firms to provide meaningful information? Should we instead eliminate page limits (and their equivalent for electronic format) or increase the amount of permitted pages or their equivalent? Are there particular items that may require longer responses than others? If so, how should the Commission take these into account in considering page limits? For example, if commenters believe the use of graphics will be more effective to communicate fees, should we permit a greater number of pages to account for the use of graphics? Conversely, will retail investors read four pages? Should the page limit be shorter, such as one to three pages? If so, what information in the proposed requirements should we omit? Should we have different page limits for dual registrants than for firms that offer only brokerage or only advisory services? If we do require shorter disclosure, what information should firms be required to provide regardless of the length?
• Are there too few or too many items
  that would be required in the relationship summary? Are there other items that we should also require or proposed items that we should delete? Do commenters agree that we should only permit the items required by the relationship summary? Is there other information that we should permit, but not require, firms to include? If so, what items are those?
• Do commenters agree that all items
  should be presented in the same order under the same heading to promote comparability across firms? Why or why not? If the items are not listed in the same order, could retail investors still easily compare firm relationship summaries? Does the prescribed order work, or should we consider a different order? Is there information that we should always require to appear on the first page or at the beginning of an electronic relationship summary? Are there any specifications we should include to enhance comparability for electronic delivery of the relationship summary in various forms?
• Should we, as proposed, prescribe
  headings for each item or allow firms to choose their own headings? Should we require or permit a different style of headings, such as a question and answer format or other wording to encourage retail investors to continue reading?
• Should we permit firms to include
  additional disclosure with the relationship summary, such as a comprehensive fee table, or other disclosures? Would the inclusion of additional disclosures affect whether retail investors would view the relationship summary? What are the benefits and drawbacks of such an approach?
• Should we generally permit firms to
  use charts, graphs, tables, and/or other graphics or text features to explain the information required by the relationship summary (so long as any such feature meets requirements as specified in the Instructions), as proposed? Should we permit firms to choose the graphical presentation that they will use? Are there specific graphical presentations that we should require? Should we permit other mediums of presentation, such as the use of video presentations?
• Do any elements of the proposed
  presentation requirements impose unnecessary costs or compliance challenges? Please provide specific data. Are there any changes to the proposal that could lower those costs? Please provide examples.
• Are the mock relationship
  summaries useful and illustrative of the proposed form requirements? Do they appropriately show the level of detail that firms might provide? With respect to each item for which we prescribe wording in the relationship summary, we request the following comment on each of those required disclosures:
• Does the narrative style work for the
  prescribed wording or are there other presentation formats that we should require? Should the Commission instead require more prescribed wording? Conversely, is there prescribed wording we have proposed that we should modify or replace with a more general instruction that allows firms to use their own description? B. Items

1. Introduction
   We are proposing that the beginning of the relationship summary contain a title highlighting the types of investment services and accounts the firm offers to retail investors, specifically ‘‘Which Type of Account is Right for You—Brokerage, Investment Advisory or Both?’’ for dual registrants and ‘‘Is a[n] [Brokerage/Investment Advisory] Account Right for You?’’ for standalone brokerage firms or investment advisory firms, respectively.71 A firm also would be required to include its name, whether it is registered with the Commission as a broker-dealer, investment adviser, or

72Proposed Item 1.A. of Form CRS. The disclosure of Commission registration would make the relationship summary consistent with proposed rules 15l–3 of the Exchange Act and 211h–1 of the Advisers Act, which would require that a broker￾dealer and a registered investment adviser prominently disclose that it is registered with the Commission as a broker-dealer or investment adviser, respectively, in print or electronic retail investor communications. 73Proposed Item 1.B. of Form CRS. 74Proposed Item 1.C. of Form CRS. 75Proposed Item 1.D. of Form CRS. 76Proposed Items 1.B.—1.D. of Form CRS. 77Proposed Item 2 of Form CRS. 78Proposed Item 2.A. of Form CRS. 79 Id. 80See supra note 58 and accompanying text. 81Proposed Item 2.B. of Form CRS. 82Proposed Item 2.B.1. of Form CRS. both, and date of the relationship summary prominently on the first page or beginning of the electronic disclosure (this information could be included in the header or footer).72 An introductory paragraph would briefly explain the types of accounts (brokerage accounts and/or investment advisory accounts) and services the firm offers. Using prescribed wording, all firms would be required to state: ‘‘There are different ways you can get help with your investments. You should carefully consider which types of accounts and services are right for you.’’ In a new paragraph and using prescribed wording and bold font, a standalone broker￾dealer would be required to state: ‘‘We are a broker-dealer and provide brokerage accounts and services rather than advisory accounts and services.’’ 73 Likewise, a standalone investment adviser would be required to state in bold font: ‘‘We are an investment adviser and provide advisory accounts and services rather than brokerage accounts and services.’’ 74 Dual registrants would include a similar statement in bold font that discusses both types of services, specifically:
‘‘Depending on your needs and investment objectives, we can provide you with services in a brokerage account, investment advisory account, or both at the same time.’’ 75 Finally, all firms would be required to include:
‘‘This document gives you a summary of the types of services we provide and how you pay. Please ask us for more information. There are some suggested questions on page [ ].’’ 76 The proposed introductory paragraph sets up a key theme of the relationship summary—helping retail investors to understand and make choices among account types and services. For example, some retail investors want to receive periodic recommendations while others prefer ongoing advice and monitoring. Some retail investors wish to pursue their own investment ideas and direct their own transactions, while others seek to delegate investment discretion to the firm. Emphasizing that there are different types of accounts and services from which a retail investor may choose would help the retail investor make an informed choice about whether the firm provides services that are the right fit for his or her needs and help the retail investor to choose the right firm or account type. Although the disclosures are intentionally simplified and generalized, we believe they would help retail investors to obtain more detailed information. We request comment generally on the proposed requirement for firms to include specific information in the introduction.

• In addition to the title, firm name
  and SEC registration status, and date, is there other information that we should require at the beginning of the relationship summary? Should we instead require a cover page? Are the titles we proposed in the Instructions appropriate? What alternatives should we consider? Should we allow firms to select their own title for the relationship summary?
• Should we require firms to include
  the prescribed wording, as proposed, or should we allow more flexibility in the words they use? Should we modify the prescribed wording? Does the proposed wording capture the range of business models among investment advisers and broker-dealers? Would the prescribed wording require a firm to provide any inaccurate information given that firm’s circumstances? Instead of the proposed prescriptive wording, should the Commission permit or require a more open-ended narrative?
• Is there additional information we
  should require in the introduction?
• Should we require that standalone
  brokerage and investment advisory firms include a statement that the retail investor may instead prefer investment advisory or brokerage services, respectively? Why or why not?

2. Relationships and Services
   After the introduction, the proposed relationship summary would provide information about the relationships between the firm and retail investors and the investment advisory account services and/or brokerage account services the firm provides to retail investors.77 The section would begin with the heading ‘‘Relationships and Services’’ for a standalone broker-dealer or investment adviser.78 A dual registrant would use the heading ‘‘Types of Relationships and Services,’’ followed by this statement: ‘‘Our accounts and services fall into two categories.’’ 79 Each firm would discuss specific information about the nature, scope, and duration of its relationships and services, including the types of accounts and services the firm offers, how often it offers investment advice, and whether the firm monitors the account. This item requires firms to provide specific information with a mix of prescribed wording and short narrative statements. As discussed above, if a prescribed statement is not applicable to the firm’s business or would be misleading to a reasonable retail investor, the firm would be permitted to omit or modify that statement.80 We have designed these requirements to provide retail investors with consistent, concise, and meaningful information about the services they would receive from a firm and help them to ask relevant questions, compare firms’ services against each other, and make more informed choices about the services they choose. We considered an approach whereby firms would be required to complete a prescribed checklist of common characteristics of brokerage and advisory accounts, indicating which characteristics applied to their accounts and services. This approach could improve comparability among firms. We are concerned, however, that this approach would not be sufficiently flexible to accommodate the variety of business models and services that broker-dealers and advisers provide, and that a mix of prescribed wording and narrative format would help investors better understand the firm’s services. We believe that our proposed approach provides enough information to help retail investors understand and choose between investment advisory accounts and brokerage accounts without overwhelming them with too much information. Brokerage Account Services. We propose requiring broker-dealers to summarize the principal brokerage services that they provide to retail investors.81 First, broker-dealers would include the following wording to explain the transaction-based nature of their fees (emphasis required): ‘‘If you open a brokerage account, you will pay us a transaction-based fee, generally referred to as a commission, every time you buy or sell an investment.’’ 82 Even though a separate section of the relationship summary would discuss a firm’s fees, we believe it is important for broker-dealers to explain transaction￾based fees at the beginning of the

83See infra note 126 (discussing our use of the term ‘‘transaction-based fees’’ in the relationship summary). 84Proposed Item 2.B.2. of Form CRS. 85 Id. 86We believe that retail investors have the ultimate investment decision for their investment strategy and the purchase or sale of investments, even if the broker-dealer has temporary or limited discretion over retail investors’ accounts. See Regulation Best Interest Proposal, supra note 24, at
section II.F.
87Proposed Item 2.B.3. of Form CRS.
88 Id.
89 Id. Broker-dealers that monitor the performance of the retail investor’s account, as market and customer conditions demand (rather than on a specific time schedule), could state so. 90 Id. 91 Id. We are proposing the same requirement for investment advisers, described below. See infra note 102 and accompanying text. 92Proposed Item 2.B.4. of Form CRS. 93 Id. 94 Id. 95Proposed Item 2.C. of Form CRS. 96Proposed Item 2.C.1. of Form CRS. The relationship summary would refer to ‘‘account advisory services’’ and ‘‘opening an account’’ to simplify the explanations for retail investors. When an investment adviser provides investment advisory services, the client may have a custodial account with another firm, such as a broker-dealer or bank. A dual registrant may maintain custody for an advisory client’s assets as broker-dealer. We are not proposing to require that firms include these nuances in the discussion of relationships and services. 97 Id. 98See supra note 82 and accompanying text. 99Proposed Item 2.C.1 of Form CRS. 100Proposed Item 2.C.2. of Form CRS. disclosure because these types of fees are typically a critical distinction between brokerage and investment advisory accounts.83 Next, broker-dealers that offer accounts in which they offer recommendations to retail investors would state that the retail investor may select investments or the broker-dealer may recommend investments for the retail investor’s account, but that the retail investor will make the ultimate investment decision regarding the investment strategy and the purchase or sale of investments.84 Broker-dealers that offer accounts in which they do not offer recommendations to retail investors (e.g., execution-only brokerage services) would state that the retail investor will select the investments and make the ultimate investment decision regarding the investment strategy and the purchase or sale of investments.85 Starting with a clear description of the services provided in a brokerage account by a broker-dealer—including the retail investor’s choice of receiving recommendations or self-directing his or her investments, and the fact that the retail investor will make the ultimate investment decision—would help address confusion about the services that broker-dealers offer to retail investors.86 This language also highlights differences from the services that investment advisers would describe, discussed below. Next, we propose requiring broker￾dealers to state if they offer additional services to retail investors, including, for example: (a) Assistance with developing or executing the retail investor’s investment strategy (e.g., the broker-dealer discusses the retail investor’s investment goals or designs with the retail investor a strategy to achieve the retail investor’s investment goals); or (b) monitoring the performance of the retail investor’s account.87 They would also state that a retail investor might pay more for these additional services, if applicable.88
Broker-dealers that offer performance monitoring as part of the standard brokerage account services would indicate how frequently they monitor the performance.89 While broker-dealers do not undertake to provide investment strategy and performance monitoring services when they give recommendations, we recognize that many broker-dealers offer these services to retail investors as part of their account agreement. We believe that retail investors would benefit from disclosure that such services exist, and that broker-dealers might charge higher fees for these services. Broker-dealers would also be required to briefly describe any regular communications they have with retail investors, such as providing account statements, giving an overview of transactions during a period, or evaluating the account’s performance.90 Firms would include the frequency (e.g., at least quarterly) and the method (e.g., by email, phone or in person) of the communications.91 Finally, broker-dealers would be required to include the following if they significantly limit the types of investments available to retail investors in any accounts: ‘‘We offer a limited selection of investments. Other firms could offer a wider range of choices, some of which might have lower costs.’’ 92 A broker-dealer would significantly limit the types of investments if, for example, the firm only offers one type of asset (e.g., mutual funds, exchange-traded funds, or variable annuities), the firm only offers mutual funds or other investments sponsored or managed by the firm or its affiliate (i.e., proprietary products), or the firm only offers a small choice of investments.93 In addition, if the limitations only apply to some of the accounts the firm offers, such as, for example, limiting the types of investments for retail investors within different asset tiers, then the firm would have to identify those accounts.94 Limitations on investments offered could have a significant effect on investor choice and performance of the account over time. In particular, firms that offer proprietary products exclusively preclude investor access to competing products that could offer lower fees or result in better performance over time. As a result, retail investors should understand these limitations before they enter into a relationship with a firm. Advisory Account Services. We propose requiring investment advisers that offer investment advisory accounts to retail investors to summarize the principal investment advisory services provided to retail investors.95 First, investment advisers would be required to state the type(s) of fee they receive as compensation if a retail investor opens an investment advisory account.96 For example, an investment adviser would state if it charges an on-going asset￾based fee based on the value of the cash and investments in the advisory account, a fixed fee, or some other fee arrangement. A standalone adviser would also state how frequently it assesses the fee.97 Similar to the
requirement for broker-dealers,98 we are proposing to require a statement about how investment advisers charge fees up￾front because of the importance that investors understand how they will pay for services and to highlight this critical distinction between brokerage and advisory accounts. We are proposing to require that firms describe additional fees associated with these services in the discussion of fees and costs. Because the fees charged by each investment adviser may differ, we are not prescribing specific wording and instead are allowing firms flexibility in choosing the exact wording to use for this disclosure. Advisers would, however, emphasize the type of fee in bold and italicized font.99 Next, investment advisers would state that they offer advice on a regular basis, or, if they do not offer advice on a regular basis, they would state how frequently they offer advice.100 They would also state the services they offer to retail investors including, for example, (a) assistance with developing the retail investor’s investment strategy (e.g., the investment adviser discusses the retail investor’s investment goals or designs with the retail investor a strategy to achieve the retail investor’s investment goals), or (b) how frequently

101 Id.
102 Id.
103An agreement for advisory services typically defines the scope and specific types of services provided. 104Proposed Item 2.C.3. of Form CRS. Investment advisers would be required to emphasize the type of account (discretionary and non-discretionary) in bold and italicized font. 105Term 12 of Glossary of Terms to Form ADV. 106Proposed Item 2.C.3. of Form CRS. 107 In 1992, only approximately three percent of SEC-registered advisers had discretionary authority over client assets; as of March 31, 2018, according to data collected on Form ADV, 91 percent of SEC￾registered advisers have that authority. 108Proposed Item 2.C.4. of Form CRS. The required statement would be ‘‘Our investment advice will cover a limited selection of investments. Other firms could provide advice on a wider range of choices, some of which might have lower costs.’’ Also consistent with the requirements for broker￾dealers, such limitations could include, for example, only offering a selection of mutual funds, equities, or proprietary products. 109Proposed Item 2.D. of Form CRS. This disclosure only applies in the context of an affiliate of the firm. This is not intended to describe disclosure of a financial professional’s outside business activities, such as an outside investment advisory business of a broker-dealer registered representative. they monitor the retail investor’s accounts.101 Similar to broker-dealers, advisers would include the frequency (e.g., at least quarterly) and the method (e.g., by email, phone or in person) of the communications.102 We believe that the regularity of advice and other services that investment advisers commonly provide, including, as applicable—discussions with the retail investor, designing a strategy to achieve investment goals, monitoring, and reporting on performance—are key aspects of services that advisers commonly provide.103 As discussed above with respect to broker-dealers, these services can distinguish advisory accounts from brokerage accounts and therefore the disclosure will help retail investors determine which type of account best suits their needs. Additionally, investment advisers would state if they offer advisory accounts for which they exercise investment discretion (i.e., discretionary accounts), accounts for which they do not exercise investment discretion (i.e., non-discretionary accounts), or both.104 For purposes of this Item in the relationship summary, investment advisers generally should use the same definition of ‘‘discretionary authority’’ as in Form ADV, which is the authority to decide which securities to purchase and sell for the client, or the authority to decide which investment advisers to retain on behalf of the client.105 If an investment adviser offers a discretionary account, the relationship summary would state that a discretionary advisory account allows the firm to buy and sell investments in the retail investor’s account, without asking the retail investor in advance. For a non￾discretionary
advisory account, the relationship summary would state that the firm gives advice and the retail investor decides what investments to buy and sell.106 We believe it is important for retail investors considering an advisory account to understand the difference between discretionary services and non￾discretionary services, as that distinction would affect the degree of control the retail investor would provide to the adviser. Discretionary advice is also a common feature of many investment advisory accounts,107 so explaining discretion would benefit a retail investor in choosing between brokerage and investment advisory services, as well as between different types of advisory accounts. Finally, as we are proposing for broker-dealers, investment advisers that significantly limit the types of investments available to retail investors in any accounts would include the same statement that broker-dealers would be required to include, and if such limits only apply to certain accounts, the investment adviser would identify those accounts, for the same reasons discussed above.108 Affiliate Services. We recognize that many investment advisers and broker￾dealers that are not dual registrants nonetheless have affiliates that are broker-dealers or investment advisers, respectively. Often, these standalone firms offer their affiliates’ services to retail investors. For example, an affiliated sub-adviser also may manage a portion of a retail investor’s portfolio or an investment adviser may effect trades for client accounts through an affiliated broker-dealer. We would allow these firms to state that they offer retail investors their affiliates’ brokerage or advisory services, as applicable.109 We believe that the inclusion of this disclosure could make clear the choice investors have within affiliated firms and give financial professionals an opportunity to discuss these services. We request comment generally on the proposed requirement for firms to include specific information about the relationships and services offered in their advisory and brokerage accounts.

• Would the proposed summary of
  relationships and services help retail investors to make informed choices about whether investment advisory or brokerage services better suit their needs? If not, how should we revise it?
• Would the proposed requirements
  result in disclosure that is clear, concise, and meaningful to retail investors? Would this information help retail investors to better understand the general differences in the services that investment advisers and broker-dealers provide? Are there other differences in the services provided by investment advisers and broker-dealers that we should require firms to discuss in this
  section? If so, should we permit or
  require information about those differences in the summary of services? Are there any common misconceptions about services provided by broker￾dealers, investment advisers, or dual registrants that the relationship summary should specifically seek to clarify or correct?
• Would more or less information
  about a firm’s services be helpful for retail investors? Are there any elements of the proposed requirements that firms should or should not include? If so, why? Should any of the required disclosures be included in a different
  section of the relationship summary? Is
  the proposed order of the information appropriate, or should it be modified? If so, how should it be modified? Should we allow firms the flexibility to present this information in a different order if doing so makes their relationships and services more understandable to retail investors?
• Is the proposed heading and the
  introductory wording for firms clear and useful to retail investors? Are there alternative headings we should consider?
• Does the mix of prescribing
  wording for some information and requiring brief narratives for other information strike the right balance between having similar, neutral wording to promote comparisons and permitting firms to conform the language to reflect the services they offer? Should the Commission instead require more prescribed wording in this Item? Conversely, is there prescribed wording we have proposed that we should modify or replace with a more general instruction that allows firms to use their own description?
• Does the prescribed wording we are
  proposing capture the range of business models of investment advisers and broker-dealers? Would the prescribed wording require any firm to state something inaccurate in the relationship summary? Should we instead provide more flexibility to change the prescribed wording?
• Should we require broker-dealers to
  include prescribed wording about transaction-based fees and investment advisers to state the type of fee for an advisory account at the beginning of this

section, or should fees only be
discussed in the fee section?

• How should broker-dealers describe
  execution-only accounts, sometimes referred to as ‘‘discount’’ brokerage, and accounts in which they provide recommendations concerning securities, sometimes referred to as ‘‘full-service’’ brokerage? Should we, as proposed, require that broker-dealers offering recommendations to retail investors state that the retail investor may select investments or the broker-dealer may recommend investments, but the retail investor will make the ultimate investment decision? Should we also, as proposed, require that broker-dealers only offering discount brokerage accounts to retail investors state that the retail investor will select the investments and make the ultimate investment decision? Should we require prescribed language about these accounts, or should we permit a brief narrative as proposed? Should firms be permitted or required to use the terms ‘‘full-service’’ accounts and ‘‘discount’’ brokerage accounts, or other terms, so long as they are likely to be understood? Do investors understand the meanings of these terms?
• Should investment advisers that
  provide investment advisory services be required to discuss both discretionary and non-discretionary account services, regardless of whether they offer both discretionary and non-discretionary accounts? Should they instead be permitted to describe only the service they offer? Do firms offer accounts that involve limited discretionary services that would not be covered in the proposed discussions of discretionary and non-discretionary accounts? If so, how should the requirements be changed to reflect these accounts? Should we also require investment advisers to state that they offer advice on a regular basis, or, if not on a regular basis, state how frequently they offer advice? Should we require the disclosure of any additional information about the advice an investment adviser provides?
• We are proposing to require firms to
  disclose if they offer certain additional services, such as assistance with developing or executing the retail investor’s investment strategy, and performance monitoring, and to briefly describe any regular communications they have with retail investors. Are there services in addition to those in the Instructions that broker-dealers and investment advisers also should disclose? Should we require disclosure of the same types of additional services for both broker-dealers and investment advisers?
• We understand that, to some extent,
  all firms limit the investments offered to retail investors. Would other disclosures regarding a firm’s product offering limitations be helpful to investors, in addition to the proposed disclosures for firms that significantly limit the types of investments that are available? Why or why not? Should we, for example, require firms that only offer proprietary investments to also state that the only investments available to a retail investor are investments that the firm or its affiliates issue, sponsor, or manage? How feasible would this disclosure be for a firm that has several account types? Should we consider other alternatives?
• Is it clear what we mean by
  ‘‘significantly limit’’ with regard to the requirement to disclose limitations on investment choices? Should we provide additional examples or more prescriptive instructions regarding when firms must disclose such limitations? Are there other ways a firm may significantly limit the types of investments that should be captured by this instruction?
• Should we permit firms to prepare
  different relationship summaries for different types of services and lines of business, particularly where the firm offers a broad array of accounts and services? Would separate relationship summaries still promote comparability across firms and the ability to understand the differences between advisory and brokerage services?
• Would the proposed summary of
  services allow retail investors to easily compare the services provided by different firms? If not, what changes to the requirements should we make to increase comparability?
• Would other disclosures about a
  firm’s services be more helpful for retail investors? Should we permit or require firms to describe services they offer to retail investors, in addition to brokerage and advisory services, such as insurance services? Would such disclosure about other services give retail investors a more complete overview of a firm’s offerings, or would it detract from the other disclosures, for example, by overwhelming the more important information about a firm’s brokerage and advisory services?
• Should we require firms to include
  more details about the specific services provided for each type of advisory account or brokerage account that they offer? Should the relationship summary help investors to choose among a variety of account options that the firm offers, rather than providing more summary information about the advisory and brokerage services that are offered?
• Some dual registrants have
  implemented a default relationship for retail investors, where, for example, the firm will act as a broker-dealer with respect to the account unless specifically stated otherwise. Should we require these firms to disclose that they are acting as a broker-dealer (or investment adviser, as applicable) with respect to the account unless the firm specifically states otherwise?
• Should we, as proposed, allow
  firms with affiliated broker-dealers or investment advisers to state that they offer retail investors additional brokerage or advisory services, as applicable, through their affiliates? Should we require such statements, if applicable? Should we permit or require firms to expand on the different types of services available to their retail investors through the firm’s affiliates? Should affiliates be required or permitted to use a single relationship summary that describes the services of all affiliates? If not, why not? What are the advantages and disadvantages to the retail investor?
• Should we also permit or require
  disclosure regarding a firm’s relationships with other third parties, such as where the registered representatives of a broker-dealer are also investment adviser representatives of an unaffiliated investment adviser or where an investment adviser uses a single unaffiliated broker-dealer to provide execution and custody and generally does not consider execution through other firms?
• Should we require investment
  advisers and broker-dealers to disclose whether they have a minimum account size and state that minimum (or range of minimums) if the account minimum varies by account? If applicable, should we require disclosure that the selection of investments or services is limited by account size? Would this help investors understand whether they are eligible for certain accounts or certain services and understand the ways in which their investment choices may be limited? Are there any drawbacks to requiring such disclosure?
• So-called robo-advisers and online
  broker-dealers represent a fast-growing trend within the brokerage and investment advisory industries. They employ a wide range of business models. For example, differences among robo-advisers and online broker-dealers include: The degree of reliance on computer algorithms (as opposed to individualized human judgment) to generate financial advice; the level of human interaction between the client or customer and firm personnel; and the use of the internet to communicate with

110Proposed Item 3.A. of Form CRS.
111Proposed General Instruction 1.(e) to Form CRS. 112See, e.g., Siegel & Gale Study, supra note 5; and RAND Study, supra note 5. See also CFA Survey, supra note 5. 113See 913 Study, supra note 3, at v. See also Rand Study, supra note 5. 114See infra at Section II.B.8. Similarly, certain DOL regulations already obligate firms and financial professionals to acknowledge fiduciary status when they provide certain advisory type services to workplace retirement plans subject to ERISA and to IRAs. See, e.g., 29 CFR 2550.408g– 1(b)(7)(i)(G) (regulation under statutory exemption for participant advice requires fiduciary advisers to plans and IRAs seeking exemptive relief to provide advice and receive compensation to acknowledge fiduciary status); 29 CFR 2550.408b–2(c)(1)(iv)(B) (regulation under statutory exemption for reasonable service arrangements requires certain ERISA-covered plan service providers to state, if applicable, that the service provider will provide or reasonably expects to provide services as a ‘‘fiduciary’’ as defined by ERISA). Similarly, the DOL’s BIC Exemption, see infra note 504, would require an investment advice fiduciary that seeks to rely on that exemption to receive compensation in connection with investment recommendations to state in writing that it is acting as a fiduciary under ERISA or the Code. 115As noted above, if a prescribed statement is inapplicable to a firm’s business or would be misleading to a reasonable retail investor, the firm may omit or modify that statement, as further discussed below. Proposed General Instruction 3 to Form CRS. See supra note 58. 116Regulation Best Interest Proposal, supra note 24. 117Proposed Item 3.B.1. of Form CRS. This wording assumes Commission adoption of Regulation Best Interest. As noted above (see supra note 29 and accompanying text), the proposed definition of ‘‘retail customer,’’ to whom Regulation Best Interest would apply, differs from the proposed definition of ‘‘retail investor’’ under Form CRS. The relationship summary is intended for a broader range of investors than the intended focus of Regulation Best Interest. Accordingly, the proposed Regulation Best Interest standard may not apply to the recommendations of all retail investors receiving the relationship summary from broker￾dealers. The Instructions for proposed Item 3.B.1 recognizes this possibility and seeks to ensure that broker-dealers provide accurate disclosure to their retail investors, even if the broker-dealer is not providing a recommendation subject to Regulation Best Interest. 118See Report of the Special Study of Securities Markets of the Securities and Exchange Commission, H.R. Doc. No. 88–95, at 238 (1st Sess. 1963); In the Matters of Richard N. Cea, et al., Exchange Act Release No. 8662 (Aug. 6, 1969), at 18 (‘‘Release 8662’’) (involving excessive trading and recommendations of speculative securities without a reasonable basis); In the Matter of Mac Robbins & Co. Inc., Exchange Act Release No. 6846
(Jul. 11, 1962). See also FINRA Rule 2111.01 (Suitability) (‘‘Implicit in all member and associated person relationships with customers and others is the fundamental responsibility for fair dealing. Sales efforts must therefore be undertaken only on a basis that can be judged as being within the ethical standards of [FINRA’s] Rules, with particular emphasis on the requirement to deal fairly with the public. The suitability rule is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct’’); see also FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) (requiring a member, in the conduct of its business, to observe high standards of commercial honor and just and equitable principles of trade). 119References to ‘‘monitoring’’ relate to monitoring the performance of a portfolio or investments, and are not intended to alter or diminish broker-dealers’ current supervisory obligations under the Exchange Act and detailed self-regulatory organization rules, including the establishment of policies and procedures reasonably designed to prevent and detect violations of, and to achieve compliance with, the federal securities laws and regulations, as well as applicable self-regulatory rules. See section 15(b)(4)(E) of the Exchange Act; FINRA Rule 3110. clients and customers. Are the Instructions pertaining to relationships and services sufficient and appropriate to capture the business models of robo￾advisers and online broker-dealers? For example, would it be appropriate to require or permit descriptions regarding the degree of human involvement in the oversight and management of individual client accounts, how computer algorithms are used in generating investment advice, and the availability of financial professionals to answer retail investors’ questions? Do the requirements with respect to the content and delivery of the relationship summary, as further discussed below, allow retail investors to make informed decisions about entering into a relationship with a robo-adviser, other type of investment adviser, or broker￾dealer?
3. Obligations to the Retail Investor—
Standard of Conduct
Following the relationships and services section, the relationship summary would include a brief section, using prescribed wording, to describe the firm’s legal standard of conduct to the retail investor.110 The section would begin with the heading ‘‘Our Obligations to You’’ and the following language: ‘‘We must abide by certain laws and regulations in our interactions with you.’’ Firms would then use prescribed wording describing the standard of conduct applicable to investment advisers and/or broker￾dealers.111 As with certain other sections of the relationship summary, dual registrants would provide this information in tabular format to facilitate comparison. We understand that the standard of conduct that applies to firms and financial professionals has been a source of investor confusion.112 For example, the 913 Study noted that retail investors were not clear about the specific legal duties of broker-dealers and investment advisers.113 We believe that providing a brief overview of the standards of conduct to which broker￾dealers and investment advisers must adhere, including the differences between the standards of care of broker￾dealers and investment advisers, could help alleviate this confusion. We further believe that providing this overview, in combination with the key question about the financial professional’s legal obligations discussed below, would encourage a conversation between the retail investor and the financial professional about applicable legal obligations.114 We also believe that prescribing language is appropriate to promote consistency in communicating these standards to retail investors.115 Broker-Dealers. We are proposing a required description of the standard of conduct for broker-dealers based on the proposed standards in Regulation Best Interest, as well as existing obligations of broker-dealers when they provide services to customers. First, a broker￾dealer that provides recommendations subject to Regulation Best Interest 116 would include the following wording:
‘‘We must act in your best interest and not place our interests ahead of yours when we recommend an investment or an investment strategy involving securities.’’ 117 Execution-only broker￾dealers and other broker-dealers that do not provide such recommendations would not be required to include this sentence. We believe retail investors receiving recommendations that are subject to Regulation Best Interest would benefit from understanding the new obligation. Second, all broker-dealers providing services to retail investors would state, ‘‘When we provide any service to you, we must treat you fairly and comply with a number of specific obligations.’’ This would inform retail investors that broker-dealers have a duty of fair dealing under the federal securities laws and self-regulatory organization rules, as well as other obligations and standards to which they must adhere.118 Finally, broker-dealers would be required to state, ‘‘Unless we agree otherwise, we are not required to monitor your portfolio or investments on an ongoing basis.’’ This sentence reflects that neither Regulation Best Interest nor existing broker-dealer standards oblige the broker-dealer to monitor the performance of retail investor’s accounts,119 while making clear that broker-dealers could agree to provide monitoring as an additional service. We are proposing this wording because we believe that the episodic, rather than ongoing, nature of broker￾dealers’ standard of conduct in Regulation Best Interest is a distinction from investment advisers’ obligations to clients that retail investors should be

120Proposed Item 3.B.2. of Form CRS. This wording assumes Commission adoption of the Regulation Best Interest. 121See discussion of the proposed conflicts of interest disclosure in the relationship summary, infra Section II.B.6. 122Proposed Item 3.C.1. of Form CRS. 123We are concurrently publishing for comment a proposed interpretation of the standard of conduct for investment advisers under the Advisers Act. See Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request for Comment on Enhancing Investment Adviser Regulation, Investment Advisers Act Release No. IA–4889 (Apr. 18, 2018) (‘‘Fiduciary Duty Interpretive Release’’). 124See, e.g., General Instruction 3 to Form ADV,
Part 2.
aware of from the outset of a relationship. After the description of the standard of conduct, broker-dealers would be required to state: ‘‘Our interests can conflict with your interests.’’ If the broker-dealer provides to retail investors recommendations that are subject to Regulation Best Interest, it would also include the language, ‘‘When we provide recommendations, we must eliminate these conflicts or tell you about them and in some cases reduce them.’’ 120 These statements reflect proposed requirements in Regulation Best Interest that broker-dealer would need to establish, maintain, and enforce reasonably designed policies and procedures relating to material conflicts of interest, including those arising from financial incentives, associated with recommendations to retail customers. While we are not using the exact words of the proposed standard, we believe that this information, in combination with the conflicts section below, can make the retail investor aware that conflicts exist and that the broker-dealer has obligations regarding disclosure, mitigation, or elimination of conflicts when the broker-dealer is subject to Regulation Best Interest. We believe this could help prompt a conversation between retail investors and their financial professionals about both the conflicts the firm and financial professional have and what steps the firm takes to reduce the conflicts.121 Investment Advisers. We propose to require that investment advisers state the standard of conduct that applies to them as an investment adviser by including the following wording: ‘‘We are held to a fiduciary standard that covers our entire investment advisory relationship with you.’’ In addition, unless the investment adviser does not provide ongoing advice (for example, provides only a one-time financial plan), the investment adviser would also state, ‘‘For example, we are required to monitor your portfolio, investment strategy and investments on an ongoing basis.’’ 122 While we are not proposing to include a specific definition of fiduciary, we believe that the proposed wording that the relationship covers the ‘‘entire investment advisory relationship’’ and wording regarding the ongoing duty to monitor would provide retail investors with information about aspects of the fiduciary duty that can help the retail investor understand the standard.123 Additionally, as with the proposed standard of conduct disclosure for broker-dealers, we believe that the ongoing, as opposed to episodic, nature of investment advisers’ standard of conduct is a distinction from broker￾dealers’ typical obligations when providing recommendations that retail investors should be aware of from the outset of a relationship. After the description of the standard of conduct, investment advisers would then be required to state, ‘‘Our interests can conflict with your interests. We must eliminate these conflicts or tell you about them in a way you can understand, so that you can decide whether or not to
agree to them.’’ As with broker-dealers, we believe that this information, in combination with the conflicts section below, can make retail investors aware that conflicts exist and that investment advisers, as part of their fiduciary duty, have obligations regarding conflicts.124 We believe this could help prompt a conversation between retail investors and their financial professionals about both the conflicts the firm and financial professional have and what steps the firm takes to reduce the conflicts. We request comment generally on the proposed standard of conduct descriptions, and in particular on the following issues:

• Should we require, as proposed,
  that all firms include a brief prescribed statement about the legal standards of conduct that apply to them under the federal securities laws, including the new standard proposed in Regulation Best Interest and an investment adviser’s fiduciary duty? Is such disclosure likely to be meaningful to retail investors? Does the prescribed wording capture what retail investors should or want to understand about broker-dealers’ and investment advisers’ standards of conduct? Would the prescribed wording require any firm to provide any inaccurate information? Are there modifications to the proposed wording or alternative wording that would make the legal standards more clear in a succinct way? Should we require or permit additional information, and if so, what? Alternatively, would a briefer statement be appropriate? Are there any common misconceptions about broker-dealers’ and investment advisers’ standard of conduct that the relationship summary should specifically seek to clarify or correct?
• Should we require or permit broker￾dealers to include additional detail
  about the best interest standard proposed in Regulation Best Interest or their duty of fair dealing? Would this or other disclosure provide retail investors with useful information? Should we provide flexibility in how broker-dealers describe the best interest standard or duty of fair dealing?
• We are proposing to require that
  broker-dealers state that they must comply with a number of specific obligations when providing any service to customers. Should we permit or require more detailed disclosure about these obligations? For example, should we permit or require broker-dealers to disclose their obligations to make sure that the prices a customer receives when a trade is executed are fair and reasonable, and to make sure that the commissions and fees the customer pays are not excessive?
• Should we require disclosure that
  further describes the investment adviser fiduciary standard, including any additional details described in the proposed interpretation? If so, what wording should we require? Should we provide flexibility in describing the fiduciary standard?
• For dual registrants, would the side￾by-side descriptions of the standards of
  conduct for broker-dealers and investment advisers assist retail investors in understanding the differences between these standards? Are there modifications we can make to the wording or the presentation to facilitate this comparison?
• Should we permit or require firms
  to disclose additional information about the legal differences between broker￾dealers and investment advisers, such as explaining that broker-dealers are subject to regulation by self-regulatory organizations in addition to the SEC? Should we permit or require firms to disclose the differences in licensing requirements for financial professionals of broker-dealers and investment advisers, such as the frequency of licensing or qualifications examinations? Would such disclosure about financial professionals fit within this section of the relationship summary that focuses on the firm? What information would be most relevant to retail investors?

125See. e.g., supra note 114. 126Proposed Item 4 of Form CRS. A broker-dealer would describe transaction-based fees as its principal type of fee, using prescribed wording. See proposed Item 4.B.1 of Form CRS. We use the term ‘‘transaction-based fees’’ in the relationship summary for plain language purposes to refer generally to broker-dealer compensation such as commissions, mark-ups, mark-downs, sales loads or similar fees, including 12b–1 fees, tied to specific transactions. An investment adviser would summarize the principal fees and costs that align with the type of fee(s) the adviser reports in response to Item 5.E. of Form ADV Part 1A that are applicable to retail investors. See proposed Item 4.C. of Form CRS. Investment advisers and associated persons that receive compensation in connection with the purchase or sale of securities should carefully consider the applicability of the broker-dealer registration requirements of the Exchange Act. 127Proposed Items 4.C.3., 4.C.7., 4.C.9. and 4.C.10. of Form CRS. 128Proposed Items 4.B.2.b. and 4.C.4. of Form CRS. 129Proposed Items 4.B.5. and 4.C.8. of Form CRS. 130Proposed Items 4.B.6. and 4.C.10. of Form CRS. Dual registrants would make these disclosures under the heading ‘‘Fees and Costs,’’ whereas standalone investment advisers and broker-dealers would make certain of these disclosures under the heading ‘‘Fees and Costs,’’ and certain of these disclosures under the heading, as applicable ‘‘Compare with Brokerage Accounts’’ or ‘‘Compare with Advisory Accounts,’’ as described below. Proposed Items 5.A.4. and 5.B.6. of Form CRS. 131Proposed General Instruction 1.(e) to Form CRS. 132See 917 Financial Literacy Study, supra note 20, at iv (‘‘With respect to financial intermediaries, investors consider information about fees, disciplinary history, investment strategy, conflicts of interest to be absolutely essential.’’). 133See Rand Study, supra note 5, at xix (‘‘In fact, focus-group participants with investments acknowledged uncertainty about the fees they pay for their investments, and survey responses also indicate confusion about the fees.’’). In addition, we have brought enforcement actions against advisers providing inaccurate disclosure of all of the fees and costs that retail investors pay. See, e.g., In the Matter of Robert W. Baird & Co. Inc., Investment Advisers Act Release No. 4526 (Sept. 8, 2016) (settled action) (‘‘In re Robert W. Baird’’); In the Matter of Raymond James & Associates, Inc., Investment Advisers Act Release No. 4525 (Sept. 8,
2016) (settled action) (‘‘In re Raymond James’’); In
the Matter of Barclays Capital Inc., Investment Advisers Act Release No. 3929 (Sep. 23, 2014) (settled action) (‘‘Release 3929’’). 134See, e.g., Kiley 2017 Letter (recommending that investors receive disclosures about the differences in advisory and brokerage fees, and brokers’ specific fee and commission structure); Stifel 2017 Letter (recommending that firms explain the differences between brokerage and advisory accounts with the goal of improving understanding of a firm’s different service models, compensation arrangements, and conflicts of interests); Equity Dealers of America 2017 Letter (recommending disclosure of aspects of advisory and brokerage accounts, including the type of fees charged, to facilitate investors’ selection of an account type); Wells Fargo 2017 Letter; ACLI 2017 Letter; FSR 2017 Letter; SIFMA 2017 Letter; UBS 2017 Letter; Comment letter of the Investment Company Institute (Aug. 7, 2017) (‘‘ICI 2017 Letter’’); State Farm 2017 Letter; IAA 2017 Letter; Bernardi Securities 2017 Letter; Fidelity 2017 Letter; Vanguard 2017 Letter. 135See, e.g., Comment letter of Mark J. Flannery, BankAmerica Professor of Finance, University of Florida (Jul. 27, 2017) (‘‘Flannery 2017 Letter’’); Pefin 2017 Letter (recommending that clients should receive information on a quarterly basis on fees charged to their account, the calculation used to determine fees, and a breakdown of the charges by category). 136See infra Section II.B.8.; infra notes 299–303 and accompanying text; proposed Item 8 of Form CRS.

• We understand that state laws and
  other regulations,125 also may require broker-dealers and advisers to affirmatively acknowledge fiduciary status. Should we provide firms flexibility to include language in a relationship summary consistent with or to satisfy these other regulatory requirements? Would such flexibility enhance or potentially reduce the effectiveness of the relationship summary?

4. Summary of Fees and Costs
   We are proposing to require broker￾dealers and investment advisers to include an overview of specified types of fees and expenses that retail investors will pay in connection with their brokerage and investment advisory accounts. This section would include a description of the principal type of fees that the firm will charge retail investors as compensation for the firm’s advisory or brokerage services, including whether the firm’s fees vary and are negotiable, and the key factors that would help a reasonable retail investor understand the fees that he or she is likely to pay.126 Investment advisers that provide advice to retail investors about investing in ‘‘wrap fee programs’’ would include an overview of the fees associated with those wrap fee programs.127 Both broker-dealers and investment advisers would state that some investments impose fees that will reduce the value of a retail investor’s investment over time, and would provide examples relevant to the firm’s business.128 In addition, each firm would include the incentives it and its financial professionals have to put their own interests ahead of their retail investors’ interests based on the account fee structure,129 and would state that depending on an investor’s investment strategy, retail investors may prefer paying a different type of fee in certain specified circumstances.130 Having a clear, simple explanation of the fees a retail investor would pay firms for advisory accounts versus brokerage accounts, and the incentives that such fees create, would help the retail investor to understand the types of fees that they will pay and make a more informed choice about which account is right for them. As with other sections of the relationship summary, dual registrants would provide this information in tabular format to facilitate comparison.131 Fees and costs are important to retail investors,132 but many retail investors are uncertain about the fees they will pay.133 Many commenters have stressed the importance of clear fee disclosure to retail investors, including disclosure about differences between advisory and brokerage fees.134 Accordingly, the proposed relationship summary is intended to provide investors greater clarity concerning certain categories of fees they should expect to pay, how the types of fees affect the incentives of the firm and their financial professionals, and certain other fees and expenses that will reduce the value of the retail investor’s investment. The proposed relationship summary would focus on certain general types of fees, rather than describe all fees or provide a comprehensive schedule of fees. Specifically, the proposal would highlight certain differences in how broker-dealers and investment advisers charge for their services. We are not proposing a requirement that firms personalize the fee disclosure for their retail customers, or provide a comprehensive fee schedule, as some commenters had proposed.135 A personalized fee disclosure could be
   expensive and complex for firms to provide in a standardized presentation across all of their accounts and in a way that captures all fees, including embedded fees in various investments (which will vary for each investor depending on their portfolio). Many firms likely would seek to implement systems to automate the disclosure for each of their existing and prospective retail investors, and if such systems were expensive, some firms could choose to reduce the products and services that they offer as a result of the additional costs. Our proposal would encourage retail investors to ask financial professionals about their fees and request personalized information about the specific fees and expenses associated with their current or prospective accounts. As further discussed in Section II.B.8 below, one of the proposed questions for a retail investor to ask a financial professional is to ‘‘do the math for me,’’ and specifically encourages retail investors to ask about the amount that they would pay per year for the account, what would make the fees more or less, and the services included in those fees.136 Additionally, the beginning of the Fees and Costs section of the relationship summary would state: ‘‘Please ask your financial professional to give you personalized information on fees and

137Proposed Item 4.A. of Form CRS. 138Proposed Item 7 of Form CRS. 139Proposed Item 7.E.2. of Form CRS. Investment advisers that do not have a public firm website or do not maintain their current Form ADV brochure on its public website would be required to include a link to adviserinfo.sec.gov. Advisers that do not have a public firm website would also be required to include a toll-free telephone number where retail investors can request up-to-date information. 140Proposed Item 7.E.1. of Form CRS. Broker￾dealers that do not have a public firm website would be required to include a toll-free telephone number where retail investors can request up-to￾date information. 141Under Regulation Best Interest, broker-dealers would also be required to disclose the material facts relating to the scope and terms of the relationship, which would include disclosure of fees and charges that apply to a customer’s transactions, holdings and accounts. Regulation Best Interest Proposal, supra note 24, at section II.D.1.a. 142See Item 3 of Mutual Fund Summary Prospectus; Enhanced Mutual Fund Disclosure Adopting Release, supra note 47, at section III.A.3.b (‘‘The fee table and example are designed to help investors understand the costs of investing in a fund and compare those costs with the costs of other funds.’’). 143See, e.g., SIFMA 2017 Letter; UBS 2017 Letter; ICI 2017 Letter; State Farm 2017 Letter; Bernardi Securities 2017 Letter; Fidelity 2017 Letter. 144See, e.g., Flannery 2017 Letter; Pefin 2017 Letter. 145Proposed Item 4.A. of Form CRS. 146Proposed Item 4.B. of Form CRS. 147As discussed above, we use the term ‘‘transaction-based fees’’ to refer to broker-dealer compensation such as commissions, mark-ups, mark-downs, sales loads or similar fees, including 12b–1 fees, tied to specific transactions. See supra note 126. 148Proposed Item 4.B.1. of Form CRS. As discussed further below, dual registrants would include a parallel statement regarding their investment advisory account fees. Proposed Item 4.C.1. of Form CRS. costs that you will pay.’’ 137 We believe that financial professionals are well positioned to provide individualized fee information to their retail investors upon request. During the account opening process, for example, generally the relevant financial professional would have access to personalized information about the retail investor’s account and can put together personalized fee information estimates during the process. Likewise, we believe that requiring a comprehensive fee schedule in the relationship summary also could be more complex than a retail investor would find useful for an overview disclosure such as this. However, we believe our proposed layered disclosure would achieve similar results in a less costly and complex manner. The relationship summary would provide required information about fees, and a later section titled ‘‘Additional Information’’ would provide references and links to other disclosures where interested investors can
find more detailed information.138 As discussed below, investment advisers would be required to direct retail investors to additional information in the firm’s Form ADV Part 2 brochure and any brochure supplement provided by a financial professional to the retail investor.139 An adviser’s Form ADV Part 2 contains more detailed information about the firm’s fees. Broker-dealers would likewise be required to direct retail investors to additional information at BrokerCheck, the firm’s website, and the retail investor’s account agreement.140 Up-to-date fee disclosures may appear on broker￾dealers’ websites or in the retail investors’ account agreements, if applicable, where we understand broker-dealers typically provide information about fees, including, in some cases, comprehensive fee schedules.141 We are also not proposing to require firms to include examples of how fees could affect a retail investor’s investment returns. We recognize that the Commission has required firms to disclose examples showing the effects of fees and other costs in certain contexts. For example, we have required mutual funds to provide in their summary prospectuses an example that is intended to help investors compare the cost of investing in the mutual fund with the cost of investing in other mutual funds.142 While we continue to believe that examples of the effect of fees on returns could be helpful to retail investors, they could also fail to capture the effect of a firm’s fees on a particular retail investor’s account. Transactional fees, in particular, can vary widely based on a number of circumstances, and it could be potentially misleading to present a typical example showing how sample transaction fees apply to a sample account over time. We believe requiring firms to provide an example for each type of account that would show the effect of fees on a sample account could overwhelm investors due to the number and variability of assumptions that would need to incorporated, explained, and understood in order for the example to be meaningful, and would not necessarily promote comparability. If the assumptions were standardized, such examples might not be useful, or might even be potentially misleading, to the retail investor, whose circumstances may be different from the assumptions used. Some commenters suggested requiring that a firm disclose the types of compensation firms and their financial professionals receive, including from third parties, in connection with providing investment recommendations.143 A few commenters suggested requiring disclosure of how much the firm and its financial professionals receive in fees, including commissions and fees from third parties.144 We agree with commenters that it is important to make investors aware of such fees and compensation because they create conflicts of interest for firms and financial professionals making investment recommendations for retail investors. We are proposing to require that firms disclose commissions and
certain third-party fees related to mutual funds in this section, and certain compensation-related conflicts (e.g., conflicts related to revenue sharing) in the conflicts section of the relationship summary, as discussed in Section II.B.6 below. Heading. To emphasize the importance of fees, all firms would be required to include the following statement at the beginning of this
section under the heading ‘‘Fees and
Costs’’: ‘‘Fees and costs affect the value of your account over time. Please ask your financial professional to give you personalized information on the fees and costs that you will pay.’’ 145 We are proposing this precise wording because we believe it is applicable to retail investors regardless of any differences among the accounts and their fees. Understanding that fees and costs affect investment value over time would help retail investors to understand why they should review and understand this information. This introductory language also would highlight that retail investors could get more personalized information from the firm’s financial professionals. Brokerage Account Fees and Costs. Broker-dealers would be required to summarize the principal fees and costs that retail investors will incur.146 First, we are proposing prescribed language that describes the transactional nature of many brokerage fees.147 We are proposing different wording for dual registrants than for standalone broker￾dealers to facilitate the side-by-side comparison with the description of the advisory fee in the dual registrant’s relationship summary. Specifically, dual registrants that offer retail investors both investment advisory accounts and brokerage accounts would include the following wording to assist with the side-by-side comparison with investment advisers: ‘‘Transaction￾based fees. You will pay us a fee every time you buy or sell an investment. This fee, commonly referred to as a commission, is based on the specific transaction and not the value of your account.’’ 148 A standalone broker-dealer

149Proposed Item 4.B.1. of Form CRS. As discussed above, standalone broker-dealers would be required to include wording that a transaction￾based fee is generally referred to as a commission in the Relationships and Services section of the relationship summary. See proposed Item 2.B.1. of Form CRS. 150Proposed Item 4.B.2.a. of Form CRS. 151Proposed Item 4.B.2.b. of Form CRS. Investment advisers would also be required to make this disclosure. See proposed Item 4.C.4. of Form CRS. 152We acknowledge that some fees, such as 12b– 1 fees, could be a broker-dealer’s principal fee for their brokerage services and are also fees that reduce the return on an investment. In such a case, the broker-dealer would describe transaction-based fees as its principal fees and costs pursuant to proposed Item 4.B.1, and would also describe these fees as additional fees that will reduce the return on an investor’s investments pursuant to proposed Item 4.B.2.b. of Form CRS. 153Proposed Item 4.B.2.b. of Form CRS. Investment advisers would also be required to make this disclosure. See proposed Item 4.C.4. of Form CRS. 154See, e.g., Enhanced Disclosure and New Prospectus Delivery Option For Registered Open￾End Management Investment Companies, Investment Company Act Release No. 28064 (Nov. 21, 2007) [72 FR 67790 (Nov. 30, 2007)], at n.49 and accompanying text (‘‘In recent years, we have taken significant steps to address concerns that investors do not understand that they pay ongoing costs every year when they invest in mutual funds, including requiring disclosure of ongoing costs in shareholder reports.’’). 155See, e.g., State Farm 2017 Letter; Bernardi Securities 2017 Letter; Pefin 2017 Letter; Flannery 2017 Letter; Comment letter of Dan Keppel (Jun. 5, 2017); Comment letter of Edward H. Weyler (Jun. 8, 2017). 156See Flannery 2017 Letter; Pefin 2017 Letter. 157See Amendments to Form ADV, Investment Advisers Act Release No. 3060 (Jul. 28, 2010) [75 FR 49233 (Aug. 12, 2010)] (‘‘Brochure Adopting Release’’); Amendments to Form ADV, Investment Advisers Act Release No. 2711 (Mar. 3, 2008) [73 FR 13958 (Mar. 14, 2008)] (‘‘2008 Brochure Proposing Release’’). 158Proposed Item 4.B.3. of Form CRS. 159Proposed Item 4.B.4. of Form CRS. 160Proposed Item 4.B.5. of Form CRS. would include the following: ‘‘The fee you pay is based on the specific transaction and not the value of your account.’’ 149 In addition, both standalone and dual registrant broker-dealers would include the following (emphasis required):
‘‘With stocks or exchange-traded funds, this fee is usually a separate commission. With other investments, such as bonds, this fee might be part of the price you pay for the investment (called a ‘‘mark-up’’ or ‘‘mark down’’). With mutual funds, this fee (typically called a ‘‘load’’) reduces the value of your investment.’’ 150 Because of the importance of these transaction-based fees to brokerage services, as well as the variety of forms that such fees can take, we believe it will benefit investors to have specific examples to illustrate transaction-based fees with standardized, concise wording. We are proposing to require the example of mutual fund loads because they are common indirect fees associated with investments that compensate the broker￾dealer. We are not proposing to require broker-dealers to provide the range of their transaction-based fees. We understand that these fees vary widely based on the specific circumstances of a transaction. For example, a broker￾dealer that transacts in only one type of security—such as equities—can have a wide range of transaction fees for such securities, depending on factors such as the size of the transaction, the type of investment purchased, the type of account and services provided, and how retail investors place their orders (for example, online, telephone or with the assistance of a financial professional). A broker-dealer that transacts in multiple types of securities—for example, equities and real estate investment trusts (REITs)—could have an even wider range of transaction fees. Given this variability, and our intent that the relationship summary be short and that it be provided in addition to, and not in lieu of, other disclosure, we believe that requiring firms to provide a range of transaction-based fees in the relationship summary could be confusing or provide limited benefit to retail investors. Following the examples of transaction-based fees, broker-dealers would be required to state that some investments impose additional fees that will reduce the value of retail investors’ investments over time, and provide examples of such investments that they offer to retail investors.151 Mutual funds, variable annuities and exchange￾traded funds are common examples, as well as any other investment that incurs fund management, 12b–1, custodial or transfer agent fees, or any other fees and expenses that reduce the value of the investment over time.152 Broker-dealers also would be required to state that a retail investor could be required to pay fees when certain investments are sold, for example, surrender charges for selling variable annuities.153 We believe that it is important to highlight for investors the costs associated with particular investments in addition to describing the transaction-based fee for brokerage services. Retail investors may not appreciate that they will bear costs for some investments in addition to the transaction-based brokerage fee they pay to their financial professional
or firm.154 In addition, the investment fees and expenses we are proposing to require that firms disclose are ones that we believe are among the most common and can have a substantial impact on an investor’s return from a particular investment. Requiring the disclosure of these investment fees and expenses, sometimes described as ‘‘indirect fees,’’ follows commenters’ recommendations that investment advisers and broker￾dealers disclose certain indirect costs to retail investors.155 We are not proposing a requirement that firms disclose the amount or range of mutual fund fees or other third-party fees that retail investors may pay related to their underlying investments, as a few commenters recommended.156 These expenses vary so greatly that attempts to quantify them or describe their range likely would not be useful to retail investors or would provide limited benefit to retail investors given that the relationship summary is designed to be short disclosure provided in addition to, and not in lieu of, other disclosures.157 Instead, we intend that our proposed summary disclosure would effectively highlight these costs in a simple, understandable way. Additionally, broker-dealers would be required to state whether or not the fees they charge retail investors for their brokerage accounts vary and are negotiable, including a description of the key factors that they believe would help a reasonable retail investor understand the fee that he or she is likely to pay for the firm’s services.158 Such factors could include, for example, how much the retail investor buys or sells, what type of investment the retail investor buys or sells, and what kind of account the retail investor has with the broker-dealer. We believe investors would benefit from knowing at account opening whether they have the ability to negotiate the fees they pay. Broker-dealers would next be required to state, if applicable, that a retail investor will also pay other fees in addition to the firm’s transaction-based fee, and to list those fees, including account maintenance fees, account inactivity fees, and custodian fees.159 We believe that it is important to highlight for investors the fees associated with an account that they will pay in addition to the principal type of fee that the firm charges retail investors for their brokerage account because these fees are common and they can have an impact on a retail investor’s return. Broker-dealers would then be required to disclose certain specified incentives they have to put their own interests ahead of retail investors’ interests based on charging transaction￾based fees for brokerage accounts.160

161 Id.
162Pursuant to the federal securities laws, broker￾dealers can violate the federal antifraud provisions by engaging in excessive trading that amounts to churning, switching, or unsuitable recommendations. Churning occurs when a broker￾dealer, exercising control over the volume and frequency of trading in a customer account, abuses the customer’s confidence for personal gain by initiating transactions that are excessive in view of the character of the account and the customer’s investment objectives. Excessive trading is an excessive level of trading unjustified in light of the customer’s investment objectives. See Mihara v. Dean Witter & Co., Inc., 619 F.2d 814, 821 (9th Cir. 1980); Carras v. Burns, 516 F.2d 251, 258 (4th Cir. 1975). See also Regulation Best Interest Proposal, supra note 24, at section II.D.2.c. 163Proposed Item 4.B.6. of Form CRS. 164See e.g., Comment letter of The Capital Group Companies, Inc. (Mar. 12, 2018) (discussing considerations for buy and hold investors choosing among commission-based and fee-based arrangements). Standalone broker-dealers and standalone investment advisers would also be required to include similar wording under the headings ‘‘Compare with Typical Advisory Accounts’’ and ‘‘Compare with Typical Brokerage Accounts,’’ as applicable. See proposed Items 5.B.5 and 5.A.4 of Form CRS. Dual-registrants, standalone broker-dealers, and standalone investment advisers would also be required to include a statement that retail investors may prefer an asset-based fee in certain circumstances, and that an asset-based fee may cost more than a transaction-based fee. See proposed Items 4.C.10, 5.B.5 and 5.A.4 of Form CRS. 165Proposed Item 4.C. of Form CRS. An investment adviser would summarize the principal fees and costs that align with the type of fee(s) the adviser reports in response to Item 5.E. of Form ADV Part 1A that are applicable to retail investors. 166Proposed Item 4.C.1. of Form CRS. 167 Id. Some investment advisers report on Form ADV Item 5.E that they receive ‘‘commissions.’’ These ‘‘commissions’’ may include deferred sales loads, including fees for marketing and service, as well as commissions as understood in the broker￾dealer context. As a form of deferred sales load, all payments of ongoing sales charges to intermediaries would constitute transaction-based compensation. Intermediaries receiving those payments should consider whether they need to register as broker￾dealers under section 15 of the Exchange Act. 168Proposed Item 4.C.2. of Form CRS. We recognize that, in some cases, the amount paid to the advisory firm and the financial professional can vary based on the type of investment selected (e.g., advisory firms and financial professionals may recommend certain mutual funds that pay the adviser or the financial professional 12b–1 fees out of fund assets). 169 Id. 170Proposed Item 4.C.2. of Form CRS. Investment advisers that offer retail investors advisory accounts sometimes charge fees that are not
ongoing, asset based fees. A financial planner, for example, sometimes charges a one-time fixed fee to prepare a plan. 171As discussed above, when completing Form CRS, investment advisers should generally consider achieving consistency with the type(s) of fee(s) that the investment adviser reports on Item 5.E. of Form ADV Part 1A. See supra note 126. 172Proposed Items 4.C.3., 4.C.6., 4.C.9. and 4.C.10. of Form CRS. We also refer to these types of investment advisers as ‘‘client-facing firms.’’ 173Proposed General Instruction 9.(g) to Form CRS. This proposed definition is identical to the definition already used in Form ADV. 174Proposed General Instruction 9.(g) to Form CRS. They would be required to include the following: ‘‘The more transactions in your account, the more fees we charge you. We therefore have an incentive to encourage you to engage in transactions.’’ 161 We believe this information would help retail investors understand how the fee structures for brokerage accounts could affect their investments and the incentives that firms and financial professionals have to place their interests ahead of retail investors’ interests by encouraging retail investors to engage in transactions to increase their fees.162 We are proposing to prescribe wording because we believe these particular incentives and considerations generally apply to most brokers that offer retail investors brokerage accounts, and using uniform wording would promote consistency. We believe that retail investors would benefit from understanding these incentives when they are considering broker-dealers. Additionally, we believe this disclosure would reinforce a key theme of the relationship summary, which is choice across account types and services. Finally, dual registrants would be required to include the following with respect to brokerage services: ‘‘From a cost perspective, you may prefer a transaction-based fee if you do not trade often or if you plan to buy and hold investments for longer periods of time.’’ 163 We believe that these factors—cost, trading frequency, and the desire to ‘‘buy and hold’’—are important for retail investors to consider when determining whether to use brokerage services or advisory services.164 We are proposing to prescribe the wording because we believe these factors reflect common circumstances in which a brokerage account could be more cost￾effective for a retail investor than an advisory account, and using uniform wording would promote consistency. We believe this disclosure, in conjunction with the corresponding disclosure regarding advisory accounts that would appear next to it, would help retail investors to compare the two services and make an informed choice about the account type that is the right fit for them based on their goals and preferences. Investment Advisory Account Fees and Costs. Investment advisers that offer advisory accounts to retail investors would be required to summarize the principal fees and costs that retail
investors will incur.165 Dual registrants that charge ongoing asset-based fees for their advisory services would state the following: ‘‘Asset-based fees. You will pay an on-going fee [at the end of each quarter] based on the value of the cash and investments in your advisory account.’’ 166 replacing, as needed, the bracketed wording with how often they assess the fee. If the dual registrant charges another type of fee for advisory services, it would briefly describe that fee and how often it is assessed.167 Standalone investment advisers would state the following: ‘‘The amount paid to our firm and your financial professional generally does not vary based on the type of investments we select on your behalf.’’ 168 Standalone investment advisers that charge an ongoing asset￾based fee would also state ‘‘The asset￾based fee reduces the value of your account and will be deducted from your account.’’ 169 Standalone investment advisers that charge another type of fee would succinctly describe how the fee is assessed and the impact it has on the value of the retail investor’s account.170 These requirements are consistent with the current fee disclosure requirements for the Form ADV brochure and how investment advisers typically describe asset-based fees, and we believe that retail investors would find this type of disclosure helpful.171 We are not proposing to require that investment advisers provide the range of fees, as ranges an investment adviser charges can vary based on a number of factors individual to the retail investor and the services they choose. Additionally, although we do not believe that ranges for investment advisers’ asset based fees vary as much as broker-dealers’ transaction-based fees, we recognize that requiring firms to provide a fee range for advisory accounts and not brokerage accounts could cause confusion among retail investors and be of limited benefit when comparing advisory and brokerage services. However, we recognize that providing such a range could promote comparability between different advisers, and we request comment below on whether we should require disclosure of the adviser’s range of principal fees charged. An investment adviser that provides advice to retail investors about investing in a wrap fee program would be required to include specified language about the program fees.172 A ‘‘wrap fee program’’ would be defined as an advisory program that charges a specified fee not based directly upon transactions in the account for investment advisory services and the execution of transactions.173 The advisory services may include portfolio management or advice concerning selection of other advisers.174 An

175Proposed Item 4.C.3. of Form CRS. The asset￾based fee in a wrap program does not always include all transaction costs. For example, in some cases retail investors pay mark-ups, mark-downs, or spreads, and mutual fund fees and expenses in addition to the wrap fee program’s asset-based fee. In addition, as discussed below, an investment adviser may select a broker-dealer outside of the wrap fee program to execute certain trades in a retail investor’s account—a practice sometimes referred to as ‘‘trading away’’—that results in the retail investor’s account incurring separate brokerage fees. See infra note 187 and accompanying text. 176Such investment advisers would be required to include the following (emphasis required): ‘‘For some advisory accounts, known as wrap fee programs, the asset-based fee will include most transaction costs and custody services, and as a result wrap fees are typically higher than non-wrap advisory fees.’’ Proposed Item 4.C.3. of Form CRS. 177Based on IARD data as of December 31, 2017, of the 12,667 SEC-registered investment advisers, 1,035 (8.17%) sponsor a wrap fee program, and 1,597 (12.61%) act as a portfolio manager for one or more wrap fee programs. 178Proposed Item 4.C.4 of Form CRS. See supra notes 151–155 and accompanying text for a discussion of this requirement applicable to both investment advisers and broker-dealers. 179Proposed Item 4.C.4. of Form CRS. 180See proposed Item 4.B.2.b. of Form CRS. 181Proposed Item 4.C.5. of Form CRS. 182 Id. 183Proposed Item 4.C.6. of Form CRS. 184 Id. 185See, e.g., Advisers Act rule 204–3; Item 5 of Form ADV Part 2A (requiring each adviser to describe the types of other costs, such as brokerage, custody fees and fund expenses that clients may pay in connection with the advisory services provided to them by the adviser). 186Proposed Item 4.C.7. of Form CRS. 187A wrap fee program portfolio manager may trade away because, for example, it believes that doing so will allow it to seek best execution of clients’ transactions, as investment advisers have an obligation to seek best execution of clients’ securities transactions where they have the responsibility to select broker-dealers to execute client trades (typically in the case of discretionary accounts). See Advisers Act rule 206(3)–2(c) (referring to adviser’s duty of best execution of client transactions). See also Commission Guidance Regarding Client Commission Practices Under
Section 28(e) of the Securities Exchange Act of
1934, Exchange Act Release No. 54165 (Jul. 18,
2006) (stating that investment advisers have ‘‘best
execution obligations’’) (‘‘Release 54165’’). See also Brochure Adopting Release at 9. 188The Commission has brought enforcement actions in these circumstances. See, e.g., In re Robert W. Baird, supra note 133; In re Raymond James, supra note 133; In the Matter of Riverfront Investment Group, LLC, Investment Advisers Act Release No. 4453 (Jul. 14, 2016) (settled action); In the Matter of Stifel, Nicolaus & Company, Inc., Investment Advisers Act Release No. 4665 (Mar. 13,
2017) (settled action).
189Proposed Item 4.C.8. of Form CRS. investment adviser that provides advice to retail investors about investing in a wrap fee program and does not also offer another type of advisory account would be required to include the following (emphasis required): ‘‘We offer advisory account programs called wrap fee programs. In a wrap fee program, the asset-based fee will include most transaction costs and fees to a broker-dealer or bank that will hold your assets (known as ‘‘custody’’), and as a result wrap fees are typically higher than non-wrap advisory fees.’’ 175 An investment adviser that provides advice about investing in a wrap fee program and offers another type of advisory account would be required to include similar prescribed wording, modified as applicable to reflect that the adviser also offers other types of advisory accounts.176 Many retail investors participate in wrap fee programs.177 We believe that retail investors would benefit from receiving information about certain characteristics of wrap fee programs, particularly with respect to their fees. Requiring investment advisers to describe the asset-based fee, what it includes, and that it is typically higher than non-wrap advisory fees would help a retail investor to distinguish wrap fee programs from other types of advisory accounts that charge or incur separate transaction fees. Next, investment advisers would be required to state that some investments impose additional fees that will reduce the value of a retail investor’s investment over time, and provide examples of such investments that the firm offers to retail investors.178 Investment advisers also would state that a retail investor could be required to pay fees when certain investments are sold, for example, surrender charges for selling variable annuities.179 These proposed requirements are identical to the disclosure that broker-dealers would provide.180 In addition, investment advisers would be required to state whether or not the fees they charge retail investors for their advisory accounts vary and are negotiable.181 They would be required to describe the key factors that they believe would help a reasonable retail investor understand the fee that he or she is likely to pay for the firm’s services.182 Such factors could include, for example, the services the retail investor receives and the amount of assets in the account. As discussed above with regard to broker-dealers, we believe investors would benefit from knowing at account opening whether they have the ability to negotiate the fees they pay. Investment advisers would next be required to state, if applicable, that a retail investor will pay transaction￾based fees when the firm buys and sells an investment for the retail investor (e.g., commissions paid to broker￾dealers for buying or selling investments) in addition to the firm’s principal fee it charges retail investors for the firm’s advisory accounts.183 Investment advisers would also be required to state, if
applicable, that a retail investor will pay fees to a broker￾dealer or bank that will hold the retail investor’s assets and that this is called ‘‘custody,’’ and would be required to list other fees the retail investor will pay.184 Examples could include fees for account maintenance services. These other fees we are proposing to require firms to disclose are ones that we believe are among the most common or can have an impact on a retail investor’s return.185 As discussed above, we believe that investors would benefit from being aware of the fees associated with an account that they will pay in addition to the principal fee that the firm charges retail investors for their brokerage or advisory account. An investment adviser that provides advice to retail investors about investing in a wrap fee program also would be required to state: ‘‘Although transaction fees are usually included in the wrap program fee, sometimes you will pay an additional transaction fee (for investments bought and sold outside the wrap fee program).’’ 186 The Commission is aware that wrap fee program portfolio managers employ, to varying degrees, ‘‘trading away’’ practices, in which they use a broker other than the sponsoring broker to execute trades for which a commission or other transaction-based fee is charged, in addition to the wrap fee, to the retail investor.187 The Commission has identified instances in which firms participating in wrap fee programs had poor disclosure about the overall cost of selecting a wrap fee program, including the effect of their trade away practices.188 We believe that investors would benefit from the relationship summary highlighting that, even in a wrap fee program, they sometimes will pay an additional transaction fee. As with broker-dealers, investment advisers that charge an ongoing asset￾based fee for advisory services would next be required to address the incentives they have to put their own interests ahead of their retail investors’ interests based on the type of fee charged for investment advisory services.189 These advisers would be required to include the following statement: ‘‘The more assets you have in the advisory account, including cash, the more you will pay us. We therefore have an incentive to increase the assets in your account in order to increase our fees. You pay our fee [insert frequency of fee (e.g., quarterly)] even if you do not

190Proposed Item 4.C.8. of Form CRS.
191Proposed Item 4.C.9. of Form CRS.
192See Item 4.B. of Form ADV Part 2A; Appendix 1 of Form ADV: Wrap Fee Program Brochure. 193Proposed Item 4.C.10. of Form CRS. Standalone investment advisers and standalone broker-dealers would also be required to include similar wording under the headings ‘‘Compare with Typical Brokerage Based Accounts,’’ and ‘‘Compare with Typical Advisory Accounts,’’ as applicable. Proposed Items 5.A.4 and 5.B.5. of Form CRS. 194Proposed Item 4.C.10. of Form CRS. 195We also propose to require dual registrants to include the following with respect to broker-dealer services: ‘‘From a cost perspective, you may prefer a transaction-based fee if you do not trade often or if you plan to buy and hold investments for longer periods of time.’’ See proposed Items 4.B.6. See also Items 5.A.4. and 5.B.5 of Form CRS (including similar disclosures to be made by standalone investment advisers and broker-dealers). buy or sell,’’ replacing the brackets with the frequency of their fee.190 Investment advisers that provide advice to retail investors about participating in a wrap fee program would, in addition, be required to include the following:
‘‘Paying for a wrap fee program could cost more than separately paying for advice and for transactions if there are infrequent trades in your account.’’ 191 We are proposing to require prescribed wording to promote consistency and because we believe these particular incentives and considerations generally apply to all advisers that charge retail investors ongoing asset-based fees or provide advice about participating in a wrap fee program. While we are not proposing any prescribed language for other fee types, such as fixed fees, we request comment, below, on whether advisers that charge other types of fees for their advisory services have incentives to act in their own interest based on the type of fee charged, and whether we should require disclosure of such incentives. These disclosures would help retail investors understand how the fee structures for advisory accounts could affect their investments and the incentives that firms and financial professionals have to place their interests ahead of retail investors’ interests. The disclosures for investment advisers that provide advice about investing in a wrap fee program also would help retail investors to understand that in certain circumstances a wrap fee would cost them more than separately paying for advice and for transactions in a different type of advisory account. Similarly, wrap fee sponsors that complete the Form ADV Wrap Fee Program Brochure are required to explain that the wrap fee program may cost the client more or less than purchasing such services separately and describe the factors that bear upon the relative cost of the program, such as the cost of the services if provided separately and the trading activity in the client’s account.192 As with some of the proposed requirements described above, we are proposing to prescribe wording because we believe these particular considerations generally apply to any investment in a wrap fee program and would promote consistency. Also, as discussed above, we believe this disclosure would reinforce a key theme of the relationship summary, which is choice across account types and services. Finally, dual registrants that charge ongoing asset-based fees for advisory accounts would be required to include the following with respect to their investment advisory services: ‘‘An asset￾based fee may cost more than a transaction-based fee, but you may prefer an asset-based fee if you want continuing advice or want someone to make investment decisions for you.’’ 193 Dual registrants that provide advice to retail investors about investing in wrap fee programs would also be required to include the following with respect to wrap fee program accounts: ‘‘You may prefer a wrap fee program if you prefer the certainty of a [insert frequency of the wrap fee (e.g., quarterly)] fee regardless of the number of transactions you have.’’ 194 We believe that these features—ongoing advice, discretion, standards of conduct, and, for wrap fee programs, certainty in
pricing— distinguish advisory accounts and wrap fee programs from brokerage accounts. We also believe it is important to highlight how costs relate to the services included.195 We are proposing to prescribe wording because we believe these particular considerations generally apply to all advisory accounts and wrap fee programs, and using uniform wording would promote consistency. We believe these disclosures, in conjunction with the corresponding disclosure regarding broker-dealer accounts that would appear next to it for dual registrants, would help retail investors to compare the two types of services and combinations of those services and make an informed choice about the account type that is the right fit for them based on their goals and preferences. We request comment generally on the proposed fees and costs disclosures, and in particular on the following issues:

• Is the proposed disclosure
  discussing fees and expenses useful to investors?
• Do the proposed requirements
  encourage disclosure that is simple, clear and useful to retail investors? Would the proposed disclosure help investors to understand and compare the fees and costs associated with a firm’s advisory services and brokerage services? Are there any revisions to the descriptions of fees that would make the proposed disclosure more useful to investors? Is it clear that retail investors would incur different costs for different types of accounts and advice services? Are there common assumptions or misconceptions regarding account fees and services that firms should be required to discuss, clarify, or address?
• Is the proposed order of the
  information appropriate, or should it be modified? If so, how should it be modified?
• Do the proposed requirements
  strike the right balance between requiring specific wording and allowing firms to draft their own responses? Why or why not? Should the Commission permit or require a more open-ended narrative or require more prescribed wording? Do the proposed Instructions cover the range of business models and fee structures that investment advisers and broker-dealers offer fully and accurately? Are there other fees that should be required to be disclosed for broker-dealers or investment advisers?
• Is the proposed format useful for
  retail investors to understand and compare fees and costs as between broker-dealers and investment advisers? Should we require further use of bullet points, tables, charts, graphs or other illustrative format? Should we require, as proposed, that dual registrants present the fee and cost information in a tabular format, comparing advisory services and brokerage services side-by￾side, or permit other formats such as in a bulleted format?
• How would the required
  disclosures contribute to readability and length of the proposed relationship summary? Should each of these disclosures be required? Should any of these disclosures not be required but instead permitted? Should any of these disclosures be required to appear in the relationship summary, but outside the proposed summary of fees and costs?
• Should any additional disclosures
  about fees and costs be included for investment advisers? In particular, should we require any disclosures from an investment adviser’s Form ADV Part 2A narrative brochure, such as more details about an investment adviser’s fees? Some other disclosures about fees that are included in Form ADV Part 2A, but that we have not included in the proposed relationship summary, include an adviser’s fee schedule; whether the adviser bills clients or

196See Advisers Act rule 205–3. deducts fees directly from clients’ accounts; and an explanation of how an adviser calculates and refunds prepaid fees when a client contract terminates (for an adviser charging fees in advance). Should we require some or all of such disclosures, or other disclosures about fees?

• Should we require or permit
  advisers to disclose whether they charge performance-based fees, which is a type of compensation investment advisers may charge to ‘‘qualified clients,’’ that is based on a share of capital gains on, or capital appreciation of, such clients’ assets? 196 Advisers are required to disclose their receipt of performance￾based fees on Form ADV, and they provide an incentive for the adviser to take additional investment risks with the account.
• Should we permit or require each
  firm to provide the range of its fees? If so, should broker-dealers be required to include a range for each type of transaction-based fee it charges or the aggregate range for all of the firm’s transaction-based fees? Should investment advisers be required to include a range for each type of principal fee they charge retail investors for advisory services, or the aggregate range for all of its principal advisory fees? Do broker-dealers and investment advisers currently compute or have the ability to compute such aggregated fee information? What factors determine the type or amount of fee that firms charge (e.g., for broker-dealers, such factors could include the: means of placing an order, such as online, by telephone or in person; type of account, such as full￾service or discount brokerage, and; type of product)? Do commenters have suggestions for how best to convey one or more ranges in a space-limited disclosure in light of the different fee structures? Are there other ways to give retail investors a better sense of the amount of fees they will pay without providing account-specific disclosures?
• Should we require firms to state
  whether their fees are ‘‘negotiable,’’ as we have proposed? At firms that offer negotiable fees, are retail investors generally able to negotiate their fees, and if not, would they find this disclosure helpful or could it be confusing? Will firms be able to succinctly describe the key factors they believe would help a reasonable retail investor understand the fee that he or she is likely to pay for a firm’s services (e.g., the size of the transaction, the type of investment purchased, and the type of account and services he or she receives)?
• Will any of the required disclosures
  be misleading or make it more difficult for investors to select the right type of account for them?
• Should we make the proposed
  relationship summary more personalized to individual retail investors, such as by requiring or permitting estimates for each retail investor, reflecting the fees and charges incurred for the retail investor’s brokerage or advisory account? Is personalization feasible for this type of relationship summary disclosure? If so, what information should be included in the personalized fees and cost disclosure, and how should such information be presented? How would firms calculate those estimates? How often should we require firms to update the personalized fees and compensation disclosure, and how should the personalized fee disclosure updates be delivered or made available to retail investors? What would be the costs to firms to prepare and update personalized fee and compensation disclosures?
• Should we require firms to provide
  investors with personalized fee information in a different disclosure, such as an account statement? What would be the cost and benefits, including the costs of books and records requirements, of personalizing information to investors relative to the proposal? Do firms currently provide retail investors with personalized fee disclosure estimates at or before account opening? Do they provide personalized fee disclosures in periodic account statements? For firms that provide personalized fee disclosures, do they include all fees paid by the retail investor as well as compensation received by the firm and financial professionals, even if such compensation is not paid directly or indirectly by the retail investor, such as commissions, mark-ups, mark-downs, other fees embedded in the investment or fees from third parties? What other types of fee information do firms include? Do they automate such disclosures? How expensive and complex a process is creating and delivering such personalized fee disclosures?
• Should we require firms to state
  where retail investors can find personalized information about account fees and costs, such as on account statements and trade confirmations? What other source of such information might be available for prospective customers and clients? Should we require firms to include hyperlinks to fee and cost calculators on investor.gov?
• Should we require firms to provide
  an example showing how sample fees and charges apply to a hypothetical advisory account and a hypothetical brokerage account, as applicable? Should we require a more general example that shows the impact of hypothetical fees on an account? If so, what assumptions should we require firms to make in preparing such an example? For example, should we specify assumptions such as the kinds of assets that are most typical for a broker-dealer’s customers, stated commission schedules, and aggregate third-party compensation? If the assumptions were standardized, would such examples be useful to the retail investor, whose circumstances may be different from the assumptions used or would they help give an investor a better idea about what kind of fees are being charged? Would such examples provide retail investors with a clear understanding of the application of ongoing asset-based, transaction-based and product-level fees to an account? Should we require one example for an advisory account and one example for a brokerage account? How should the information be presented (e.g., mandated graphical presentation)? Should we require firms to present more than one hypothetical example showing a range of fees instead (e.g., based on representative holdings or recommendations)? Should specific assumptions be included in calculating the hypothetical example? What disclosures would need to accompany the example? Should the example(s) track the effect of the fees over time, and if so, over what time period (e.g., over one, five and 10 years)? Or should firms describe the impact of different amounts or types of fees over a longer period of time, such as 20 years?
• Should firms be permitted or
  required to include in the relationship summary a detailed fee table or
  schedule? Should we permit or require
  firms to create a fee schedule as separate disclosure, and then include it as an attachment (or cross reference it with a website address and hyperlink) to the relationship summary? What should be included in such a fee table or
  schedule? Should it include
  compensation received by the firm and financial professionals, even if such compensation is not paid directly or indirectly by the retail investor, such as commissions or fees from third parties?
• Regarding fees related to funds and
  other investments that reduce the value of the investment over time, would the required disclosures by investment advisers and broker-dealers be clear and understandable to retail investors?

Should we, as proposed, permit firms to select their own example that they offer to retail investors? Are there other considerations related to fees for funds and other investments that we should require firms to highlight for retail investors? Would our proposed requirement that firms disclose the existence of such fees, along with examples of investments that impose such fees, adequately inform retail investors of these costs? Should we require an example showing how investment fees and expenses and other account fees and expenses may affect a retail investor’s investment over time? Should we require a reference to such an example if available elsewhere (e.g., in mutual fund, ETF or variable annuity prospectuses)?

• Should firms describe the types of
  compensation they and their financial professionals receive from sources other than the retail investor in the description of their conflicts of interest, as we have proposed (for example, with respect to revenue sharing arrangements, such as payments for ‘‘shelf space,’’ i.e., product distribution by broker-dealers)? Or, should we require firms to state in the fees and costs section of the relationship summary that they and their financial professionals receive such compensation? If so, what types of additional compensation should we require firms to disclose in the summary of fees and costs? Should we require firms to disclose how the amount of fees received from retail investors relates to the amount of fees received from others in connection with recommendations or other services to those investors? Would such disclosure be confusing to retail investors? Should we require firms only to disclose which source of fees is greater or to provide a reasonable estimate of the relative magnitude of the categories of such fees (e.g., that on average for retail customers that the amount the firm receives from third parties is twice as much as the firm charges investors)?
• Should we require firms to state, as
  proposed, that a retail investor will also pay other fees in addition to the firm’s principal fee for brokerage or advisory services, and to list such fees? Should we also require firms to state ranges for such fees?
• We are proposing disclosures that
  are intended to help retail investors understand how the principal types of fees firms charge for advisory and brokerage accounts affect the incentives of the firm and their financial professionals. Are these disclosures clear? Do they capture all incentives that broker-dealers or investment advisers may have from their fee structures? Are there other considerations related to fees and compensation that we should require firms to highlight for retail investors that are not captured here or elsewhere in the relationship summary? Should we require firms to include the prescribed wording, as proposed, or should we allow more flexibility in the words they use? Should we modify the prescribed wording? For example, should we expressly permit or require broker-dealers to modify the prescribed wording regarding their incentive to encourage retail investors to engage in transactions, to the extent they also receive compensation that might lower such incentive, such as asset-based compensation (e.g., rule 12b–1 fees, sub￾transfer agent or other similar service fees)?
• For our prescribed wording for
  investment advisers regarding the adviser’s incentive to increase the assets in a retail investor’s advisory account, would different wording better reflect this incentive? Does the proposed wording capture the conflict of interest, or does the wording suggest that advisers will increase retail investors’ assets by generating higher investment returns? Because many advisers do not charge ongoing asset-based fees as their principal fees for retail investor advisory accounts, and instead charge fixed fees, hourly fees, commissions or other types of fees, should we require these firms to state the incentives they have as a result of receiving such other types of fees? If so, what are the incentives that such firms have that are important for retail investors to understand and would be relevant to the relationship summary?
• These proposed disclosures about a
  firm’s incentives can also be considered to involve conflicts, as they address the incentives that investment advisers and broker-dealers have as a result of receiving certain types of fees. Should we require this disclosure in the conflicts of interest disclosure instead of the summary of fees and costs? Should we require firms to include in the summary of fees and costs any other fee￾related conflicts that we propose to include in the conflicts of interest disclosure, as discussed in Section II.B.6 below? Should we require firms to include other fee-related conflicts in these sections that are not included elsewhere in the relationship summary?
• Would our proposed disclosure for
  advisers and broker-dealers, that retail investors may, in certain circumstances, prefer one type of fee over another, be useful to retail investors? Are these proposed disclosures clear? Do they adequately capture the typical circumstances in which retail investors would prefer one fee type over another? Are there other considerations related to fees and compensation that we should require or permit firms to highlight for retail investors that are not captured here or elsewhere in the relationship summary? Should we require firms to include the prescribed wording, as proposed, or should we allow more flexibility in the words they use? Should we modify the prescribed wording? Does the proposed prescribed wording capture the range of business models among investment advisers and broker-dealers? Would the prescribed wording require a firm to provide any inaccurate information given that particular firm’s circumstances?
• Should we require firms to make
  disclosures about wrap fee programs, as proposed? Would the proposed disclosures help investors to understand the fees and costs associated with a wrap fee program as compared to unbundled advisory accounts and brokerage accounts? Would the proposed disclosures help retail investors to make informed choices about whether a wrap fee program suits their needs, as compared with unbundled investment advisory or brokerage services? If not, how could we revise it? Are there any revisions to the descriptions of wrap fee programs that would make the proposed disclosures more useful to investors?
• Are there other differences between
  wrap fee programs, unbundled advisory accounts, and brokerage accounts that we should require firms to include, such as other differences in fees and services? Would more or less information about wrap fee programs be helpful for retail investors? For instance, should we require firms to disclose information about the firms that participate in the wrap fee programs they recommend (e.g., the wrap fee program sponsors or managers), and any particular conflicts relevant to investors in wrap fee programs? Should we require more or less disclosure, or different disclosure, about the amount and frequency of additional transaction fees retail investors incur in wrap fee programs? Are there any elements of the proposed requirements that we should exclude? If so, why? Should any of the required disclosures be included in a different
  section of or an appendix to the
  relationship summary?
• Have we appropriately tailored the
  information required for advisers that provide advice about investing in both a wrap fee and a non-wrap fee program, and advisers that only provide advice about investing in a wrap fee program?

197Proposed Items 5.A. and 5.B. of Form CRS. As discussed above, for purposes of the relationship summary, we propose to define a standalone investment adviser as a registered investment adviser that offers services to retail investors and (i) is not dually registered as a broker-dealer or (ii) is dually registered as a broker-dealer but does not offer services to retail investors as a broker-dealer. We propose to define a standalone broker-dealer as a registered broker-dealer that offers services to retail investors and (i) is not dually registered as an investment adviser or (ii) is dually registered as an investment adviser but does not offer services to retail investors as an investment adviser. Proposed General Instruction 9.(f) to Form CRS. See supra note 51. A dually registered firm that offers retail investors only advisory or brokerage services (but not both) may in the future decide to offer retail investors both services. We would expect a firm to update its relationship summary within 30 days whenever any information in the relationship summary becomes materially inaccurate. See proposed General Instruction 6.(a). to Form CRS and infra note 350 and accompanying text. In addition, the firm would communicate the information in its amended relationship summary to retail investors who are existing clients or customers of the firm within 30 days after the updates are required to be made and without charge. See proposed General Instruction 6.(b) to Form CRS and infra note 354 and accompanying text. 198Proposed Item 5.B. of Form CRS. 199Proposed Item 5.A. of Form CRS. 200 Id. 201 Id. 202Proposed Item 5.A.1. of Form CRS. Should we require firms that provide advice about investing in both a wrap fee and a non-wrap fee program to prepare a separate relationship summary for the wrap fee program? Should we instead require firms to prepare an appendix with information about the wrap fee program, in addition to the relationship summary, as we do for the Form ADV brochure? If so, what types of information should we require firms to include about wrap fee programs in a separate relationship summary or appendix, and why should we require such disclosure?

• Should we require broker-dealers
  that sponsor wrap fee programs to include any additional disclosures about wrap fee programs, other than the disclosures that would be made by dual registrants?
• We understand that client-facing
  firms—or advisers that provide advice to retail investors about investing in wrap fee programs—are not necessarily the same firms that sponsor wrap fee programs (we define a wrap fee program sponsor in Form ADV General Instructions as a firm that sponsors, organizes, or administers the program or selects, or provides advice to clients regarding the selection of, other investment advisers in the program). Should we require each client-facing firm to include the proposed wrap fee disclosures in its relationship summary, even if the firm is not the wrap fee program sponsor, as proposed? Please describe how this information is currently provided to wrap fee program clients.
• Should we require only sponsors of
  wrap fee programs (and not all client￾facing firms) to include the proposed wrap fee disclosures in the relationship summary, similar to the Form ADV wrap fee brochure delivery requirement, which requires only investment advisers that sponsor wrap fee programs to deliver to their wrap fee clients the Form ADV wrap fee brochure? If so, should we permit only one sponsor of a wrap fee program that has multiple sponsors to include the proposed wrap fee disclosures in the relationship summary, similar to the delivery requirements for the Form ADV wrap fee brochure?
• In addition to wrap fee programs,
  are there other types of retail investor programs and services for which it would be useful to require investment advisers and broker-dealers to disclose additional information about the nature and scope of services, fees and conflicts of interest? If so, which programs and services, and why should we require such disclosure?
• Are there any common
  misconceptions about broker-dealers’ and investment advisers’ compensation that the relationship summary should specifically seek to clarify or correct (e.g., that the firm or financial professional will only be compensated if the retail investor makes money on the investment)?

5. Comparisons
   We are proposing to require standalone investment advisers and standalone broker-dealers to prepare this section under the following headings: ‘‘Compare with Typical Brokerage Accounts’’ (for standalone investment advisers) or ‘‘Compare with Typical Advisory Accounts’’ (for standalone broker-dealers).197 Specifically, standalone broker-dealers would include the following information about a generalized retail investment adviser: (i) The principal type of fee for investment advisory services; (ii) services investment advisers generally provide, (iii) advisers’ standard of conduct; and (iv) certain incentives advisers have based on the investment adviser’s asset-based fee structure.198 For investment advisers, this section would include parallel categories of information regarding broker-dealers.199 We are proposing to require these disclosures to help retail investors choose among different account types and services. Having a clear explanation of differences in the fees, scope of services, standard of conduct, and incentives that are generally relevant to advisory and brokerage accounts would help retail investors that are considering one such type of relationship to compare whether their needs might be better met with the other type of relationship. In addition, we are proposing to prescribe wording in this
   section because it is intended to provide
   a general comparison of what we believe is a typical brokerage or investment adviser account that is offered to retail investors. Moreover, we believe prescribing language will promote uniformity and allow retail investors to receive the same information to use in comparing choices from different standalone firms. Standalone investment advisers would be required to include the following prescribed language (emphasis required): ‘‘You could also open a brokerage account with a broker￾dealer, where you will pay a transaction-based fee, generally referred to as a commission, when the broker￾dealer buys or sells an investment for you.’’ 200 They would be required to include prescribed statements in bullet point format (except as otherwise specified) under the lead-in ‘‘Features of a typical brokerage account include:’’ 201 First, there would be a general description of brokerage accounts:
   ‘‘With a broker-dealer, you may select investments or the broker-dealer may recommend investments for your account, but the ultimate decision as to your investment strategy and the purchase and sale of investments will be yours.’’ 202 This statement would highlight for the retail investor two aspects of a typical broker-dealer’s services that differ from that of an investment adviser—specifically, that an investor may select investments without advice or he or she may receive recommendations from the broker￾dealer, and that the investor will make the ultimate investment decision. Standalone investment advisers would then include the following information about the standard of conduct applicable to broker-dealers: ‘‘A broker-dealer must act in your best interest and not place its interests ahead of yours when the broker-dealer recommends an investment or an investment strategy involving securities. When a broker-dealer provides any service to you, the broker-dealer must treat you fairly and comply with a number of specific obligations. Unless you and the broker-dealer agree otherwise, the broker-dealer is not

203Proposed Item 5.A.2. of Form CRS.
204Proposed Item 5.A.3. of Form CRS.
205See supra Section II.B.4.
206 Id.
207Proposed Item 5.A.4. of Form CRS.
208 Id.
209 Id.
210See supra Section II.B.4.
211 Id.
212Proposed Item 5.B. of Form CRS. We recognize that some investment advisers charge other types of fees for their advisory services, including fixed fees for one-time services such as financial planning. However, because asset-based fees are a common type of fee for advisory services, we think it would be useful for firms to describe asset-based fees in this section of the relationship summary for comparison with broker-dealers’ transaction-based fees. 213Proposed Item 5.B. of Form CRS. 214Proposed Item 5.B.1. of Form CRS. 215Proposed Item 5.B.2. of Form CRS. 216Proposed Item 5.B.3. of Form CRS. 217Proposed Item 5.B.4. of Form CRS. 218 Id. 219Proposed Item 5.B.5. of Form CRS. 220See supra Section II.B.4. required to monitor your portfolio or investments on an ongoing basis.’’ 203 As discussed above in Section II.B.3, above, the applicable standard of conduct for financial professionals has been a source of confusion among retail investors. This statement would provide information to retail investors about the obligations of broker-dealers, including some differences from investment advisers’ obligations so that they can consider this factor when determining whether brokerage services might better suit their needs. Standalone investment advisers would then include the following statement discussing incentives created by a typical broker-dealer’s fee: ‘‘If you were to pay a transaction-based fee in a brokerage account, the more trades in your account, the more fees the broker￾dealer charges you. So it has an incentive to encourage you to trade often.’’ 204 This disclosure is substantially similar to the disclosure we propose a broker-dealer would be required to include in the ‘‘Fees and Costs’’ section of its relationship summary.205 As discussed above, we believe this information would help retail investors understand how the fee structures for brokerage accounts could affect their investments, which they could compare with the incentives advisers have based on their fee structure.206 Finally, a tabular chart would compare certain specified characteristics of a transaction-based fee and an ongoing asset-based fee side-by￾side, set off by the wording ‘‘You can receive advice in either type of account, but you may prefer paying:’’ 207 One column would include the following (emphasis required): ‘‘a transaction￾based fee from a cost perspective, if you do not trade often or if you plan to buy and hold investments for longer periods of time.’’ 208 The other column would include the following (emphasis required): ‘‘an asset-based fee if you want continuing advice or want someone to make investment decisions for you, even though it may cost more than a transaction-based fee.’’ 209 This disclosure is substantially similar to the disclosure we propose that each dual registrant would include in the ‘‘Fees and Costs’’ section of its relationship summary.210 For the reasons discussed above, we are proposing this requirement to encourage choice across account
types and services.211 We are also proposing that advisers include this information in the specified side-by-side manner in order to promote comparisons between the relevant considerations for both types of relationships. Standalone broker-dealers would be required to include the following prescribed language (emphasis required), which would highlight for the retail investor the different fee structure of many investment advisers: ‘‘You could also open an advisory account with an investment adviser, where you will pay an ongoing asset-based fee that is based on the value of the cash and investments in your advisory account.’’ 212 Standalone broker-dealers would list prescribed statements describing certain differences from investment advisers in bullet point format (except as otherwise specified) under the lead-in ‘‘Features of a typical advisory account include:’’.213 First, there would be a general description of investment advisory accounts as follows: ‘‘Advisers provide advice on a regular basis. They discuss your investment goals, design with you a strategy to achieve your investment goals, and regularly monitor your account.’’ 214 The next bullet would highlight that investment advisers offer discretionary accounts and non￾discretionary accounts by including the following (emphasis included): ‘‘You can choose an account that allows the adviser to buy and sell investments in your account without asking you in advance (a ‘‘discretionary account’’) or the adviser may give you advice and you decide what investments to buy and sell (a ‘‘non-discretionary account’’).’’ 215 Together, these statements would highlight for the retail investor two aspects of a typical investment adviser’s services that differ from the typical services of a broker￾dealer—specifically, ongoing advice and monitoring and discretionary accounts. Standalone broker-dealers would then include the following disclosure about an investment adviser’s standard of conduct: ‘‘Advisers are held to a fiduciary standard that covers the entire relationship. For example, advisers are required to monitor your portfolio, investment strategy and investments on an ongoing basis.’’ 216 As discussed above, the applicable standard of conduct for financial professionals has been a source of confusion among retail investors. This statement would provide information to retail investors about the obligations of investment advisers so that they can consider this factor when determining whether investment advisory services might better suit their needs. Standalone broker-dealers would then include the following disclosure about a typical investment advisory asset-based fee, as follows: ‘‘If you were to pay an asset-based fee in an advisory account, you would pay the fee periodically, even if you do not buy or sell.’’ 217 They would also be required to include the following prescribed disclosure about hourly fees and one-time flat fees, which are common among investment advisers that offer financial
planning services and other advisory services to retail investors: ‘‘You may also choose to work with an investment adviser who provides investment advice for an hourly fee, or provides a financial plan for a one-time fee.’’ 218 The next statement would note certain incentives created by an investment adviser’s ongoing asset￾based fee. Broker-dealers would include the following: ‘‘For an adviser that charges an asset-based fee, the more assets you have in an advisory account, including cash, the more you will pay the adviser. So the adviser has an incentive to increase the assets in your account in order to increase its fees.’’ 219 This statement is substantially similar to the disclosure an investment adviser would be required to include in the ‘‘Fees and Costs’’ section of its relationship summary.220 For the reasons discussed above, we believe this information would help retail investors understand how the principal fee structures for typical advisory accounts could affect their investments and the incentives financial professionals may have based on charging ongoing asset￾based fees for investment advisory services. This proposed disclosure would encourage retail investors to compare these incentives with certain incentives broker-dealers have based on their fee structure, which broker-dealers

221 Id.
222Proposed Item 5.B.6. of Form CRS. 223See supra Section II.B.4. 224Proposed Item 6 of Form CRS. Studies have shown, for example, that for broker-dealers, the most frequently identified disclosures concerned issues of compensation—e.g., how clients compensate the firm, how other firms compensate it, and how employees are compensated. See, e.g., Rand Study, supra note 5, at xviii. We sometimes refer interchangeably to payments, compensation and benefits that firms and financial professionals receive. These terms are all meant to capture the various ways through which firms and financial professionals have financial incentives to favor a product, service, account type, investor, or provider over another. would describe under ‘‘Fees and Costs.’’ 221 Finally, standalone broker-dealers would be required to include the same tabular chart that standalone investment advisers would include.222 As discussed above, requiring this information side￾by-side would promote comparisons of typical advisory and brokerage relationships. We request comment generally on the proposed comparison disclosures to be provided by standalone investment advisers and broker-dealers, and in particular on the following issues:

• Is it useful to require firms to
  include disclosures about services and fees they do not offer, so that investors know other choices are available and are better able to compare different types of firms?
• Is it clear from the headings that the
  information provided in this section describes a typical investment adviser and broker-dealer, and does not describe the circumstances of all investment advisers and broker-dealers? Why or why not? Should we modify the headings or provide additional information at the beginning of this
  section?
• Do the proposed requirements
  encourage disclosure that is simple, clear, and useful to retail investors? Would the proposed disclosure help investors to understand and compare the fees, services and standard of conduct associated with a firm’s advisory services and brokerage services? Are there any revisions to the descriptions of fees, services, standard of conduct, and incentives that would make the proposed disclosure more useful to investors?
• Is the proposed order of the
  information appropriate, or should it be modified? If so, how should it be modified?
• Is the proposed disclosure about
  how often a typical advisory firm monitors retail investors’ accounts useful to retail investors, given that different firms may view ‘‘ongoing monitoring’’ differently?
• Is the proposed format useful for
  retail investors to understand and compare fees, services, standard of conduct and incentives among broker￾dealers and investment advisers? Should we permit or require further use of tables, charts, graphs or other graphics or text features?
• Should we require firms to include
  the prescribed wording, as proposed, or should we allow more flexibility in the words they use? Does the proposed prescribed wording capture the range of typical business models and fee structures that investment advisers and broker-dealers offer? Would the prescribed wording require a firm to provide any inaccurate information given that particular firm’s circumstances? If so, how should it be modified? Instead of the proposed prescriptive wording, should the Commission permit or require a more open-ended narrative?
• How would the required
  explanations and various disclosures contribute to readability and length of the proposed relationship summary? Should each of these explanations be required, permitted, or prohibited? Should any of these explanations be required to appear in the relationship summary, but outside the comparisons
  section?
• Are there other considerations
  related to investment advisers and broker-dealers that we should require or permit firms to highlight for retail investors? For example, should we require advisers to state that broker￾dealers sometimes offer both full-service and discount brokerage accounts, and the differences between them, including fees? Are there any disclosures that we should omit?
• Is the proposed prescriptive
  wording describing the standard of conduct required for investment advisers and broker-dealers clear and useful to retail investors? Would the proposed disclosure help investors to understand the standard of conduct associated with a firm’s advisory services and brokerage services? Should such disclosure be modified? If so, how should it be modified?
• Should we amend the proposed
  wording that describes the standard of conduct for broker-dealers to incorporate or refer to any fiduciary obligations that certain broker-dealers have under state law or other laws or regulations?
• Our proposal would require a
  standalone investment adviser to include prescribed disclosure about a broker-dealer’s incentives based on a typical broker-dealer’s principal fee structure, and vice versa. Should these disclosures be substantially similar to the disclosures we propose certain dual registrants to include, as proposed? 223 Or should we modify these disclosures for firms that do not offer retail investors both brokerage and advisory services? If so, how should these disclosures be modified?
• Our proposal would require a
  standalone investment adviser and a standalone broker-dealer to include prescribed disclosure that a retail investor may prefer one type of fee over another in certain circumstances. Should these disclosures be substantially similar to the disclosures we propose certain dual registrants to include, as proposed? Or should we modify these disclosures for firms that do not offer retail investors both brokerage and advisory services? If so, how should these disclosures be modified?

6. Conflicts of Interest
   We are proposing to require that investment advisers and broker-dealers summarize their conflicts of interest related to certain financial incentives. Specifically, firms would be required to disclose conflicts relating to: (i) Financial incentives to offer to, or recommend that the retail investor invest in, certain investments because (a) they are issued, sponsored or managed by the firm or its affiliates, (b) third parties compensate the firm when it recommends or sells the investments, or (c) both; (ii) financial incentives to offer to, or recommend that the retail investor invest in, certain investments because the manager or sponsor of those investments or another third party (such as an intermediary) shares revenue it earns on those products with the firm; and (iii) the firm buying investments from and selling investments to a retail investor for the firm’s own account (i.e., principal trading).224 Investment advisers, broker-dealers, and their financial professionals have incentives to put their interests ahead of the interests of their retail investor clients and customers. The federal securities laws do not preclude broker￾dealers or investment advisers from having conflicts of interest that might adversely affect the objectivity of the advice they provide; however, firms and financial professionals have obligations regarding their conflicts. Investment advisers are required to eliminate, or, at a minimum, fully and fairly disclose conflicts of interest clearly enough for a client to make an informed decision to consent to such conflicts and practices,

225See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963) (An adviser must deal fairly with clients and prospective clients, seek to avoid conflicts with its clients and, at a minimum, make full disclosure of any material conflict or potential conflict.); see also Instruction 3 of General Instructions to Part 2 of Form ADV. See Fiduciary Duty Interpretive Release, supra note 123. 226For example, FINRA rules establish restrictions on the use of non-cash compensation in connection with the sale and distribution of mutual funds, variable annuities, direct participation program securities, public offerings of debt and equity securities, and real estate investment trust programs. These rules generally limit the manner in which members can pay for or accept non-cash compensation and detail the types of non-cash compensation that are permissible. See FINRA Rules 2310, 2320, 2341, and 5110. 227See, e.g., FINRA Rule 3110(c)(3) (firm must have procedures to prevent the effectiveness of an internal inspection from being compromised due to conflicts of interest); FINRA Rule 3110(b)(6)(C) (supervisory personnel generally cannot supervise their own activities); FINRA Rule 3110(b)(6)(D) (firm must have procedures reasonably designed to prevent the required supervisory system from being compromised due to conflicts of interest). 228For example, when engaging in transactions directly with customers on a principal basis, a broker-dealer violates Exchange Act rule 10b–5 when it knowingly or recklessly sells a security to a customer at a price not reasonably related to the prevailing market price and charges excessive mark￾ups, without disclosing the fact to the customer. See, e.g., Grandon v. Merrill Lynch & Co., 147 F.3d 184, 189–90 (2d. Cir. 1998). See also Exchange Act rule 10b–10 (requiring a broker-dealer effecting transactions in securities to provide written notice to the customer of certain information specific to the transaction at or before completion of the transaction, including the capacity in which the broker-dealer is acting (i.e., agent or principal) and any third party remuneration it has received or will receive. 229Broker-dealers would also be required to establish, maintain, and enforce written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all material conflicts of interest that are associated with such recommendation. See Regulation Best Interest Proposal, supra note 24, section II.D.3. 230See Regulation Best Interest Proposal, supra note 24, section II.D.1. 231See, e.g., Rand Study, supra note 5, at 13 (‘‘Examples of such conflicts include various practices in which an adviser may have pecuniary interest (through, e.g., fees or profits generated in another commercial relationship, finder’s fees, outside commissions or bonuses) in recommending a transaction to a client.’’) and 15 (noting that the formation of the Committee on Compensation Practices was, in part, motivated by
concerns that commission-based compensation may encourage registered representatives to churn accounts or make unsuitable recommendations). 232 Jason Zweig & Anne Tergesen, Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products, Wall Street Journal (Jan. 10, 2018), available at https://www.wsj.com/articles/ advisers-at-leading-discount-brokers-win-bonuses￾to-push-higher-priced-products-1515604130. 233See, e.g., Brochure Adopting Release, supra note 157, at n.62 and accompanying text and n.132; Report of the Committee on Compensation Practices (Apr. 10, 1995), at 3, available at https:// www.sec.gov/news/studies/bkrcomp.txt (‘‘The prevailing commission-based compensation system inevitably leads to conflicts of interest among the parties involved.’’). See also FINRA Report on Conflicts of Interest (Oct. 2013), available at https:// www.finra.org/sites/default/files/Industry/ p359971.pdf (discussing conflicts of interest in the broker-dealer industry and highlighting effective conflicts management practices); SEC v. Capital Gains Research Bureau Inc., 375 U.S. at 191, 196– 97 (‘‘The Investment Advisers Act of 1940 thus reflects a congressional recognition of the delicate fiduciary nature of an investment advisory relationship. . . . An investor seeking the advice of a registered investment adviser must, if the legislative purpose is to be served, be permitted to evaluate such overlapping motivations, through appropriate disclosure, in deciding whether the adviser is serving two masters or only one, especially if one happens to be economic self￾interest.’’); In the Matter of Feeley & Willcox Asset Management Corp., Investment Advisers Act Release No. 2143 (Jul. 10, 2003) (Commission opinion) (‘‘It is the client, not the adviser, who is entitled to make the determination whether to waive the adviser’s conflict. Of course, if the adviser does not disclose the conflict, the client has no opportunity to evaluate, much less waive, the conflict.’’). 234See infra notes 243, 255, 256, 260 and 267, citing examples of where we have brought enforcement actions regarding conflicts of interest arising from one or more of the following categories of compensation practices and activities: the compensation of the firm’s financial professionals; payments from others; incentives for selling the firm’s own products, and principal trading. 235 Item 10.C. of Form ADV Part 2A. Item 10 requires an investment adviser to describe in its brochure material relationships or arrangements the adviser (or any of its management persons) has with related financial industry participants, any material conflicts of interest that these relationships or arrangements create, and how the adviser addresses the conflicts. The disclosure that Item 10 requires highlights for clients their adviser’s other financial industry activities and affiliations that can create conflicts of interest and may impair the objectivity of the adviser’s investment advice. See Brochure
Adopting Release, supra note 157, at 29. 236 Item 6 of Form ADV Part 2A. An adviser faces a variety of conflicts of interest that it is required to address in its Form ADV brochure, including that the adviser can potentially receive greater fees from its accounts having a performance-based compensation structure than from those accounts it charges a fee unrelated to performance (e.g., an asset-based fee). See Brochure Adopting Release, supra note 157, at n.64 and accompanying text; 2008 Brochure Proposing Release, supra note 157, at n.51 and accompanying text. 237 Items 11.C. and 11.D. of Form ADV Part 2A. For example, because of the information they have, advisers and broker-dealers and their personnel are in a position to abuse clients’ positions by, for example, placing their own trades before or after client trades are executed in order to benefit from any price movements due to the clients’ trades. An investment adviser is required to address this conflict in its Form ADV brochure. See Brochure Adopting Release, supra note 157, at n.83 and accompanying text. 238 Item 12 of Form ADV Part 2A. Use of client commissions to pay for research and brokerage services presents money managers with significant conflicts of interest, and may give incentives for managers to disregard their best execution obligations when directing orders to obtain client commission services as well as to trade client securities inappropriately in order to earn credits for client commission services. See Brochure Adopting Release, supra note 157, at n.128 (citing Release 54165, supra note 187). 239 Item 17 of Form ADV Part 2A. Each adviser must describe how the adviser addresses conflicts or reject them.225 For broker-dealers, the federal securities laws and rules and self-regulatory organization rules address broker-dealer conflicts in one (or more) of the following ways: Express prohibitions,226 mitigation,227 or disclosure.228 Under Regulation Best Interest, broker-dealers would be required to establish, maintain and enforce written policies and procedures reasonably designed to identify and disclose and mitigate, or eliminate, material conflicts of interest arising from financial incentives associated with such recommendation,229 as well as to disclose, in writing, all material conflicts of interest that are associated with the recommendation.230 Conflicts of interest with retail investors often arise when firms and/or their financial professionals recommend or sell proprietary products or products offered by third parties, recommend products that have revenue sharing arrangements, and engage in principal trading.231 For example, a firm could have a financial incentive to recommend proprietary products because the firm (or its affiliate) would receive additional revenue or an affiliate could pay a firm for recommending affiliate products. A broker-dealer making a platform available for self￾directed transactions may select investments available for purchase on the
platform based on financial incentives the broker-dealer receives. Similarly, a financial professional could be paid for recommending affiliated products or could get a bonus or greater promotion potential for recommending certain investments.232 These conflicts create an incentive for firms and their financial professionals to make available for sale or base investment recommendations on the compensation or profit that firms will receive, rather than on the client’s best interests.233 The Commission’s enforcement actions underscore how these types of compensation arrangements and activities may produce conflicts of interest that can lead firms and their financial professionals to act in their own interests, rather than the interests of their retail investors.234 We are not proposing to require or permit the relationship summary disclosure to include specific information about all of the conflicts of interests that are or could be present in a firm’s relationship with retail investors. For example, conflicts that can be applicable to investment advisers include using certain affiliated service providers,235 charging performance￾based fees to some accounts but not others,236 personal trading by an adviser’s personnel,237 receipt of soft dollar products and services provided by brokers in connection with client transactions,238 and voting client securities.239 Likewise, a broker-dealer

of interest when it votes securities pursuant to its proxy voting authority, as applicable. See Brochure Adopting Release, supra note 157, at n.172 and accompanying text. 240See 913 Study, supra note 3, at nn.251 and 254 and accompanying text (discussing that courts have found that broker-dealers should have disclosed these conflicts). 241See Exchange Act rules 15c1–1, 15c1–5, and 15c1–6. Similarly, rule 15c1–6 requires written disclosure of the broker-dealer’s interest in a security it is offering at or before the completion of the transaction. Self-regulatory organizations require similar disclosures. See, e.g., FINRA Rules 2262 and 2269; and MSRB Rule G–22. 242For investment advisers, the Form ADV Part 2 brochure and the brochure supplement address many of the conflicts an adviser may have. Items in Part 2 of Form ADV may not address all conflicts an adviser may have, and may not identify all material disclosure that an adviser may be required to provide clients. As a result, delivering a brochure prepared under Form ADV’s requirements may not fully satisfy an adviser’s disclosure obligations under the Advisers Act. See Brochure Adopting Release, supra note 157, at n.7. Broker-dealers also must make a variety of disclosures, but the extent, form and timing of the disclosures are different. See 913 Study, supra note 3, at 55—58. In accordance with the Instructions to Form CRS, if a relationship summary is posted on a firm’s website or otherwise provided electronically, the firm must use hyperlinks for any document that is cross￾referenced in the relationship summary if the document is available online. See proposed General Instruction 1.(g) to Form CRS. 243See supra notes 229– 230 and accompanying text. When recommending a security, broker-dealers generally are liable under the antifraud provisions if they do not give ‘‘honest and complete information’’ or disclose any material adverse facts or material conflicts of interest, including any economic self-interest. See, e.g., De Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293, 1302 (2d Cir. 2002); Chasins v. Smith, Barney & Co., 438 F.2d 1167, 1172 (2d Cir. 1970); In the Matter of Richmark Capital Corp., Exchange Act Release No. 48758 (Nov. 7, 2003) (Commission opinion) (‘‘Release 48758’’) (‘‘When a securities dealer recommends stock to a customer, it is not only obligated to avoid affirmative misstatements, but also must disclose material adverse facts of which it is aware. That includes disclosure of ‘‘adverse interests’’ such as ‘‘economic self interest’’ that could have influenced its recommendation.’’) (citations omitted). 244See 917 Financial Literacy Study, supra note 20, at xxi. (‘‘The most useful and relevant information that the online survey respondents indicated that they favored to make informed financial decisions before engaging a financial intermediary includes information about . . . [s]ources and amount of compensation that a financial intermediary may receive from third
parties in connection with and [sic] investment transaction . . .’’). 245See, e.g., SIFMA 2017 Letter; UBS 2017 Letter; ICI 2017 Letter; State Farm 2017 Letter; IAA 2017 Letter; Bernardi Securities 2017 Letter; Fidelity 2017 Letter. 246See, e.g., SIFMA 2017 Letter (recommending that a best interest standard of conduct for broker￾dealers would not prohibit principal trading, provided that such transactions be accompanied by written disclosure and corresponding client consent); Wells Fargo 2017 Letter. See also ICI 2017 Letter (recommending that a broker-dealer would be able to engage in principal trading, subject to appropriate limitations, disclosure, and customer consent); Bernardi Securities 2017 Letter (recommending that any revised standard of conduct for broker-dealers permit principal transactions, and suggesting that firms could implement disclosures and policies and procedures to protect investors from the related potential conflicts). 247Proposed Items 6.A. and 6.B. of Form CRS. 248Proposed Item 6.A. of Form CRS.. 249 Id. 250 Id. 251Proposed Item 6.B. of Form CRS. 252 Id. may have several conflicts of interest with its retail investors that we are not proposing to include in the relationship summary. These include, for example, a broker-dealer’s incentive to favor its institutional customers over its retail customers when making available proprietary research or certain investment opportunities, such as widely anticipated initial public offerings, acting as a market maker for a recommended security, using certain service providers, or voting client securities.240 In addition, broker-dealers are subject to Exchange Act rules that require them to disclose in writing to the customer if they have any control, affiliation, or interest in a security they are offering or the issuer of such security.241 It is important for firms to disclose information about each of these conflicts to retail investors; however, we believe that requiring an exhaustive discussion of all conflicts in the relationship summary would make the relationship summary too long for its intended purpose—that is, focusing on key aspects of a firm and its services, as well as helping retail investors to make an informed choice between receiving the services of a broker-dealer or an investment adviser or among different broker-dealers or investment advisers. Since investment advisers already report conflicts of interest in Form ADV
Part 2, a more exhaustive discussion of
conflicts by investment advisers would be duplicative of certain disclosures provided in Form ADV Part 2, which is provided to clients of investment advisers, including retail investors.242 While we are not proposing to require such detailed disclosures for broker￾dealers in the relationship summary, Regulation Best Interest would require broker-dealers to disclose, in writing, all material conflicts of interest that are associated with a recommendation to a retail customer.243 We are proposing to require specific information about conflicts of interest related to financial incentives for recommending or selling proprietary products or products offered by third parties, and from revenue sharing arrangements. Such incentives could include, for example, the firm earning more money or the financial professional receiving compensation or other benefits, including an increase in compensation such as a bonus, when a retail investor invests in the product. Disclosure of these conflicts would highlight for retail investors that firms and financial professionals have financial incentives to place their own interests first when making investment recommendations. Including these disclosures prominently, in one place, at or before the start of a retail investor’s relationship with a firm or financial professional would facilitate retail investors’ understanding of the incentives that may be present throughout the course of the relationship. Retail investors also have indicated they find information about the sources and amount of compensation from third parties useful and relevant to making informed financial decisions before engaging a firm.244 In addition, a number of commenters responding to Chairman Clayton’s Request for Comment suggested disclosure that would focus on incentives associated with the products and services offered and how associated persons are compensated.245 We are also proposing to require disclosures about conflicts relating to principal transactions. Commenters recognized the importance of principal trading, with appropriate safeguards, including disclosure.246 As we explain further below, we believe that investors should be aware of and understand this conflict at or before the start of the relationship. Specifically, we are proposing that firms use the heading ‘‘Conflicts of Interest’’ under which a broker-dealer, investment adviser or dual registrant would describe three categories of conflicts, as applicable to the firm.247 To emphasize the importance of conflicts, broker-dealers would be required to state the following language after the heading: ‘‘We benefit from our recommendations to you.’’ 248 Similarly, investment advisers would be required to state: ‘‘We benefit from the advisory services we provide you.’’ 249 Dual registrants would be required to state:
‘‘We benefit from the services we provide you.’’ 250 If all or a portion of a conflict is not applicable to the firm’s business, the firm should omit that conflict or portion thereof.251 If a conflict only applies to a dual registrant’s brokerage accounts or investment advisory accounts, the firm would include that conflict in the applicable column.252 First, we propose that a firm be required to state, as applicable, that it has a financial incentive to offer or

253Proposed Item 6.B.1. of Form CRS. We are not prescribing the specific language that firms must use to discuss each of these conflicts, which would give firms some flexibility to structure their disclosure, particularly if they offer proprietary products and receive compensation from third parties. 254Proposed Items 6.B.1. of Form CRS. 255The Commission has brought enforcement actions against firms that the Commission alleged to have failed to disclose fees, such as referral fees, that financial professionals receive as a result of recommending certain investments to retail investors. See, e.g., In the Matter of Financial Design Associates, Inc. and Albert Coles Jr., Investment Advisers Act Release No. 2654 (Sept. 25, 2007) (settled action) (respondents failed to disclose to investment advisory clients payments received from a company in which clients were advised to invest); In the Matter of Energy Equities, Inc. and David G. Snow, Investment Advisers Act Release No. 1811 (Aug. 2, 1999) (settled action) (respondents received finder’s fees or other compensation from issuers, the securities of which were recommended to clients or prospective clients); Vernazza v. SEC, 327 F.3d 851 (9th Cir. 2003). 256See 917 Financial Literacy Study, supra note 20, at xxi. The Commission’s enforcement actions also have underscored how these types of compensation and benefits from third parties for recommending certain investments may produce conflicts of interest that lead firms and their financial professionals to favor those investments over others. See, e.g., In the Matter of the Robare Group, LTD., Investment Advisers Act Release No. 3907 (Sep. 2, 2014) (Commission opinion) (investment adviser failed to disclose compensation it received through agreements with a registered broker-dealer and conflicts arising from that compensation). 257See proposed Items 6.B.1. of Form CRS. 258Proposed Item 6.B.2. of Form CRS. 259 Id. 260The Commission has pursued enforcement actions against firms that the Commission alleged to have failed to disclose revenue sharing arrangements. See, e.g., In re Edward D. Jones & Co, Securities Act Release No. 8520 (Dec. 22, 2004) (broker-dealer violated antifraud provisions of Securities Act and Exchange Act by failing to disclose conflicts of interest arising from receipt of revenue sharing, directed brokerage payments and other payments from ‘‘preferred’’ fund families that were exclusively promoted by broker-dealer); In re Morgan Stanley DW Inc., Securities Act Release No. 8339 (Nov. 17, 2003) (‘‘Release 8339’’) (broker￾dealer violated antifraud provisions of Securities Act by failing to disclose special promotion of funds from fund families that paid revenue sharing and portfolio brokerage); In the Matter of KMS Financial Services, Inc., Investment Advisers Act Release No. 4730 (Jul. 19, 2017) (dually-registered investment adviser and broker-dealer that failed, in its capacity as an investment adviser, to disclose to its advisory
clients compensation it received from a third party broker-dealer for certain investments it selected for its advisory clients); In the Matter of Voya Financial Advisors, Inc., Investment Advisers Act Release No. 4661 (Mar. 8, 2017) (registered investment adviser failed to disclose to its clients compensation it received through an arrangement with a third party broker-dealer and conflicts arising from that compensation). 261See, e.g., Release 8339, supra note 260. 262Proposed Item 6.B.3. of Form CRS. 263 Id. 264Section 206(3) of the Advisers Act. Proposed Item 6.B.3. of Form CRS. recommend to the retail investor certain investments because: (a) They are issued, sponsored or managed by the firm or the firm’s affiliates, (b) third parties compensate the firm when it recommends or sells the investments, or (c) both.253 The firm also would provide examples of such types of investments, and state if its financial professionals receive additional compensation if the retail investor buys these investments.254 This conflict disclosure would highlight that a variety of financial incentives affects the incentives of the firm or its financial professional to offer or recommend certain investments to the retail investor.255 These financial incentives can range from cash and non￾cash compensation that a firm or financial professional receives for selling those investments as well as less direct financial incentives. In particular, investors might not be aware that the firm or its affiliate offers proprietary products that provide a financial incentive to the firm to recommend those products, that a third party provides incentives for a firm to recommend investments, or that the firm’s financial professional will receive additional compensation if the retail investor buys certain investments. We believe that requiring this disclosure is consistent with indications that retail investors find information about sources and amount of compensation that firms receive from third parties useful to make informed financial decisions.256 Additionally, we believe that it is important for firms to separately and explicitly disclose if the financial professionals benefit from these payments because these individuals are making the recommendations to the retail investors and their compensation is an incentive that could affect their advice. We are also proposing to require examples of the types of investments associated with each of these conflicts (e.g., mutual funds and variable annuities) because we believe it would be helpful for investors to be aware of the types of products for which firms and financial professionals have these incentives.257 We considered whether to require a complete list of investments; however, we believe that a long list of the names of each of the affected products would not necessarily benefit investors or be helpful to them in their review of the firm’s conflicts and could detract from the other information in the relationship summary. Next,
we propose that firms disclose revenue sharing arrangements by stating that the firm has an incentive to offer or recommend the retail investor to invest in certain investments because the manager or sponsor of those investments or another third party (such as an intermediary) shares with the firm revenue it earns on those investments.258 The firm also would provide examples of such types of investments.259 This disclosure would highlight another type of compensation firms receive that affects their incentives to offer or recommend certain investments to the retail investor, and like the disclosures regarding proprietary products and third party payments, would provide retail investors with information about sources of compensation the firm receives from third parties.260 This requirement is intended to capture arrangements pursuant to which a firm receives payments or other benefits from third parties for recommending certain investments, including, for example, conflicts related to payment for distribution support or ongoing services from distributors or advisers of mutual funds, annuity products or other products. We are proposing that firms would be required to describe these and other conflicts of interest even if the compensation the firm receives is not shared with the firm’s financial professionals, as the compensation can create incentives for the firm to promote certain investments over others. These types of distribution-related arrangements may give broker-dealers heightened incentives to market the shares of particular mutual funds, or particular classes of fund shares. Those incentives may be reflected in a broker￾dealer’s use of ‘‘preferred lists’’ that explicitly favor the distribution of certain funds, or they may be reflected in other ways, including incentives or instructions that the broker-dealer provides to its managers or its salespersons.261 Finally, we propose that firms address principal trading by stating that the firm can buy investments from a retail investor, and sell investments to a retail investor, from its account (called ‘‘acting as principal’’).262 Firms must state that they can earn a profit on those trades, and disclose that the firm has an incentive to encourage the retail investor to trade with it.263 If this activity is part of the firm’s investment advisory business, it must state that the retail investor’s specific approval is required on each transaction.264 While access to securities that are traded on a principal basis, such as certain types of municipal bonds, is important to many investors, principal trades by broker-dealers and investment advisers raise potential conflicts of

265See 913 Study, supra note 3, at 120. 266See id., at 118. 267Section 206(3) of the Advisers Act. See also Opinion of Director of Trading and Exchange Division interpreting the reference to ‘‘the transaction’’ to require separate disclosure and consent for each transaction. Investment Advisers Act Release No. 40 (Feb. 5, 1945) (‘‘[T]he requirements of written disclosure and of consent contained in this clause must be satisfied before the completion of each separate transaction. A blanket disclosure and consent in a general agreement between investment adviser and client would not suffice.’’); 913 Study, supra note 3, at n.534 and accompanying text. An investment adviser must provide written disclosure to a client and obtain the client’s consent at or prior to the completion of each transaction. 913 Study, supra note 3, at n.535 and accompanying text. See also, e.g., Release 3929, supra note 133; In the Matter of JSK Associates, et al., Investment Advisers Act Release No. 3175 (Mar. 14, 2011) (settled action). 268As an example of one such requirement, broker-dealers must disclose their capacity in the transactions (typically on the confirmation statement). See Exchange Act rule 10b–10. 269See 913 Study, supra note 3, at n.540 and accompanying text. interest.265 Principal trading raises concerns because of the risks of price manipulation or the placing of unwanted securities into client accounts (i.e., ‘‘dumping’’).266 Under the Advisers Act, an adviser may not engage in a principal trade with an advisory client unless it discloses to the client in writing, before completion of the transaction, the capacity in which the adviser is acting, and obtains the consent of the client to the transaction.267 Broker-dealers also are subject to a number of requirements when they engage in principal transactions with customers, including disclosure of such capacity on the trade confirmation.268 There is no specific requirement for broker-dealers, however, to provide written disclosure prior to the trade or obtain consent for each principal transaction.269 Our proposal to require firms to disclose, if applicable, that they engage in principal transactions, and to summarize the conflict of interest raised by principal transactions, would not replace the disclosure and consent requirements under the Advisers Act or any other requirement, such as under the Exchange Act. Rather, our disclosure requirement would supplement such disclosures by alerting retail investors to this practice and the related conflicts of interest at the start of the relationship. We request comment generally on the conflicts of interest disclosures proposed to be included in the relationship summary, and in particular on the following issues:

• Do the proposed conflicts of interest
  disclosures encourage firms to provide information that is simple, clear, and useful to retail investors? Would the proposed disclosures help retail investors to compare the conflicts of interest associated with advisory services and brokerage services and the conflicts among firms? Does the relationship summary help retail investors understand that compensation to firms and financial professionals creates incentives that could impact the advice or recommendations that they provide? If not, should it do so and if so, what modifications should be made to the summary to address this concern?
• Should we require brief statements
  about particular conflicts of interest, as proposed, or should we require a more open-ended narrative or more prescribed wording? Would an open￾ended narrative permit firms to tailor the disclosure and describe all of the conflicts they believe retail investors should know? Or would firms seek to provide so much information about their conflicts that the proposed page limit (or equivalent limit in electronic format) would not provide enough space for all of the disclosures? How would the required explanations of various items contribute to the readability and length of the relationship summary?
• Our intent in using layered
  disclosure for conflicts (i.e., short summaries of certain types of conflicts of interest with information later in the relationship summary on where retail investors can find more information) is to highlight these conflicts and encourage retail investors to ask questions and seek more information about the firm’s and its financial professionals’ conflicts of interest. Do our proposed requirements achieve this goal? In light of our objective of keeping the relationship summary short, should we instead prescribe general language concerning the importance of understanding conflicts, while simply requiring cross-references to the relevant sections of Form ADV Part 2 brochure or brochure supplement (for investment advisers) and relevant disclosures typically included in account opening documents or websites (for broker-dealers)? Should we provide wording to encourage retail investors to ask questions about conflicts, including advising customers to go through all of the firm’s and financial professional’s conflicts with the financial professional? Are there other modifications or alternatives we should consider?
• Should we instead require firms to
  make the conflicts of interest disclosure more detailed, even if it results in a lengthier relationship summary?
• Are the proposed conflicts of
  interest disclosures too limited? Are there other types of conflicts we should include, such as additional disclosure currently required in the Form ADV Part 2 brochure or brochure supplement (for investment advisers), or disclosure typically included in account opening documents or websites (for broker￾dealers)? Should we, for example, require firms to describe all of their conflicts and how they address them, such as specific information about incentives to favor certain clients over others, agency cross-trades, relationships with certain clients, personal trading by personnel, soft dollar practices, directed brokerage, proxy voting practices, or acting as a market maker for a recommended security? Or should we require firms to list all of their conflicts and provide cross references to where additional information about each conflict can be found (i.e., cross referencing the relevant sections of Form ADV Part 2 and analogous broker-dealer disclosures)? Would this detract from the brevity of the disclosure? Is there another way to provide additional information about conflicts to retail investors in a way that would be meaningful to them and would facilitate their ability to obtain additional information?
• Are there certain types of
  investments that should be disclosed by firms as ones that the firm ‘‘issues, sponsors, or manages?’’ For example, should we require firms to disclose that any investment with a firm’s name in the title is generally an investment that the firm issues, sponsors, or manages? If a firm uses a name other than its own name to market proprietary investments, should we require firms disclose such other names?
• Should we require firms to disclose
  whether they provide ancillary services to retail investors themselves or through their affiliates so that retail investors better understand that the firm has incentives to select its affiliates over third parties?
• With respect to the required
  disclosure regarding financial incentives a firm has to offer or recommend investment in certain investments because they are offered by the firm’s affiliates, or third parties compensate the firm for selling their investments, or both, would firms understand what types of financial incentives would be covered by this item—and what would not be covered? Should the Commission provide additional guidance or instructions to clarify?
• Should we require firms to disclose
  that they use third-party service providers that offer the firms or their financial professionals additional compensation? For example, some

270See supra notes 37, 48–50 and 139–141 and accompanying text (regarding the use of layered disclosure and alternative approaches to presentation). 271See Brochure Adopting Release, supra note 157, at n.81 and accompanying text. See also Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV, Investment Advisers Act Release No. 1862 (Apr. 5, 2000) [65 FR 20524 (Apr. 17, 2000)], at nn.148–149 and accompanying text (‘‘2000 Brochure Proposing Release’’) (‘‘When assessing whether an adviser will fulfill its obligations to clients, an investor would likely give great weight to whether the adviser has met its fiduciary and other legal obligations in the past.’’); Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change to Amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure) to Expand the Categories of Civil Judicial Disclosures Permanently Included in BrokerCheck, Release No. 34–71196 (Dec. 27, 2013) [79 FR 417 (Jan. 3, 2014)] (‘‘By making certain of this information publicly available, BrokerCheck, among other things, helps investors make informed choices about the individuals and firms with which they conduct business.’’). 272See Brochure Adopting Release, supra note 157, at n.85. 273See 917 Financial Literacy Study, supra note 20, at nn.308 and 498 and accompanying text (‘‘When asked how important certain factors would be to them if they were to search for comparative information on investment advisers, the majority of online survey respondents identified the fees charged and the adviser’s disciplinary history as the most important factors.’’). 274 Id. 275 917 Financial Literacy Study, supra note 20, at n.770 (citing Applied Research Consulting LLC for FINRA Investor Education Foundation, Financial Capability in the United States: Initial Report of Research Findings from the 2009 National Survey (Dec. 1, 2009), available at http:// www.usfinancialcapability.org/downloads/NFCS_ 2009_Natl_Full_Report.pdf (‘‘2009 National Survey Initial Report’’), which revealed that only 15% of respondents claimed that they had checked a financial professional’s background or credentials with a state or federal regulator, although the Commission notes that the study encompasses a wide group of advisors, such as debt counselors and tax professionals.). In addition, the FINRA 2015 Investor Survey found that only 24% of investors were aware of Investor.gov; only 16% were aware of BrokerCheck; only 14% were aware of the IAPD website, and only 7% had used BrokerCheck. FINRA, Investors in the United States 2016 (Dec. 2016), available at http://www.usfinancial capability.org/downloads/NFCS_2015_Inv_Survey_ Full_Report.pdf). 276See 917 Financial Literacy Study, supra note 20, at nn.317–319 and accompanying text ([A]bout 76.5% of the online survey respondents reported that, in selecting their current adviser, they did not use an SEC-sponsored website to find information about the adviser. 73% of
respondents stated that they would check IAPD if they were made aware of its existence. Of that subset—those who reported not using an SEC-sponsored website— approximately 85.2% indicated that they did not know that such a website was available for that purpose. Of that majority (i.e., a further subset)— those who were unaware of such a website— approximately 73.5% reported that they would review information about their adviser on an SEC￾sponsored website if they knew it were available). dealers to execute their clients’ transactions that provide the adviser or financial professionals with compensation or other benefits, including in the form of client referrals. Should we highlight that compensation can be in the form of advisory client referrals?

• Firms would be required to provide
  examples of investments that firms have a financial incentive to offer. Are these requirements clear? Should we provide additional guidance? Should firms also be required to identify specific account types for which financial professionals receive incentives? Or should firms list all of their services or products that create the stated conflicts (or cross￾reference to such disclosure elsewhere)? Should additional information be provided in this section of the relationship summary or should it be provided in an attachment?
• Should firms explicitly state that
  other firms offer similar products that could be less expensive for the retail investor? Should we require firms to disclose if the firm engages in principal trading, as proposed, including that the firm can earn a profit on these trades and may have an incentive to encourage the retail investor to trade with the firm? Should we require investment advisers to state the retail investor’s specific approval on each principal transaction is required? Are there additional disclosures that we should require for broker-dealers?
• Should we require firms to disclose
  any additional conflicts of interest related to the compensation of financial professionals? For example, should firms be required to include any specific conflicts related to financial professionals’ outside business activities? Should we require firms to include additional disclosure on compensation that a financial professional receives from third parties, such as compensation that an investment adviser representative receives in his or her capacity as a registered representative of an unrelated broker-dealer?
• Should we allow firms to choose
  the order they present the conflicts? For example, should firms be permitted to base the order on the conflicts they believe are most relevant in their business, or is a standardized order preferable to increase the comparability of the disclosures among different firms? If a firm does not engage in any practices that would be required to be disclosed, should we permit or require a firm to state that it does not have that conflict, or should we require firms to say nothing, as proposed? Would it be confusing to investors if, as proposed, the order was prescribed but some firms omit certain conflicts because they do not have the particular conflict? Would such presentation lessen the ability to compare conflicts across firms?
• Is the proposed format useful for
  retail investors in understanding and comparing conflicts of interest among firms? Would the use of tables, charts, graphs or other graphics or text features be helpful in explaining all or any particular conflict? If so, how could firms structure that disclosure?
• Should any of the conflicts be
  required to appear in the relationship summary, but outside of the conflicts of interest section?

7. Additional Information
   We are proposing to require that firms include information on where retail investors can find more information about the firm’s disciplinary events, services, fees, and conflicts, which facilitates the layered disclosure that the relationship summary provides.270 This
   section would be titled ‘‘Additional
   Information’’ and firms would include the following after the title: ‘‘We encourage you to seek out additional information.’’ First, firms would be required to state whether or not they or their financial professionals currently disclose or are currently required to disclose certain legal or disciplinary events to the Commission, self￾regulatory organizations, state securities regulators or other jurisdictions, as applicable. We are including information about a firm’s and its financial professionals’ disciplinary information because this information may assist retail investors in evaluating the integrity of a firm and its financial professionals.271 For example, a prior disciplinary event could reflect upon the firm’s integrity, affect the degree of trust and confidence a client would place in the firm, or impose limitations on the firm’s activities.272 Knowledge of a firm’s and financial professional’s disciplinary history is among the most important items for retail investors when deciding whether to receive financial services from a particular firm, according to one study.273 Approximately 67.5% of the online survey respondents considered information about an adviser’s disciplinary history to be absolutely essential, and about 20.0% deemed it important, but not essential.274 But despite its importance, many investors do not review this information prior to engaging a firm.275 A study also found that many retail investors would check the Investment Adviser Public Disclosure site (‘‘IAPD’’) for comparative information on investment advisers, including disciplinary history, if they were made aware of its existence.276 We believe that requiring firms to state the existence of

277 In addition, this would address an issue that was highlighted by the Commission’s Investor Advisory Committee, which, among other things, encouraged the Commission to develop an enhanced approach to the disclosure of disciplinary events. Broker-Dealer Fiduciary Duty Recommendations, supra note 10 (recommending a summary disclosure document that includes, among other disclosures, basic information about a firm’s disciplinary record). 278Proposed Item 7.B. of Form CRS. Generally, investment advisers are required to disclose on Form ADV Part 2A any legal or disciplinary event, including pending or resolved criminal, civil and regulatory actions, if it occurred in the previous 10 years, that is material to a client’s (or prospective client’s) evaluation of the integrity of the adviser or its management personnel, and include events of the firm and its personnel. See Brochure Adopting Release, supra note 157, at 22–27. Items 9.A., 9.B., and 9.C. provide a list of disciplinary events that are presumptively material if they occurred in the previous 10 years. However, Item 9 requires that disciplinary events more than 10 years old be disclosed if the event is so serious that it remains material to a client’s or prospective client’s evaluation of the adviser and the integrity of its management. 279 Item 11 of Form BD requires disclosure on the relevant Disclosure Reporting Page (‘‘DRP’’) with respect to: (A) felony convictions, guilty pleas, ‘‘no contest’’ pleas or charges in the past ten years; (B) investment-related misdemeanor convictions, guilty pleas, ‘‘no contest’’ pleas or charges in the past ten years; (C) certain SEC or the Commodity Futures Trading Commission (CFTC) findings, orders or other regulatory actions (D) other federal regulatory agency, state regulatory agency, or foreign financial regulatory authority findings, orders or other regulatory actions; (E) self-regulatory organization or commodity exchange findings or disciplinary actions; (F) revocation or suspension of certain authorizations; (G) current regulatory proceedings that could result in ‘‘yes’’ answers to items (C), (D) and (E) above; (H) domestic or foreign court investment-related injunctions, findings, settlements or related civil proceedings; (I) bankruptcy petitions or SIPC trustee appointment; (J) denial, pay out or revocation of a bond; and (K) unsatisfied judgments or liens. Some of these disclosures are only required if the relevant action occurred within the past ten years, while others must be disclosed if they occurred at any time. 280FINRA Rule 8312 governs the information FINRA releases to the public via BrokerCheck. FINRA established BrokerCheck in 1988 (then known as the Public Disclosure Program) to provide the public with information on the professional background, business practices, and conduct of FINRA member firms and their associated natural persons. The information that FINRA releases to the public through BrokerCheck is derived from the CRD system,
the securities industry online registration and licensing database. Firms, their associated natural persons and regulators report information to the CRD system via the uniform registration forms (Form U4 (Uniform Application for Securities Industry Registration or Transfer), Form U5 (Uniform Termination Notice for Securities Industry Registration), Form U6 (Uniform Disciplinary Action Reporting Form), Form BD (Uniform Application for Broker-Dealer Registration), Form BDW (Uniform Request for Broker-Dealer Withdrawal), and Form BR (‘‘Uniform Branch Office Registration Form’’)). Under FINRA Rule 8312, FINRA limits the information that is released to BrokerCheck in certain respects. For example, pursuant to FINRA Rule 8312(d)(2), FINRA shall not release ‘‘information reported on Registration Forms relating to regulatory investigations or proceedings if the reported regulatory investigation or proceeding was vacated or withdrawn by the instituting authority.’’ We believe it is appropriate to limit disclosure in the relationship summary to disciplinary information or history that would be released to BrokerCheck. 281Form U4 (Uniform Application for Securities Industry Registration or Transfer) requires disclosure of registered representatives’ criminal, regulatory, and civil actions similar to those reported on Form BD as well as certain customer￾initiated complaints, arbitration, and civil litigation cases. See generally Form U4. 282Form U5 (Uniform Termination Notice for Securities Industry Registration) requires information about representatives’ termination from their employers. See Form U5. 283Form U6 (Uniform Disciplinary Action Reporting Form) is used by SROs, regulators, and jurisdictions to report disciplinary actions against broker-dealers and associated persons. This form is also used by FINRA to report final arbitration awards against broker-dealers and associated persons. See Form U6. 284The disclosure would be triggered by reportable information on Items 7(a) and 7(c) through (f). Item 7(b) (Internal Review Disclosure) is not released to BrokerCheck by FINRA, pursuant to FINRA Rule 8312(d)(3). As noted above (see supra note 280), we believe it is appropriate to limit disclosure in the relationship summary to disciplinary information or history that would be released to BrokerCheck. 285Proposed Item 7.B.3. of Form CRS. 286Proposed Item 7.D. of Form CRS. 287 Id. disciplinary events, provide specific questions for retail investors to ask, and provide information on where retail investors can find more information, would cause more retail investors to seek out this information and would make them better informed when they choose a firm and a financial professional.277 Specifically, in the relationship summary, firms would state ‘‘We have legal and disciplinary events’’ if they are required to disclose (i) disciplinary information per Item 11 of Part 1A or Item 9 of Part 2A of Form ADV,278 or (ii) legal or disciplinary events per Items 11A–K
of Form BD (‘‘Uniform Application for Broker-Dealer Registration’’) 279 except to the extent such information is not released through BrokerCheck pursuant to FINRA Rule 8312 or in IAPD.280 Regarding their financial professionals, firms would determine whether they need to include the statement based on legal and disciplinary information on Form U4,281 Form U5 282 and Form U6.283 In particular, firms would be required to state, ‘‘We have legal and disciplinary events’’ if they have financial professionals for whom disciplinary events are reported per Items 14 A–M on Form U4, Items 7(a) and 7(c)–(f) on Form U5,284 and Form U6 except to the extent such information is not released through BrokerCheck pursuant to FINRA Rule 8312 or in IAPD.285 We considered requiring firms to provide additional details about the reported legal and disciplinary events of the firms and their financial professionals. For example, we could have proposed to require firms to include details about the type and number of the reported events. Broker￾dealers and investment advisers do not report all of the same types of disciplinary events. We also considered whether to require firms to only discuss the types of disciplinary events that both broker-dealers and investment advisers report, require investment advisers to disclose complaints and other disciplinary events that only broker-dealers report, or create separate requirements to require firms to disclose certain types of events in the relationship summary without reference to information in other disclosures. We are not proposing to take any of these approaches because this is summary disclosure rather than a comprehensive discussion of a firm’s legal and disciplinary history. We believe that for many firms, requiring additional information would include too much detail for short summary disclosure, and updating these details in the relationship summary on an ongoing basis would add significant costs without compensating benefit. The information already is required to be disclosed elsewhere, and the relationship summary as proposed would direct retail investors to those resources. We believe that requiring an affirmative statement that the firm and its financial professionals have reportable legal or disciplinary events, if applicable, will flag this important issue for retail investors and help them to determine whether they want additional information in other disclosures. By proposing to base the new disclosure on information that is already reported elsewhere and also to include details about where to find more information, we would give retail investors the tools to learn more.286 Furthermore, as discussed below, the statement encouraging retail investors to visit Investor.gov for more information would help retail investors to more easily learn additional details from the firms themselves and from their existing disclosures.287 Next, all firms would be required to include the following wording to highlight where
retail investors can find more information about the disciplinary history of the firm and its financial professionals, whether or not the firm is required to state the existence of legal or disciplinary events in the relationship summary: ‘‘Visit Investor.gov for a free and simple search tool to research our

288Proposed Item 7.C. of Form CRS.
289Proposed Item 7.D. of Form CRS.
290 Id.
291Proposed Item 7.E.1. of Form CRS.
292 Id.
293Proposed Item 7.E.2. of Form CRS.
294 Id.
295 Id. SEC- and state-registered investment advisers are required to file their brochures and brochure amendments through the IARD system. See rules 203–1 and 204–1 of the Advisers Act and similar state rules. Members of the public can view an adviser’s most recent Form ADV online at the IAPD website: www.adviserinfo.sec.gov. 296Broker-dealers are required under certain circumstances, such as when effecting certain types of transactions, to disclose certain conflicts of interest to their customers in writing, in some cases at or before the time of the completion of the transaction. See, e.g., supra notes 228 and 241 and accompanying text. See also 913 Study, supra note 3, at nn.256–259 and accompanying text; supra notes 230 and 243–243 and accompanying text (describing broker-dealer obligations under proposed Regulation Best Interest). 297See Regulation Best Interest Proposal, supra note 24, at section II.D.1. firm and our financial professionals.’’ 288 Retail investors would further benefit from understanding how to report problems and complaints to the firm and regulators. Accordingly, we propose to require that firms include the following wording next in this section:
‘‘To report a problem to the SEC, visit Investor.gov or call the SEC’s toll-free investor assistance line at (800) 732–
0330. [To report a problem to FINRA,
[ ].] If you have a problem with your investments, account or financial professional, contact us in writing at [insert your primary business address].289 Broker-dealers and dual registrants also would include the bracketed language regarding how to report a problem to FINRA. Firms would be required to review and update (if needed) the current telephone numbers for the SEC and FINRA at least annually.290 Firms would be required to state where the retail investor can find additional information about their brokerage and investment advisory services, as applicable. Broker-dealers would be required to direct retail investors to additional information about their brokers and services on BrokerCheck (https:// brokercheck.finra.org), their firm websites (including a link to the portion of the website that provides up-to-date information for retail investors), and the retail investor’s account agreement.291 Broker-dealers that do not have public websites would be required to state where retail investors can find up-to￾date information.292 Investment advisers likewise would be required to direct retail investors to additional information in the firm’s Form ADV Part 2 brochure and any brochure supplement provided by a financial professional to the retail investor.293 If an adviser has a public website and maintains a current version of its firm brochure on the website, the firm would be required to provide the website address.294 If an adviser does not have a public website or does not maintain its current brochure on its public website, then the adviser would provide the IAPD website address (https://adviserinfo.sec.gov).295 Unlike investment advisers, which deliver brochures and brochure supplements to clients, broker-dealers are not currently required to deliver to their retail investors written disclosures covering their services, fees, conflicts, and disciplinary history in one place.296 However, under Regulation Best Interest, broker-dealers would be required to disclose, in writing, the material facts relating to the scope and terms of the relationship with the retail customer including all material conflicts of interest that are associated with the recommendation.297 We understand that, under current practice, broker￾dealers typically provide information about some or all of the categories of disclosure included in this relationship summary on their firm websites and in their account opening agreements. We recognize that the different disclosure requirements for investment advisers and broker-dealers may result in retail investors having access to more information about investment advisers on a particular topic as compared to information about broker-dealers and vice versa. We request comment on whether we should take additional steps to ensure that retail investors have access to a similar amount of additional information about each of the topics covered by the relationship summary, such as by requiring firms to include appendices or hyperlinks
with specific information. We request comment generally on the disclosure about where to find additional information, and in particular on the following issues:

• Do commenters agree that it is
  important for retail investors to know of a firm and its financial professionals’ legal and disciplinary events before entering into an agreement with a firm? Why or why not?
• Is including the disciplinary history
  disclosure in the additional information
  section sufficient to draw a retail
  investors’ attention or encourage retail investors to ask follow-up questions on this topic?
• Would the proposed format with
  prescribed wording effectively communicate information about disciplinary events to retail investors? Or should we use a table with yes/no check boxes or another graphical format to describe this information, or should we permit a firm to state in its own words whether it has reported any events? What approach would permit easier comparison by retail investors across firms, including dual registrants?
• Would more detail about these
  events be more beneficial and easily understandable for retail investors? For example, should firms be required to provide background about the types of events that would trigger the disclosure (such as criminal, civil, and regulatory actions and, for broker-dealers and financial professionals, customer complaints, arbitrations and bankruptcies)? Should we require separate disclosures for firms and their financial professionals? Should we consider requiring a more specific list of the types of disciplinary events that firms and financial professionals report and require firms to state whether there are reported disclosures for each type? For example, should firms be required to state they have reported disclosures for criminal actions, civil actions and administrative proceedings, and for broker-dealers specifically, arbitrations and complaints? Should we instead require firms to disclose the total number of the legal and disciplinary events that are reported on Form BD, Form ADV, and/or Forms U4, U5, and U6, as applicable? Or should we require firms to report the total number of all reported criminal actions, civil actions, administrative proceedings, arbitrations, and complaints for them and their financial professionals, as applicable? Would this information be confusing for retail investors without more information about each reported event? If we do require this information, should we require firms to disclose the percentage of a firm’s total financial professionals that have reported disciplinary events? As part of this approach, should we require a firm to disclose its total number of financial professionals to provide additional context for the percentage?
• Should we require firms to include
  specific wording directing retail investors to ask them questions about these events and to review more detailed disclosures by searching Investor.gov?
• Should firms be required or
  permitted to state that they do not currently have reportable legal and/or disciplinary events, if that is the case? Should we require firms to distinguish whether they or their financial professionals have reportable

298Robo-advisers should also keep in mind the considerations set forth in the robo-adviser guidance update specifically as it relates to the substance and presentation of disclosures. See Robo-Advisers, IM Guidance Update No. 2017–02 (Feb. 23, 2017), available at https://www.sec.gov/ investment/im-guidance-2017-02.pdf. 299Proposed Item 8 of Form CRS. disciplinary events, for example by stating ‘‘Our firm has legal and disciplinary events’’ or ‘‘We have financial professionals who have legal and disciplinary events’’?

• Do commenters agree with
  requiring disclosure if firms or financial professionals have reported legal and/or disciplinary events on Form BD, Forms U4, U5 or U6, and Form ADV, as applicable? Do commenters agree with the specific items on those forms that we have identified as triggering reportable events? Should we only require disclosure of the types of legal events that both broker-dealers and investment advisers report? For example, should we require all firms to disclose financial information, which broker-dealers are required to report pursuant to Items 11 (I, J, and K) on Form BD but investment advisers do not report? Or, in the alternative, should we exclude financial disclosures from a broker-dealer’s reportable legal or disciplinary events? Do commenters agree that the legal or disciplinary events triggering disclosure on the relationship summary should be the same for financial professionals working for broker-dealers as for investment advisers? If not, why not?
• Do commenters agree that, for
  broker-dealers and financial professionals of broker-dealers and investment advisers, we should exclude information that is not released to BrokerCheck or IAPD pursuant to FINRA Rule 8312? BrokerCheck and IAPD include additional information, including summary information about certain arbitration awards against a financial professional, or against a firm in BrokerCheck, involving a securities or commodities dispute with a public customer. Although broker-dealers are not required to report arbitrations on Form BD, should we include arbitrations as reportable events in light of the BrokerCheck disclosures? If so, how would commenters suggest articulating the required disclosure?
• Pursuant to FINRA Rule 4530,
  broker-dealers are required to disclose certain information to FINRA that is not reported on Form BD (e.g., customer complaints and arbitrations). Should we include disclosures made to FINRA pursuant to FINRA Rule 4530 as reportable events? If so, should we require disclosure of similar events by investment advisers? Why or why not?
• Do commenters believe that stating
  whether a firm has legal and disciplinary events and then providing hyperlinks on where to find additional information is the correct approach? Should we explicitly require deep links? Why or why not? Do commenters believe that retail investors will check Investor.gov? Should we require firms to cross reference other sources of disciplinary information, including providing direct links to the IAPD or BrokerCheck? Why or why not?
• Rather than asking firms to identify
  whether they have legal and disciplinary events, should the relationship summary note that retail investors may want to consider this information and then encourage retail investors to ask their financial professional for more details and include cross references to where further information can be found? Why or why not? With respect to robo￾advisers or broker-dealers providing online services, will a financial professional be available to answer these types of questions? 298
• Should we adopt a definition of
  ‘‘financial professional’’ for purposes of this disclosure? If so, how would commenters suggest formulating the definition?
• Our intent in using layered
  disclosure, with short summaries of selected disclosures and information on where retail investors can find more information, is to encourage retail investors to ask questions and seek more information about the firm’s and their financial professionals’ services, fees, conflicts of interest and disciplinary events. Does the proposed relationship summary, in general, and this additional information section, in particular, achieve this goal? Are there modifications or alternatives we should consider to achieve this goal?
• In addition or as an alternative to
  the proposed cross references to an investment adviser’s Form ADV brochure and brochure supplement(s) and account agreement, and to a broker￾dealer’s public website, account agreement and BrokerCheck, should the relationship summary direct retail investors to other sources of information? Should we require firms to include public website addresses and hyperlinks to the sources of additional information, if available? Do firms’ websites typically include additional information about topics included in the relationship summary? Given that not all firms have a public website or maintain current information on a public website (e.g., its current brochure or other current information), are there other places to which firms should direct retail investors to look for up-to￾date information? Should we require firms that do not already maintain a public website to establish one for purposes of making the relationship summary publicly available?

8. Key Questions
   We are proposing to require that firms include questions for retail investors to ask their financial professionals in the relationship summary. By requiring these questions, we intend to encourage retail investors to have conversations with their financial professionals about how the firm’s services, fees, conflicts and disciplinary events affect them. We encourage financial professionals to engage in balanced and meaningful conversations with their retail investors to facilitate investors making informed decisions, using these key questions as a guide. Firms should use formatting to make the questions more noticeable and prominent (for example, by using a larger font, a text box, different font, or lines to offset the questions from the other sections).299 Firms would be required to include ten questions, as applicable to their particular business, under the heading ‘‘Key Questions to Ask’’ after stating the following: ‘‘Ask our financial professionals these key questions about our investment services and accounts.’’ The required questions would be:
9. Given my financial situation, why
   should I choose an advisory account?
   Why should I choose a brokerage account?
10. Do the math for me. How much
    would I pay per year for an advisory account? How much for a typical brokerage account? What would make those fees more or less? What services will I receive for those fees?
11. What additional costs should I
    expect in connection with my account?
12. Tell me how you and your firm
    make money in connection with my account. Do you or your firm receive any payments from anyone besides me in connection with my investments?
13. What are the most common
    conflicts of interest in your advisory and brokerage accounts? Explain how you will address those conflicts when providing services to my account.
14. How will you choose investments
    to recommend for my account?
15. How often will you monitor my
    account’s performance and offer investment advice?
16. Do you or your firm have a
    disciplinary history? For what type of conduct?

300Proposed Item 8 of Form CRS.
301 Id.
302 Id.
303 Id.
304 Id.
305See supra Section II.B.4, ‘‘Summary of Fees and Costs.’’ 306See 917 Financial Literacy Study, supra note 20, at 24 (‘‘Some examples of information that commenters indicated should be included in a summary disclosure document for an investment product or service include descriptions of . . . any eligibility requirements.’’); Brochure Adopting Release, supra note 157, at nn.213–216 and accompanying text (discussing commenters that supported the brochure supplement, which contains information about the educational background, business experience, and disciplinary history (if any) of the supervised persons who provide advisory services to the client).
9. What is your relevant experience,
including your licenses, education, and other qualifications? Please explain what the abbreviations in your licenses are and what they mean.
10. Who is the primary contact person
for my account, and is he or she a representative of an investment adviser or a broker-dealer? What can you tell me about his or her legal obligations to me? If I have concerns about how this person is treating me, who can I talk to? 300 We are proposing to allow firms to modify or omit portions of these questions, as applicable to their business.301 We are also proposing to require a standalone broker-dealer and a standalone investment adviser, to modify the questions to reflect the type of account they offer to retail investors (e.g., advisory or brokerage account).302 In addition, we are proposing that firms could include any other frequently asked questions they receive following these questions. Firms would not, however, be permitted to exceed fourteen questions in total in order to limit the length of the relationship summary.303 We recognize that advisers providing computer-generated, automated advice, often referred to as ‘‘robo-advisers,’’ and online-only broker-dealers may employ business models that offer varying levels of interaction or no interaction with a financial professional. We are proposing to require advisers providing automated advice or broker-dealers providing online-only services without a particular individual with whom a retail investor can discuss these questions to include a section or page on their website that answers each of the above questions, and provide a hyperlink in the relationship summary to that section or page.304 If the firm provides automated advice, but makes a financial professional available to discuss the existing account with a retail investor, that firm generally should also make the financial professional available to discuss these questions with the retail investor. We believe that many of these questions would help retail investors to elicit more detail concerning the items discussed in the relationship summary. For example, the questions asking why an investor should choose an advisory or brokerage account and how much the investor can expect to pay are intended to help the retail investor receive information about services and fees that are tailored to that particular investor’s circumstances. We believe that the financial professional generally would have access to the information needed to provide this information to a particular retail investor during the account opening process.305 Questions about how the financial professional and the firm make money and about conflicts of interest would assist investors in understanding the extent to which compensation creates incentives for a financial professional to take his or her own interests into account in providing services. Similarly, the last question in the list of questions, which asks about a retail investor’s primary contact at the firm and that financial professional’s legal obligations, is intended to elicit a conversation about the different legal obligations of firms and financial professionals acting in an investment advisory
capacity and in a brokerage capacity. Other items allow the investor to learn more specific information about the firms and financial professional, such as additional conflicts the firms or its financial professionals might have or disciplinary history. The proposed questions cover all of the sections in the relationship summary. They also include one additional topic about the financial professional’s relevant experience, including licenses and other qualifications. In our experience, the relevant experience, including licenses, education, and other qualifications for a particular financial professional are important to retail investors.306 However, if we required firms to disclose the educational and professional certifications of each financial professional, firms would have to attach a separate disclosure for each particular financial professional (similar to the Form ADV brochure supplement or the information about financial professionals provided on BrokerCheck and IAPD) or would have to include lengthy disclosure with information about all of their financial professionals. We believe this would be more burdensome than prompting retail investors to ask their financial professionals these questions to encourage a conversation about these topics, if such a conversation is important to that investor. We understand that including ‘‘Key Questions to Ask’’ would result in some firms creating policies and procedures, including supervision and compliance reviews, relating to how their financial professionals respond to the questions. We request comment generally on the questions proposed to be included in the relationship summary, and in particular on the following issues:

• Would our proposed questions
  encourage discussions between retail investors and their financial professionals? Would they help retail investors become informed about how a firm’s services, fees, conflicts, and disciplinary events affect them? Would they help investors to compare investment advisers and broker-dealers?
• Would financial professionals be
  able to answer these ‘‘Key Questions to Ask’’? Do they have access to personalized information about the retail investor and the retail investor’s account to be able to, for example, put together personalized fee information and estimates during the account opening process? To the extent responses would require information about the particular retail investor, would firms need to change the account opening process in order to obtain that information and provide responses?
• Should we require or permit firms
  to include these questions throughout the relationship summary rather than, or in addition to, including the questions in the ‘‘Key Questions to Ask’’? In our proposal, for example, the fees and costs
  section of the relationship summary
  directs retail investors to ask their financial professionals for personalized fee information. Are there other disclosures in the relationship summary for which we should require or permit firms to also include a question to ask as part of the disclosure? If so, which disclosures? Could firms use technology such as pop-ups or hovers, or internal links, to connect the relevant question(s) in the key questions to ask to the disclosure in the relationship summary?
• Would firms create policies and
  procedures, including supervision and compliance reviews, relating to how their financial professionals respond to these questions? Would implementing and maintaining such processes be burdensome or costly for firms? Why or why not? Do investment advisers and broker-dealers currently have systems in place to answer these questions, particularly the request to ‘‘do the math for me’’ and provide not only fee

307See Advisers Act proposed rule 204–5 and Exchange Act proposed rule 17a–14. 308For example, the relationship summary would not necessarily satisfy the disclosure requirements under proposed Regulation Best Interest. Regulation Best Interest would require broker-dealers to disclose in writing, before or at the time of a recommendation, the material facts related to the scope and terms of the relationship with the retail customer, including all material conflicts of interest that are associated with the recommendation. Regulation Best Interest Proposal, supra note 24, at
section II.D.1 (noting that the relationship summary
would reflect initial layers of disclosure, and the disclosure obligation of proposed Regulation Best Interest would reflect more specific and additional, detailed layers of disclosure). 309See Basic v. Levinson, 485 U.S. 224, 239 n.17 (1988) (‘‘Silence, absent a duty to disclose, is not misleading under Rule 10b–5.’’); Chiarella v. U.S., 445 U.S. 222, 228 (1980) (explaining that a failure to disclose material information is only fraudulent if there is a duty to make such disclosure arising out of ‘‘a fiduciary or other similar relation of trust and confidence’’); SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999) (explaining that defendant is liable under section 10(b) and rule 10b–5 for material omissions ‘‘as to which he had a duty to speak’’). 310See, e.g., De Kwiatkowski v. Bear, Stearns & Co., 306 F.3d at 1302; Chasins v. Smith, Barney & Co., 438 F.2d at 1172. 311 17 CFR 240.10b–10(a)(2). 312See https://brokercheck.finra.org. 313See Advisers Act rule 204–3; Instructions 1 and 2 of Instructions for Part 2A of Form ADV; Instructions 2 and 3 of Instructions for Part 2B of Form ADV. An investment adviser that sponsors a wrap fee program is generally required to complete a wrap fee program brochure. See Appendix 1 to Form ADV Part 2A. information related to the relationship and certain externalized fees, but also information about fees that are implicit to a given product?

• Do firms anticipate that they would
  implement recordkeeping policies and procedures to address communications between financial professionals and retail investors about the ‘‘Key Questions to Ask’’? What kind of recordkeeping policies and procedures would firms anticipate implementing in order to address such communications? Should we require financial professionals to highlight these key questions when they deliver a relationship summary to a retail investor? How could the questions be highlighted when the relationship summary is delivered electronically?
• Should we require financial
  professionals to initiate a conversation about these key questions if the retail investor does not raise these questions?
• Should we, as proposed, permit
  firms to omit any of the proposed questions that are not applicable to their business, and permit firms to add additional questions for retail investors to ask about the disclosures in their relationship summaries? For example, should robo-advisers and online broker￾dealers be allowed to omit the questions concerning the financial professional’s relevant experience and whether the investor’s primary contact is an investment adviser or broker-dealer? Should we add questions specific to investment advisers offering automated advice, such as how the robo-adviser’s models are designed, including the underlying assumptions?
• Should we include any additional
  questions in our proposed list of questions, or remove any proposed questions? If so, what additional questions should we add, and which questions should we remove, and why? For example, instead of including a question about a financial professional’s licenses and other qualifications in this
  section, should we instead require firms
  to discuss information about licensing and other qualifications in the relationship summary, including educational background, designations held, and examinations passed? Should we add a question comparing services offered with financial planning and wrap fee programs?
• Do commenters agree that including
  a question about a financial professional’s licenses and other qualifications would provide useful information to retail investors, given the expansive list of professional designations? Should we instead permit or require financial professionals to include a list of certain licenses or other qualifications in a separate disclosure and, if so, which designations should be included?
• We are proposing to permit firms to
  include up to fourteen questions. Do commenters agree with this approach? Should we allow firms to include more or fewer questions?
• We are proposing to require that
  robo-advisers and online-only brokers include a section or page on their websites that answers each of these proposed questions, and include a hyperlink in the relationship summary to where the answers are posted. How will these advisers and broker-dealers be able to answer the fact specific questions in a generalized format on the website? Are there alternative ways in which such advisers or broker-dealers should be required to provide answers to these proposed questions? For example, should robo-advisers use a chat or other message function, or answer questions by email? Would this work for robo-advisers that offer recommendations to retail investors without providing them any way to reach a financial professional at the firm? Should we require all advisers to include the responses to these questions on their websites, including robo￾advisers that make available financial professionals to answer retail investors’ questions?
• Should we require the order of the
  questions to be fixed? Does the proposed order advance our goal? What changes, if any, should be made to the proposed order? Should there be sub￾categories of questions?
  C. Delivery, Updating, and Filing
  Requirements
  Our proposal would require registered investment advisers, registered broker￾dealers that serve retail customers and dual registrants to deliver a relationship summary.307 Delivery of the relationship summary would not necessarily relieve the firm of any other disclosure obligations it has to its retail investors or prospective retail investors under any federal or state laws or regulations. The relationship summary requirement would be in addition to, and not in lieu of, current disclosure and reporting requirements or other obligations for broker-dealers and investment advisers.308 Broker-dealers are liable under the antifraud provisions of the federal securities laws for failure to disclose material information to their customers when they have a duty to make such disclosure.309 When recommending a security, broker￾dealers may be liable under the antifraud provisions if they do not give ‘‘honest and complete information’’ or disclose any material adverse facts or material conflicts of interest, including any economic self-interest.310 Among other specific disclosure obligations, broker-dealers are required to disclose certain potential conflicts to their customers under certain circumstances, such as disclosing at or before the time of the completion of the transaction whether the broker-dealer is acting as agent or principal, and its compensation and any third-party remuneration it has received or will receive.311 Broker￾dealers typically provide information about their services, fees, and conflicts on their websites and in their account opening agreements. Disciplinary history on broker-dealers, details on the background, qualifications, and disciplinary history of financial professionals associated with broker￾dealers, and customer complaints and arbitrations against them, are available on FINRA’s BrokerCheck website.312 Investment advisers deliver to clients a ‘‘brochure’’ (and/or a ‘‘wrap fee program brochure,’’ as applicable) and ‘‘brochure supplement’’ required by Form ADV Part 2.313 The brochure is a plain language, narrative document that addresses, among other things, an investment adviser’s advisory business,

314Much of the disclosure in Part 2A addresses an investment adviser’s conflicts of interest with its clients, and is disclosure that the adviser, as a fiduciary, must make to clients in some manner regardless of the form requirements. See Brochure Adopting Release, supra note 157, at 9. 315Form ADV Part 2B includes information about certain advisory personnel on whom clients may rely for investment advice, including their educational background, disciplinary history, and the adviser’s supervision of the advisory activities of its personnel. Investment advisers are not required to file with the Commission the brochure supplements required by Form ADV Part 2B. Advisers Act rules 203–1(a), 204–1(b). 316 IAPD is available at https:// www.adviserinfo.sec.gov. 317See proposed amended Advisers Act rule 203– 1 note to paragraph (a)(1); proposed Exchange Act rule 17a–14(a), (b). See infra Section II.C.2 for a discussion of the delivery requirements. 318 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. 319 During fiscal year 2017, approximately 1,100 broker-dealers submitted documents to the Commission using EDGAR. Broker-dealers can file their annual reports on EDGAR and broker-dealers that also conduct another business activity (e.g., broker-dealers that are also municipal advisers or large traders) use EDGAR for other required filings. 320Proposed General Instruction 8.(a) to Form CRS. 321Advisers Act proposed rule 204–5(b)(1) and Exchange Act proposed rule 17a–14(c)(1); proposed General Instruction 5.(b) to Form CRS. 322Advisers Act proposed rule 204–5(b)(1) (investment advisers or their supervised persons must deliver to each retail investor a current Form CRS before or at the time the investment adviser enters into an investment advisory contract with the retail investors) and Exchange Act proposed rule 17a–14(c)(1) (broker-dealers must deliver to each retail investor a current Form CRS before or at the time the retail investor first engages the broker￾dealer’s services). See also proposed General Instruction 5.(b) to Form CRS. conflicts of interest with its clients, fees, and disciplinary history.314 The brochure supplement contains information about the advisory personnel providing clients with investment advice.315 The wrap fee program brochure provides prospective wrap fee program clients with important information regarding the cost of the programs and the services provided. The current Form ADV Parts 1 and 2A are filed by investment advisers, and details about the background qualifications, registrations and disciplinary history of financial professionals supervised by the investment adviser, are available on IAPD.316 The current disclosure requirements and obligations result in varying degrees and kinds of information to investors, but we believe that all retail investors would benefit from a short summary that focuses on certain key aspects of
the firm and its services. By requiring both investment advisers and broker￾dealers to deliver a relationship summary that discusses both types of services and their differences, the relationship summary would help all retail investors, whether they are considering an investment adviser or a broker-dealer. A relationship summary would help retail investors to understand key aspects of a particular firm, to compare different types of accounts, and to compare that firm with other firms. While the information required by the relationship summary is generally already provided in greater detail for investment advisers by Form ADV Part 2, the relationship summary would provide in one place, for the first time, summary information about the services, fees, conflicts, and disciplinary history for broker-dealers.

1. Filing Requirements
   As proposed, firms would be required to file their relationship summary with the Commission, and the relationship summary will be available on the Commission’s public disclosure website. The essential purpose of the relationship summary is to provide information to retail investors to help them decide whether to engage a particular firm or financial professional and open an investment advisory or brokerage account. 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 would not be required to prepare or file a relationship summary.317 Broker-dealers would file their relationship summaries electronically in a text-searchable format with the Commission on EDGAR. Investment advisers would file their relationship summaries electronically in a text-searchable format through IARD in the same manner as they currently file Form ADV Parts 1A and 2A. Dual registrants would file on both EDGAR and IARD. All previously filed versions of relationship summaries filed via EDGAR will remain available to the public. Although previously filed versions of an adviser’s relationship summary would remain stored as Commission records in IARD, only the most recent version of an adviser’s relationship summary will be available through the Commission’s public disclosure website. We considered proposing other electronic filing platforms, either maintained by the Commission or by a third-party contractor. We are proposing IARD and EDGAR because they are familiar filing systems for investment advisers and broker-dealers. Investment advisers registered with the Commission file Form ADV on IARD.318 Many broker-dealers submit documents to the Commission on EDGAR and all broker￾dealers have an EDGAR CIK number.319 As mentioned above, a dual registrant would be required to file the relationship summary on EDGAR and IARD. The information for dual registrants would be accessible through IARD or EDGAR, which are both available through the Commission’s website www.Investor.gov. Exact processes for firms to follow in filing under each system is specified on the IARD system website and in the EDGAR filer manual, respectively. There are several reasons we propose having the relationship summaries filed with the Commission. First, every relationship summary would be easily accessible through the Commission’s website. The public would benefit by being able to use a central location to find any firm’s relationship summary. Easy access to various relationship summaries through one source may facilitate simpler comparison across firms. Second, some firms may not maintain a website, and therefore their relationship summaries would not otherwise be accessible to the public. Although we are proposing that firms without a website include a toll-free telephone number in their relationship summaries that retail investors can call to obtain up-to-date information,320 requiring filing with the
   Commission will allow the public to access any firm’s relationship summary. Lastly, by having firms file the relationship summaries with the Commission, the Commission can more easily monitor the filings for compliance with Form CRS.
2. Delivery Requirements
   We propose to require that a firm deliver the relationship summary to each retail investor, in the case of an investment adviser, before or at the time the firm enters into an investment advisory agreement or, in the case of a broker-dealer, before or at the time the retail investor first engages the firm’s services.321 A dual registrant should deliver the relationship summary at the earlier of entering into an investment advisory agreement with the retail investor or the retail investor engaging the firm’s services.322 We encourage delivery of the relationship summary far enough in advance of a final decision to engage the firm to allow for meaningful discussion between the financial professional and retail investor, including by using the Key Questions, and for the retail investor to understand the information and weigh the available options. The delivery requirement

323Proposed General Instruction 8.(c) to Form CRS. 324See 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’’). 325Advisers Act proposed rule 204–5(b)(3) and Exchange Act proposed rule 17a–14(c)(3); proposed General Instruction 8.(a) to Form CRS. 326Proposed General Instruction 8.(a) to Form CRS. 327See Instruction 1 of General Instructions for
Part 2A of Form ADV.
328The obligation for a broker-dealer to deliver a relationship summary is broader than the proposed application of Regulation Best Interest, which would apply when a broker-dealer provides a recommendation. See supra note 29. Broker-dealers and investment advisers that offer online services would be required to provide the relationship summary to retail investors even if the only services provided to the customer or client is to offer a choice of investment options from an online menu of products, i.e., even if the broker-dealer does not provide a recommendation, provided that the retail investor engages its services. See also infra note 337 and accompanying text. 329Advisers Act proposed rule 204–5(b)(2) and Exchange Act proposed rule 17a–14(c)(2); proposed General Instruction 7.(a) to Form CRS. 330Advisers Act proposed rule 204–5(b)(2) and Exchange Act proposed rule 17a–14(c)(2); proposed General Instruction 7.(a) to Form CRS. 331Proposed General Instruction 5.(a) to Form CRS. 332Advisers Act proposed rule 204–5(b)(5) and Exchange Act proposed rule 17a–14(c)(5); proposed General Instruction 7.(b) to Form CRS. 333Many commenters suggested that the document be provided at the beginning of the relationship with a firm; such as before or at the time the retail investor enters into the agreement. See, e.g., Stifel 2017 Letter; Equity Dealers of America 2017 Letter; Fidelity 2017 Letter; AARP 2017 Letter; State Farm 2017 Letter; AFL–CIO 2017 Letter; CFA 2017 Letter; Wells Fargo 2017 Letter. 334An investment adviser is required to give a firm brochure to each client before or at the time the adviser enter into an advisory agreement with that client. See Advisers Act rule 204–3(b). 335See, e.g., SIFMA 2017 Letter. 336See, e.g., 917 Financial Literacy Study, supra note 20, at iv (‘‘Generally, retail investors prefer to receive disclosures before making a decision on whether to engage a financial intermediary or purchase an investment product or service.’’); Equity Dealers of America 2017 Letter, at 2 (‘‘[W]e believe that [a relationship summary] should be a pillar to any new standard when establishing a new brokerage or advisory account relationship . . . Whether a client wants incidental advice, the ability to provide their own investment ideas or to direct their own transactions as associated with a brokerage account or whether a client wants ongoing advice, monitoring, and a level fee as associated with an advisory account will determine the type of account they choose.’’); State Farm 2017 Letter; AARP 2017 Letter; AFL–CIO 2017 Letter, at 3 (‘‘If [a proposed enhanced standard of conduct] were supplemented by pre-engagement disclosures that briefly and clearly describe the sales nature of the broker’s services, . . . investors would be modestly better off than they are today.’’); Fidelity 2017 Letter; Kiley 2017 Letter; CFA 2017 Letter. applies to investment advisers even if the investment advisory agreement is oral, and to broker-dealers even if a
transaction is executed outside of an account or without an account opening agreement, as further discussed below. In the case of paper delivery, if firms do not deliver the relationship summary as the sole document, firms should ensure that it is the first among any documents that are delivered at that time.323 A firm would be permitted to deliver the relationship summary (including updates) electronically, consistent with the Commission’s guidance regarding electronic delivery.324 We are also proposing a requirement for firms that maintain a public website to post their relationship summaries on their websites in a way that is easy for retail investors to find.325 Firms that do not maintain a website would be required to include in their relationship summaries a toll-free number for investors to call to obtain documents.326 The timing of the initial delivery of the relationship summary for investment advisers generally tracks that of Form ADV Part 2A.327 The requirement for broker-dealers is 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.’’ 328 We believe that providing the retail investor the relationship summary at this first juncture would better assist the retail investor in making a determination whether to open an account with a broker-dealer. The rule does not require delivery to a retail investor to whom a broker-dealer makes a recommendation, if that retail investor does not open or have an account with the broker-dealer, or that recommendation does not lead to a transaction with that broker-dealer. If the recommendation leads to a transaction with the broker-dealer who made the recommendation, we would consider the retail investor to be ‘‘engaging the services’’ of that broker￾dealer at the time the customer places the order or an account is opened, whichever occurs first. In addition, a firm would be required to provide a relationship summary to an existing client or customer who is a retail investor before or at the time a new account is opened or changes are made to the retail investor’s account(s) that would materially change the nature and scope of the firm’s relationship with the retail investor.329 Such changes would include a recommendation that the retail investor transfer from an investment advisory account to a brokerage account or from a brokerage account to an investment advisory account, or move assets from one type of account to another in a transaction that is not in the normal, customary, or already agreed course of dealing.330 A move of assets from one type of account to another in a transaction not in the normal, customary, or already agreed course of dealing could include, for example, asset
transfers due to an IRA rollover; deposits or the investment of monies based on infrequent events or unusual size, such as an inheritance or receipt from a property sale; or a significant migration of funds from savings to an investment account. If a firm does not have any retail investors to whom it must deliver a relationship summary, it would not be required to prepare one.331 A firm would be required to deliver the relationship summary to a retail investor within 30 days upon request.332 We are proposing different triggers for initial delivery of the relationship summary by investment advisers (before or at the time the firm enters into an investment advisory agreement with the retail investor) and by broker-dealers (before or at the time the retail investor first engages the firm’s services). These proposed requirements are intended to make the relationship summary readily accessible to retail investors at the time when they are choosing investment services and are generally consistent with the approach many commenters recommended.333 In addition, the trigger for investment advisers is consistent with current requirements for investment advisers to deliver the Form ADV Part 2 brochure.334 A few commenters suggested that disclosures be delivered before a broker-dealer first executes a transaction based on a recommendation to a retail investor.335 Along these lines, we believe that retail investors should receive the relationship summary as part of the process of engaging the services of a financial professional or firm so the retail investor has the relevant information to make that decision.336 In particular, because broker-dealers are not required to enter into a formal agreement with a customer in order to provide services, there may be instances in which retail investors engage the services of a broker-dealer without (or before) formally opening a brokerage account (e.g., by entering an agreement

337The broker-dealer is typically listed as the broker-dealer of record on the retail investor’s account application, and generally receives fees or commissions resulting from the retail investor’s transactions in the account. See, e.g., Transfers of Mutual Funds and Variable Annuities, FINRA Notice to Members 04–72 (Oct. 2004), available at http://www.finra.org/sites/default/files/Notice Document/p011634.pdf. See also supra note 328 and accompanying text. 338Advisers Act proposed rule 204–5(b)(2) and Exchange Act proposed rule 17a–14(c)(2); proposed General Instruction 7.(a) to Form CRS. 339 Id. 340 Id. 341 Id. 342Proposed General Instruction 8.(b) to Form CRS. See 96 Guidance, supra note 324. 343 96 Guidance, supra note 324. 344For example, a retail investor without access to a computer or email would likely request information in person or by telephone, and the financial professional would deliver a hard copy of the relationship summary in person or by mail. 345Firms could meet the elements of the Commission’s electronic delivery guidance in other ways as well when delivering the relationship summary to new or prospective clients or customers. See 2000 Guidance, supra note 324, at 65 FR 25845–46; 96 Guidance, supra note 324, at 61 FR at 24647; 95 Guidance, supra note 324, at 60 FR at 53461. 346 2000 Guidance, supra note 324, at 65 FR 25846. 347 Id. Evidence of delivery could include, for example: Obtaining evidence that an investor actually received the information such as by electronic mail return receipt or confirmation of access, downloading, or printing; an investor’s accessing a document with hyperlinking to a required document; or using other forms or material available only by accessing the information. See 1995 Guidance, supra note 324, at section II.C. 348 Id. at n.27. with the broker-dealer). For example, some broker-dealers assist their customers in purchasing mutual funds or variable insurance products to be held with the mutual fund or variable insurance product issuer, by sending checks and applications directly to the fund or issuer (this is sometimes referred to as ‘‘check and application,’’ ‘‘application-way,’’ ‘‘subscription-way’’ or ‘‘direct application’’ business; we use the term ‘‘check and application’’ for simplicity).337 In light of these types of circumstances, we are proposing to require broker-dealers to deliver the relationship summary before or at the time the retail investor first engages the firm’s services. As noted above, we would not interpret the term ‘‘engage the firm’s services’’ to capture a recommendation by a broker-dealer to a retail investor who does not already have an account with that broker-dealer, if that recommendation does not lead to a transaction with that broker-dealer. We also believe that retail investors who are existing clients and customers should be reminded of the information highlighted in the relationship summary before or at the time (i) a new account is opened that is different
from the retail investor’s existing account(s); or (ii) changes are made to the retail investor’s existing accounts that would materially change the nature and scope of the firm’s relationship with the retail investor.338 For example, firms would be required to provide a current version of the relationship summary before or at the time a recommendation is made that the retail investor transfers from an investment advisory account to a brokerage account, transfers from a brokerage account to an investment advisory account, or moves assets from one type of account to another in a transaction not in the normal, customary or already agreed course of dealing.339 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. Therefore, we are proposing that firms be required to deliver the relationship summary to existing retail investors before or at the time these changes occur. Whether a change would require delivery of the relationship summary would depend on the specific facts and circumstances.340 For example, transfers among accounts that occur in the ordinary course of business, such as a periodic rebalancing of assets among two accounts or quarterly investments in a retirement account, would not require the delivery of a relationship summary.341 As with other disclosures firms must deliver, firms would be able to deliver the relationship summary (including updates) electronically, within the framework of the Commission’s guidance regarding electronic delivery of documents.342 The Commission’s previously issued guidance applicable to electronic delivery of certain documents by investment advisers and broker-dealers 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.343 We believe that retail investors who are prospective clients or customers of a firm would benefit from receiving the relationship summary as early as possible when engaging the services of a financial professional or firm, so the retail investor has the relevant information to make that decision. Further to that goal, and in an effort to provide flexibility and recognize the proliferation of means of electronic communications that firms and retail investors may utilize, 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.344 This method of initial delivery for the relationship summary would be consistent with the Commission guidance.345 With respect to existing clients or customers, 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 guidance. In connection with account openings conducted online, the Commission previously stated in its 2000 Guidance that broker-dealers could obtain consent from a new customer to electronic delivery of documents through an account-opening agreement that contains a separate section with a separate e-delivery authorization, or through a separate document altogether.346 The Commission noted that a global consent to e-delivery would not be an informed consent if the opening of a brokerage account were conditioned upon providing the consent; in such cases other evidence of delivery would be required.347 However, the 2000 Guidance made an exception for brokerage firms that require accounts to be opened online and all account transactions to be initiated and conducted online, stating, ‘‘In these instances only, the opening of a brokerage account may be conditioned upon providing global consent to electronic delivery.’’ 348 We understand that for some robo-advisers, the account opening process and subsequent investment decisions and transactions may involve similarly limited interaction with a financial professional. Therefore, it would be consistent with the Commission’s prior guidance if firms that offer only online account openings and account transactions, including robo-advisers and online broker-dealers, made global consent to electronic delivery a condition of account opening, for purposes of delivering the relationship summary. We request comment on whether the Commission should provide additional guidance with respect to electronic delivery of the relationship summary to

349See 917 Financial Literacy Study, supra notes 20–21 and accompanying text. 350Advisers Act proposed rule 204–1(a)(2) and Exchange Act proposed rule 17a–14(b)(3); proposed General Instruction 6.(a) to Form CRS. 351Advisers Act proposed rules 203–1(a)(1), 204– 5(b)(3) and Exchange Act proposed rule 17a– 14(b)(2), 17a–14(c)(3); proposed General Instructions 5.(a), 6.(c) and 8 to Form CRS. 352See, e.g., Advisers Act proposed rule 204– 5(b)(4) and Exchange Act proposed rule 17a– 14(a)(3); proposed General Instruction 6 to Form CRS. Generally, an investment adviser registered with the SEC or a state securities authority is required to amend its Form ADV promptly if information it provided in its brochure becomes materially inaccurate. See Advisers Act rule 204– 1(a)(2); Instruction 4 of General Instructions to Form ADV. 353See, e.g., Exchange Act rule 15b3–1. 354Advisers Act proposed rule 204–5(b)(4) and Exchange Act proposed rule 17a–14(c)(4); proposed General Instruction 6.(b) to Form CRS. 355 Id. 356Advisers Act proposed rules 204–5(b)(3) and 204–5(b)(5) and Exchange Act proposed rules 17a– 14(c)(3) and 17a–14(c)(5); proposed General Instructions 7 and 8 to Form CRS. 357For 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), available at http://finra.complinet.com/net_file_ store/new_rulebooks/f/i/FINRANotice12_55.pdf. 358See Advisers Act proposed rule 204–2(a)(14)(i) and Exchange Act proposed rule 17a–3(a)(24). 359See, e.g., FINRA Rule 4311(c) (Carrying Agreements) (requiring each carrying agreement in which accounts are to be carried on a fully disclosed basis to specify the responsibilities of each party to the agreement), available at http:// finra.complinet.com/en/display/display.html?rbid= 2403&element_id=10028. new and prospective or existing clients and customers.
3. Updating Requirements
The relationship summary is designed to provide information to assist retail investors in making a decision about whether to engage a firm and open a particular type of account, but it is also important for retail investors to know when there have been changes to this information to inform their continuing choice to keep their account with the firm. For example, as noted above, the staff’s 917 Financial Literacy Study indicates that retail investors find the nature and scope of a firm’s services, its fees and conflicts of interest, and the disciplinary history of financial professionals to be important in choosing financial intermediaries.349 To the extent that this information changes in a material way, existing clients and customers should be made aware so that they can decide whether the choice of that particular firm or financial professional remains appropriate and consistent with their decision-making criteria. Therefore, we are proposing to require a firm to update its relationship summary within 30 days whenever the relationship summary becomes materially inaccurate.350 Firms also would be required to post the latest version on their websites (if they have one), and electronically file the relationship summary with the Commission.351 We believe this approach is consistent with the current requirements for investment advisers to update the Form ADV Part 2 brochure,352 and with broker-dealers’ current obligations, including to update Form BD if its information is or becomes inaccurate for any reason, which information generally would be made available through EDGAR.353 We believe allowing 30 days for firms to make updates provides sufficient time for firms to make the necessary changes and gives the benefit of certainty of when the updates must be made. Our proposal would also require firms to communicate without charge the information in an amended relationship summary to retail investors who are existing clients or customers of the firm within 30 days after the updates are required to be made.354 Firms could communicate this information by delivering the amended relationship summary or by communicating the information another way to the retail investor.355 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 containing the updated information, this would support a reasonable belief that the information had been communicated to the retail investor, and the investment adviser would not be required to deliver an updated relationship summary to that retail investor. This requirement provides firms the ability to disclose changes without requiring them to duplicate disclosures and incur additional costs. A retail investor also would be able to find the latest version of the relationship summary on the firm’s website, if it has one, and firms would be required to deliver it
upon the retail investor’s request.356 For purposes of this requirement, 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, under this requirement, a broker-dealer would 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 believe this approach would facilitate broker-dealers building upon their current compliance infrastructure in identifying existing customers 357 and would enhance investor protections to retail investors engaging the financial services of broker-dealers. Finally, our proposal would require a firm to file its relationship summary with the Commission and to maintain the relationship summary and all updates as part of its books and records and make it available to Commission staff upon request, as discussed in
Section IV below.358
We request comment on filing, delivery, and updating requirements generally, and on the following areas specifically:

• Does this approach to filing,
  delivery, and updating create unique challenges for firms that are providing the relationship summary electronically? Does this approach provide retail investors with ready access to the information that they need and want in connection with the decision to engage a broker-dealer or investment adviser?
• Should a relationship summary be
  required for all investment advisers, broker-dealers and dual registrants that provide services to retail investors, or should there be any exceptions? For example, should execution-only broker￾dealers be excluded from the requirement to provide the relationship summary because they do not provide investment advice to their customers? Should clearing broker-dealers be excluded from the requirement to prepare and deliver the relationship summary to the extent their customers are introduced by an introducing broker-dealer pursuant to a clearing agreement? If so, why? Should the Commission consider any other exclusions for clearing broker-dealers or other entities? If so, why?
• Should a clearing broker-dealer and
  introducing broker-dealer be allowed to agree to allocate the responsibility to deliver the relationship summary pursuant to applicable self-regulatory rules? 359 Should investment advisers with sub-advisory relationships be allowed to receive the relationship summary, and any updated information in relationship summaries, from the

360See proposed General Instruction 5.(a) to Form CRS. sub-advisers, on behalf of the primary investment adviser’s clients? Should such clients receive the relationship summary of the sub-adviser?

• Should the relationship summary
  be required in addition to firms’ existing disclosure requirements, as proposed? Is the relationship summary duplicative of or does it conflict with any existing disclosure requirements in any way? What, if any, changes would we need to make to the relationship summary if we were to permit its delivery in lieu of other disclosures and why would those changes be appropriate? Should the Commission instead make any changes to existing rules to permit the relationship summary to serve as the venue for disclosures required by those rules?
• Should investment advisers that
  deliver a relationship summary have different delivery requirements for the Form ADV brochure and brochure supplement?
• Is IARD the optimal system for
  investment advisers to file Form CRS with the Commission? Is EDGAR the optimal system for broker-dealers to file Form CRS with the Commission? Should dual registrants be required to file on both EDGAR and IARD? 360 Should broker-dealers instead be required to file Form CRS solely through IARD? What would be the costs or benefits associated with broker-dealers becoming familiar with and filing through IARD system rather than through EDGAR? Is there another method of electronic filing the Commission should consider for Form CRS and why? If broker-dealers should file using a system other than EDGAR, what would be the costs and benefits associated with creation of, and/or becoming familiar with and filing through, that system? Should investment advisers and broker-dealers be required to file on the same system?
• How important to investors and
  other interested parties is the fact that IAPD serves as the single public disclosure website to access an adviser’s current filings with the Commission, and compare certain filings of other advisers? What would be the impact of retail investors having to access a separate website for the relationship summary?
• How should the relationship
  summary be filed? Should it be filed as a text-searchable PDF, similar to how Form ADV is currently filed? Would a structured PDF, a web-fillable form, HTML, XML, XBRL, Inline XBRL or another format be more appropriate, and why? Should the Commission require a single, specified format for all firms, require one format for EDGAR filings and another format for IARD filings, or permit filers to select from two or more possible formats? Would retail investors use the relationship summary to obtain information about one particular firm, or to compare information among firms? What type of format would make it easier for retail investors to use the relationship summary in these ways? For example, would retail investors seek to compare the information about fees across a number of firms, and if so, would a structured format, such as XML or Inline XBRL or an unstructured format, such as PDF or HTML, better facilitate such a comparison? Which filing formats would illustrate the formatting of relationship summaries that are provided electronically, for example, relationship summaries sent in the body of an email, posted on the firm’s website, or formatted for a mobile device? Which formats might be most beneficial to retail investors?
• What time or expense is associated
  with particular formats? What time or expense would be required of the public to view disclosures in a particular format? Would open source, freely available formats be preferred by users and filers, or would commercial proprietary formats be preferred? Would a particular format require any filers or users to license commercial software they otherwise would not, and, if so, at what expense? Would a particular format or formats provide more or fewer features with respect to comparability, reusability, validation, or analysis? What other considerations are related to specific formats? Would a particular format make it possible to confirm that a firm complied with the Form CRS requirements and validate the information provided before filing? If so, which format would filers or users find the most useful?
• We propose to require that an
  investment adviser deliver the relationship summary before or at the time the firm enters into an investment advisory agreement with a retail investor or, in the case of a broker￾dealer, before or at the time the retail investor first engages the firm’s services. Would this requirement give a retail investor ample time to process the information and ask questions before entering into an agreement? Or should we require that the relationship summary be delivered a certain amount of time before the firm enters into an agreement with a retail investor (e.g., 48 hours or a 15 minute waiting period)? For broker-dealers, should we require delivery of the relationship summary at the earlier of a recommendation or engagement, as opposed to just engagement? We also propose that a broker-dealer would not need to deliver the relationship summary to a retail investor to whom a broker-dealer makes a recommendation, if that retail investor does not open or have an account with the broker-dealer, or that recommendation does not lead to a transaction with that broker-dealer. Should we instead require that broker￾dealers deliver the relationship summary to prospective customers regardless of whether that leads to a transaction or account opening?
• Would the delivery requirements
  applicable to firms that offer only online account openings, investment advice, and transactions provide sufficient notice to retail investors of the relationship summary’s availability and content? Should the Commission require such firms to ensure that the relationship summary is delivered separately from other disclosures, with additional prominence and emphasis? For example, should firms consider employing the technology to require a retail investor to scroll through the entirety of the relationship summary before entering the next stage in the account opening process, accessing a different part of the website in order to obtain more information, or permitting the retail investor to check a box in order to accept the client agreement? Are there other requirements that should be considered for such firms in the delivery of the relationship summary when entering into the brokerage or advisory relationship, when the nature of that relationship changes, or when updates to the relationship summary are made?
• We also propose to require that a
  firm deliver a relationship summary before or at the time the firm implements changes that would materially change the nature and scope of the existing relationship with a retail investor, for example by the opening of an additional account or accounts and/ or the migration of assets from one account type to another. Should the Commission provide more guidance for what might constitute a material change to the nature and scope of the relationship or the moving of a significant amount of assets from one type of account to another? If so, do commenters have suggestions on how the Commission should interpret ‘‘material change to the nature and scope of the relationship’’ and ‘‘significant amount of assets’’? Should the delivery of the relationship summary under these circumstances be accompanied by additional oral

361See Advisers Act rule 204–3. disclosures or other types of supplemental information? Would this requirement give retail investors sufficient opportunity to process the information and ask questions before the changes are made? Should we specify how far in advance a firm should deliver the relationship summary before making such changes?

• Should we require that firms
  deliver an updated relationship summary to retail investors periodically (e.g., quarterly, semi-annually or annually) or whenever there is a material change, as proposed, such as a change in fees or commission structure?
• We propose to require that a firm
  deliver the relationship summary to a retail investor upon request. Would that requirement be helpful for retail investors? Would that requirement be burdensome for firms? Should we require firms to deliver the relationship summary upon request by any investor, not just retail investors and any trust or other similar entity that represents natural persons?
• We propose to require broker￾dealers to initially deliver the
  relationship summary ‘‘before or at the time the retail investor first engages the firm’s services.’’ Would the proposed formulation capture instances where a retail investor engages the services of a broker-dealer to carry out a transaction outside of an account, for example, by purchasing a mutual fund or variable annuity product through the broker￾dealer via ‘‘check and application’’? We do not intend to capture instances in which a broker-dealer makes a recommendation to a retail investor who does not already have an account with that broker-dealer, if that recommendation does not lead to a transaction with that broker-dealer. Would such recommendations be captured by the proposed language? Would a different formulation be clearer (e.g., ‘‘before or at the time the retail investor first enters a relationship,’’ or ‘‘before or at the time the retail investor engages in a transaction or opens an account, whichever occurs first,’’ or ‘‘before or at the time the retail investor indicates an intent to open an account or engage in a transaction, whichever occurs first’’)? Why or why not? Should the delivery requirements for investment advisers and broker-dealers be identical? Why or why not?
• For investment advisers, our
  proposal generally tracks the initial delivery requirements for Form ADV
  Part 2.361 Should we instead follow a
  different disclosure delivery requirement? Should we adopt a different delivery requirement, recognizing that the purpose of the relationship summary is to provide information to retail investors to help them decide whether to engage a particular firm and open an investment advisory or brokerage account?
• We propose to permit firms to
  deliver the relationship summary electronically consistent with prior Commission guidance on electronic delivery, as discussed above. Is the guidance clear on how firms may meet their obligations with respect to delivering the relationship summary, or should we provide more guidance? Should any additional guidance be more or less prescriptive? Would our proposed approach adequately protect investors who have no internet access or limited internet access or who prefer not to receive information about firms electronically? Is the guidance workable for a disclosure delivered at or before the retail investor enters into an agreement with an investment adviser or first engages the services of a broker￾dealer?
• Should we permit firms to meet
  their relationship summary obligations by filing their relationship summary with the Commission or by posting it online without giving or sending it to specific retail investors?
• Should firms also be required to
  notify retail investors that an updated relationship summary is available online? Should we require firms to highlight the information that has changed since the prior version in an updated relationship summary? If firms communicate the changes in the relationship summary by means other than delivery of the updated relationship summary, should they be required to inform existing retail investors that the existing version is outdated? Are there additional requirements that we should consider for amendments to relationship summaries, particularly for firms without a website?
• How can we encourage the
  prominence of the relationship summary for retail investors? We are proposing that, if the relationship summary is delivered on paper and not as a standalone document, firms should ensure that it is the first among any other materials or documents that are delivered at that time. Should we require that the relationship summary be given greater prominence than other materials that accompany it in some other way or that the relationship summary not be bound together with any of those materials? Should we impose additional requirements to encourage the prominence and separateness of the relationship summary? Should we include additional or different requirements for relationship summaries that are delivered electronically? Should we require that the entire text of the relationship summary be provided in the text of an email or other form of electronic messaging, instead of an attachment or a link to the summary disclosure on the firm’s website? Are there more dynamic ways to present the relationship summary information online, such as with the use of tool tips, explanatory videos, or chat bots to provide answers to questions? Are there other ways of increasing the prominence of the relationship summary, whether delivered in paper format or electronically?
• Should we require a financial
  professional to make certain oral disclosures at time of delivery? For example, should we require that a financial professional ask the retail investor if he or she has any questions about the relationship summary? How would this be satisfied in the context of a primarily or exclusively online or electronic delivery?
• Should a firm be required to
  communicate any material changes made to the relationship summary within 30 days, as proposed, or sooner, for example in the case of transactions not in the normal, customary, or already agreed course of dealing? Should a firm have the option of choosing to communicate the new information by either filing an amended Form CRS or by communicating the new information to retail investors in another way? Should we provide more guidance on the types of ways in which the information may be communicated? Should we instead require a firm to deliver an amended relationship summary to its existing retail investors?
• Are there other changes in
  conditions that should trigger a delivery requirement?
• We are proposing that firms that do
  not maintain a website include in their relationship summaries a toll-free phone number for investors to call to obtain documents. Are there additional requirements or different approaches that we should consider for firms that do not maintain websites, to make it easier for the public to access their relationship summaries? D. Transition Provisions To provide adequate notice and opportunity to comply with the proposed relationship summary filing requirements, newly registered broker￾dealers and new applicants for registration with the Commission as

362See Advisers Act proposed rule 203–1(a)(2) and Exchange Act proposed rule 17a–14(f)(1). 363See Advisers Act proposed rule 203–1(a)(2) and Exchange Act proposed rule 17a–14(f)(3). 364See Exchange Act proposed rule 17a–14(f)(1); proposed General Instruction 5.(c)(i) to Form CRS. 365See Advisers Act proposed rule 204–1(b)(3); proposed General Instruction 5.(c)(i) to Form CRS. 366See id. 367See Advisers Act proposed rule 204–5(e)(1) and Exchange Act proposed rule 17a–14(f)(2); proposed General Instruction 5.(c)(iii) to Form CRS. 368See Advisers Act proposed rule 204–5(e) and Exchange Act proposed rule 17a–14(f)(1), (2); proposed General Instruction 5.(c)(ii), (iii) to Form CRS. 369Advisers Act proposed rule 204–2(a)(14)(i); Exchange Act proposed rules 17a–3(a)(24) and 17a– 4(e)(10). 370 Id. investment advisers would not be required to file or deliver their relationship summaries until the date six months after the effective date of the proposed new rules and rule amendments.362 After that date, newly registered broker-dealers would be required to file their Form CRS with the Commission by the date on which their registration with the Commission becomes effective, and the Commission would 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.363 Similarly, we believe it would be helpful to provide sufficient time for advisers and broker-dealers already registered with us to prepare the new Form CRS and file it electronically with the Commission. Accordingly, we propose to require a broker-dealer that is registered with us as of the effective date of the proposed new rules and rule amendments to comply with the new Form CRS filing requirements by the date that is six months after the effective date of the proposed new rules and rule amendments.364 We also propose requiring an investment adviser or a dual registrant that is registered with us as of the effective date to comply with the new filing requirements as part of the firm’s next annual updating amendment to Form ADV that is required after six months after the rule’s effective date.365 Such an adviser or dual registrant would be required to include Form CRS as part of its next such annual updating amendment filing with the Commission.366 We are proposing to require that a firm deliver its relationship summary to all of its 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.367 This proposed requirement would allow existing retail investor clients and customers to receive the important disclosures in the relationship summary that will be provided to new and prospective retail investor customers and clients. A firm would be required to give its relationship summary to its new and prospective clients and customers who are retail
investors beginning on the date the firm is first required to electronically file its relationship summary with the Commission, and would be required to give the relationship summary to its existing clients and customers who are retail investors within 30 days, pursuant to the rule’s requirements for initial delivery and updating.368 We request comment on our proposed implementation requirements.

• Would a six-month period from the
  effective date of Form CRS provide enough time for newly registered broker-dealers and investment advisers that are filing their initial applications for registration with the Commission to complete Form CRS? If not, please explain why and how much time these advisers and broker-dealers would need to complete Form CRS.
• Should implementation of Form
  CRS filing requirements for broker￾dealers be on a separate timetable from implementation of Form CRS filing requirements for investment advisers, as we have proposed, because registered investment advisers are not all required to file their Form ADV annual updating amendments on the same timetable? If not, please explain why and whether, in order to have one uniform initial filing date for broker-dealers and investment advisers, we should require investment advisers to potentially file their initial Form CRS more than once.
• Should a firm be required to
  comply with the rule’s requirements for initial delivery to new and prospective clients and customers and for updating beginning on the date the firm is first required to electronically file its relationship summary with the Commission, as proposed? Should a firm deliver the relationship summary to all existing clients and customers who are retail investors within 30 days after first filing the relationship summary with the Commission, as proposed? These requirements would result in a different delivery timetable for broker-dealers and investment advisers because investment advisers would file Form CRS with their Form ADV annual updating amendments. Should we instead require all firms to deliver the relationship summary to retail investors beginning on the same date (e.g., within six months from the effective date of Form CRS), even if investment advisers file Form CRS after that date? Or should we require firms to deliver to existing retail investor customers and clients initial relationship summaries at a later date? For example, firms could be required to deliver the relationship summary only before or at the time a new account is opened or changes are made to the retail investor’s account(s) that would materially change the nature and scope of the firm’s relationship with the retail investor (including before or at the time the firm recommends that the retail investor transfers from an investment advisory account to a brokerage account or from a brokerage account to an investment advisory account, or moves assets from one type of account to another in a transaction not in the normal, customary or already agreed course of dealing). E. Recordkeeping Amendments We are also proposing conforming amendments to Advisers Act rule 204– 2 and Exchange Act rules 17a–3 and 17a–4, which set forth requirements for maintaining, making and preserving specified books and records, to require SEC-registered investment advisers and broker-dealers to retain copies of each relationship summary.369 Firms would also be required to maintain each amendment to the relationship summary as well as to make and preserve a record of dates that each relationship summary and each amendment was delivered to any client or to any prospective client who subsequently becomes a client, as well as to any retail investor before such retail investor opens an account.370 Requiring maintenance of these disclosures as part of the firm’s books and records would facilitate the Commission’s ability to inspect for and enforce compliance with firms’ obligations with respect to Form CRS. These proposed changes are designed to update the books and records rules in light of our proposed addition of Form ADV Part 3 for registered investment advisers and Form CRS for broker￾dealers, and they mirror the current recordkeeping requirements for the Form ADV brochure and brochure supplement. The records for investment advisers would be required to be maintained in the same manner, and for the same
  period of time, as other books and records required to be maintained under rule 204–2(a), and the records for broker-dealers would be required to

371See Advisers Act rule 204–2(e)(1); Exchange Act rule 17a–4(e)(10). Pursuant to Advisers Act rule 204–2(e)(1), investment advisers will be required to maintain the relationship summary for a period of five years, while Exchange Act proposed rule 17a– 4(e)(10) would require broker-dealers to maintain the relationship summary for a period of six years. 372See Advisers Act rule 204–2(g)(2); Exchange Act rule 17a–4(j). 373See, e.g., 913 Study, supra note 3. 374See, e.g., Siegel & Gale Study, supra note 5; RAND Study, supra note 5; 913 Study, supra note
3. Additionally, the RAND Study noted that
participants ‘‘commented that the interchangeable titles and ‘we do it all’ advertisements [by broker￾dealers] made it difficult to discern broker-dealers from investment advisers.’’ Those participants also stated that these lines were further blurred by the marketing efforts which depicted an ‘‘ongoing relationship between the broker and the investor. . . .’’ See RAND Study, supra note 5, at xix, 19. 375See supra notes 122 and 216 and accompanying texts. 376Section 15(l)(2) of the Exchange Act and
section 211(h)(2) of the Advisers Act.
377See, e.g., Siegel & Gale Study, supra note 5; RAND Study, supra note 5; 913 Study, supra note 3. 378See Siegel & Gale Study, supra note 5, at 2. The study used focus groups in both Baltimore, MD and Memphis, TN to ‘‘explore investor opinions regarding the services, compensation and legal obligations of several types of financial services professionals.’’ Id., at 5. 379See RAND Study, supra note 5, at xiv. In conducting the study, RAND used several methods to study current practices in the financial industry and analyze whether investors understand differences between types of financial service professionals. Among these methods, RAND sent out national household surveys through the internet which studied ‘‘household investment behavior and preferences, experience with financial service providers, and understanding of the different types of financial service providers.’’ Additionally, RAND conducted six focus groups with investors in Continued maintained for a period of six years.371 The proposed required documentation, like other records, would be required to be provided to the staff ‘‘promptly’’ upon request.372 We request comment on these proposed amendments.

• Are there other records related to
  the relationship summary or its delivery that we should require firms to keep? Should we require them to maintain copies of the relationship summary for a longer or shorter period than we have proposed? Should broker-dealers and investment advisers be required to keep relationship summary-related records for the same amount of time? Should firms be required to document their responses to the ‘‘key questions’’ from investors?
  III. Restrictions on the Use of Certain
  Names and Titles and Required Disclosures As discussed above, both broker￾dealers and investment advisers provide investment advice to retail investors, but the regulatory regimes and business models under which they give that advice are different. For example, the principal services, compensation structures, conflicts, disclosure obligations, and legal standards of conduct can differ.373 We therefore believe that it is vital that retail investors understand whether the firm is a registered investment adviser or registered broker-dealer, and whether the individual providing services is associated with one or the other (or both), so that retail investors can make an informed selection of their financial professional, and then appropriately monitor their financial professional’s conduct. While investors should understand who their financial professional is, and why that matters, studies indicate that retail investors do not understand these differences and are confused about whether their firm or financial professional is a broker-dealer or an investment adviser, or both.374 Proposed Form CRS, as set out in Section II above, should help to ameliorate this confusion by helping retail investors understand the services that a particular firm offers, and how those services differ based on whether the firm is a registered broker￾dealer, registered investment adviser, or both. We preliminarily believe, however, that Form CRS is not a complete remedy for investor confusion. 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. This could particularly be the case where the presentation 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. Specifically, we believe that certain names or titles used by broker-dealers, including ‘‘financial advisor,’’ contribute to retail investor confusion about the distinction among different firms and investment professionals, and thus could mislead retail investors into believing that they are engaging with an investment adviser—and are receiving services commonly provided by an investment adviser and subject to an adviser’s fiduciary duty, which applies to the retail investors’ entire relationship—when they are not.375 Additionally, broker-dealers and investment advisers, and the financial professionals that are associated with them, currently engage in communications with prospective or existing retail investors without making clear whether they are a broker-dealer or an investment adviser, which can further confuse retail investors if this distinction is not clear from context (whether intentionally or not). As discussed below, our proposed restriction seeks to mitigate
  the risk that the names or titles used by a firm or financial professional result in retail investors being misled, including believing that the financial professional is a fiduciary, leading to uninformed decisions regarding which firm or financial professional to engage, which may in turn result in investors being harmed. Additionally, we believe that requiring firms and their associated natural persons or supervised persons to disclose whether the firms are broker￾dealers or investment advisers and whether such financial professionals are associated with or supervised by, respectively, such firms would also help to address investor confusion and mitigate potential harm to investors resulting from that confusion. We preliminarily believe that restricting certain persons from using the term ‘‘adviser’’ or ‘‘advisor’’ coupled with the requirement that firms disclose their regulatory status in retail investor communications would deter potentially misleading sales practices. Investors who understand whether their financial professional or firm is a broker-dealer or investment adviser will be better consumers of the information presented in Form CRS, and less likely to mistakenly obtain the services of a broker-dealer when they intend to engage an investment adviser, or vice versa.376 A. Investor Confusion Over the past decade, various studies have documented that retail investors are confused regarding the services offered by, and the standards of conduct applicable to, broker-dealers and investment advisers, including their use of certain titles.377 In 2005, the Siegel & Gale Study found that with respect to titles specifically, ‘‘[r]espondents in all focus groups were generally unclear about the distinctions among the titles brokers, financial advisors/financial consultants, investment advisers, and financial planners . . .’’ 378 The following year, the Commission retained RAND to conduct a study of broker-dealers and investment advisers for the purpose of examining, among other things, whether investors understood the duties and obligations owed by investment advisers and broker-dealers.379 The RAND Study

Alexandria, Virginia, and Fort Wayne, Indiana to gain additional evidence on investor beliefs about and experience with financial service providers. RAND also conducted two sets of [in person] interviews: one set of interviews with interested parties and one set with financial service firms. See RAND Study, supra note 5, at 3-4. 380See RAND Study, supra note 5, at 118. 381 Id. 382See id., at 19. 383See id., at xix. 384See id., at xix. Interview participants also stated that these lines were further blurred by the marketing efforts which depicted an ‘‘ongoing relationship between the broker and the investor. . . .’’. See id., at 19. 385See id., at 111. 386See id., at 109. 387 Id. 388 Id. 389See, e.g., CFA 2017 Letter; PIABA 2017 Letter; IAA 2017 Letter; Pefin 2017 Letter; First Ascent 2018 Letter. 390See PIABA 2017 Letter, at 7. See also IAA 2017 Letter, at 11 (‘‘investor confusion persists where certain financial professionals are permitted to use terms such as ‘‘financial adviser’’ or ‘‘financial advisor’’ that imply a relationship of trust and confidence but, in effect, disclaim fiduciary responsibility for such a relationship’’); Pefin 2017 Letter, at 3 (noting that ‘‘ ‘Investment Advisor’ or ‘Financial Advisor’ are not defined terms, and are currently a ‘‘catch all’’ for firms with wildly different practices, standards, and responsibilities to their clients. Many of these firms attempt to imply in external communication that they are a Fiduciary, while disclaiming their responsibilities in the fine print.’’); CFA 2017 Letter. 391See PIABA 2017 Letter, at 17. 392See Pefin 2017 Letter, at 3. See also First Ascent 2017 Letter. 393See CFA 2017 Letter, at 2. 394See id., at 11. 395See Comment letter of the U.S. Chamber of Commerce (Dec. 13, 2017), at 10. 396See Comment letter of the Steering Group for the Committee for the Fiduciary Standard (Nov. 8,
2017) (‘‘Committee for the Fiduciary Standard 2017
Letter’’), at 3.
397See Pefin 2017 Letter, at 9.
398Certain Broker-Dealers Deemed Not To Be Investment Advisers, Exchange Act Release No. 50980 (Jan. 6, 2005), [70 FR 2716 (Jan. 14, 2005)] (‘‘Broker Dealer Reproposing Release’’). noted that ‘‘thousands of firms’’ are structured in a variety of ways and provide various different combinations of services and products.380 The RAND Study concluded that ‘‘partly because of this diversity of business models and services, investors typically fail to distinguish broker-dealers and investment advisers along the lines defined by federal regulations.’’ 381 The RAND Study concluded that, based on interviews with industry representatives, investor surveys, and focus groups, there was generally investor confusion about the distinction between broker-dealers and investment advisers. In particular, ‘‘[interview] participants [in the RAND Study] mentioned that the line between investment adviser and broker-dealers has become further blurred, as much of the recent marketing by broker-dealers focuses on the ongoing relationship between the broker and the investor and as brokers have adopted such titles as ‘financial advisor’ and ‘financial manager.’ ’’ 382 Additionally, participants in RAND’s survey believed that financial professionals using the title ‘‘financial advisor’’ were ‘‘more similar to investment advisers than to brokers . . .’’ 383 Moreover, focus group participants shed further light on this confusion when they ‘‘commented that the interchangeable titles and ‘we do it all’ advertisements by broker-dealers made it difficult to discern broker-dealers from investment advisers.’’ 384 More specifically, focus group participants observed that ‘‘common job titles for investment advisers and broker-dealers are so similar that people can easily get confused over the type of professional with which they are working.’’ 385 The focus group results also showed that when ‘‘[c]omparing beliefs on services provided by investment advisers to services provided by brokers, participants were more likely to say that investment advisers provide advice about securities, recommend specific investments, and provide planning services.’’ 386 According to the RAND Study, focus-group participants were more likely to say that brokers rather than investment advisers execute stock transactions and earn commissions and believed ‘‘that investment advisers and brokers are required to act in the client’s best interest’’ and ‘‘were more likely to say that brokers rather than investment advisers are required to disclose any conflicts of interest.’’ 387 In highlighting
part of the confusion, the RAND Study
noted that the responses from survey participants indicated the opposite conclusion from those of the focus￾group participants, namely, that investment advisers are more likely to disclose conflicts of interest.388 As discussed above, in light of significant intervening market developments and advances in technology, Chairman Clayton in 2017 invited input on, among other things, investor concerns about the current regulatory framework. Commenters highlighted the risk of harm to investors who obtain services from broker-dealers under the misimpression that they are receiving services protected by the fiduciary duty that applies to investment advisers.389 For example, one commenter examined the websites of nine different brokerage firms and ‘‘found that the firms’ advertising presents the image that the firms are acting in a fiduciary capacity’’ with many firm advertisements continuing to present the firm ‘‘as providing all￾encompassing advice, with no differentiation between the firms’ investment adviser services and brokerage services.’’ 390 This commenter also noted that ‘‘[w]ithout uniform standards, persons seeking financial advice are left to fend for themselves in deciding whether their financial advisor is serving two masters or only one, and whether one of those masters is the advisor’s financial self-interest.’’ 391 In addition, a different commenter argued that the use of certain titles, such as ‘‘advisor,’’ should be standardized by the Commission because they are currently ‘‘catch all’’ terms for firms with ‘‘wildly different practices, standards, and responsibilities to their clients.’’ 392 Some of the commenters to Chairman Clayton’s Request for Comment also noted that this confusion is the result of the misleading nature of these titles. Specifically, one commenter stated that ‘‘[t]he problem is that investors are being misled into relying on biased sales recommendations as if they were objective, best interest advice and are suffering significant financial harm as a result.’’ 393 The commenter noted that ‘‘these titles and marketing materials are misleading’’ [if] . . . broker-dealers truly are the ‘‘mere salespeople they’ve claimed to be in their legal challenge to the DOL fiduciary rule.’’ 394 A different commenter stated that ‘‘a financial professional should not be able to use a title that conveys a standard of conduct to which the professional is not in fact held under the law. . . .’’ 395 Additionally, another commenter noted that customer confusion is ‘‘also driven by misleading marketing and misleading titles.’’ 396 Finally, one commenter stated that ‘‘having SEC registered entities and their agent, claim such title gives false credence and implies a responsibility which the agent never claims to provide (numerous brokers go by the title ‘Financial Advisor’, implying Fiduciary standard that is not being upheld).’’ 397 For many years, the Commission has considered approaches for remedying investor confusion about the
differing services and obligations of broker￾dealers and investment advisers. In particular, in 2005 we considered addressing how investors perceive the differences between broker-dealers and investment advisers by proposing to proscribe the use of certain broker￾dealer titles.398 In adopting our final rule, which was subsequently vacated on other grounds by the Court of

399 Financial Planning Association v. Securities and Exchange Commission, 482 F.3d 481 (D.C. Cir. 2007). 400As further discussed in the 2005 final rule release, we considered but did not adopt a rule which would have placed limitations on how a broker-dealer may hold itself out or titles it may employ without registering as an investment adviser and complying with the Advisers Act. In deciding to not prohibit the use of specific titles such as ‘‘financial advisor,’’ ‘‘financial consultant’’ or other similar names, we noted that ‘‘the statutory broker-dealer exception is a recognition by Congress that a broker-dealer’s regular activities include offering advice that could bring the broker-dealer within the definition of investment adviser, but which should nonetheless not be covered by the Act.’’ As a result, we noted that the ‘‘terms ‘financial advisor’ and ‘financial consultant,’ for example, were descriptive of such services provided by broker-dealers.’’ We also stated our view that these titles were generic terms that describe what various persons in the financial services industry do, including banks, trust companies, insurance companies, and commodity professionals. See 2005 Broker Dealer Release, supra note 7; see also Broker Dealer Reproposing Release, supra note 398. 401The Advisers Act regulates the activities of certain ‘‘investment advisers,’’ which are defined in
section 202(a)(11) as persons who receive
compensation for providing advice about securities as part of a regular business. Broker-dealers are excluded from the definition of investment adviser by section 202(a)(11)(C) provided that they meet two prongs: (i) The broker-dealer’s advisory services must be ‘‘solely incidental to’’ its brokerage business; and (ii) the broker-dealer must receive no ‘‘special compensation’’ for the advice. 402See RAND Study, supra note 5, at 18 (‘‘There were also concerns as to what investors understand regarding similarities and differences of brokerage and advisory accounts, the legal obligations of each type of account, and the effect of titles and marketing used by investment professionals on the expectations of investors.’’). 403See supra note 375. Cf. Comment letter of Russel Walker (Jun. 17, 207); Comment letter of Jeanne Davis (Jul. 20, 2017); Comment letter of Nancy Lowell (Jul. 20, 2017); Comment letter of John Dalton (Jul. 21, 2017); Comment letter of Nancy Tew (Jul. 21, 2017); Comment letter of Bonitta Knapp (Jul. 21, 2017); Comment letter of Alan Gazetski (Jul. 21, 2017); Comment letter of A. Arias (Jul. 21, 2017); Comment letter of Al Cohen (Jul. 21, 2017); Comment letter of James Melloh (Jul. 21, 2017); Comment letter of Mary Pellecchia (Jul. 21, 2017); Comment letter of William Muller (Jul. 21, 2017); Comment letter of Susan Lee (Jul. 22, 2017); Comment letter of Steve Daniels (Jul. 22, 2017); AARP 2017 Letter; AFL–CIO 2017 Letter; Pefin 2017 Letter; PIABA 2017 Letter; IAA 2017 Letter; CFA 2017 Letter. These commenters argued that as a result of the use of certain titles and communications, retail investors are confused and are erroneously led to believe that their financial professionals are required to act ‘‘in their best interest.’’ 404See proposed Item 5.B.3. of Form CRS. 405See Exchange Act proposed rule 151–2. 406See id. Appeals for the D.C. Circuit,399 we declined to follow this approach, believing that the better approach was to require broker-dealers to clearly inform their customers receiving investment advice that they are entering into a brokerage, and not an advisory, relationship.400 However, in light of comments in response to Chairman Clayton’s Request for Comment and our experience, we believe that it is appropriate to revisit that approach. A broker-dealer can, and does, provide investment advice to retail investors without being regulated as an investment adviser, provided that such advice is ‘‘solely incidental to’’ its brokerage business and the broker￾dealer receives no ‘‘special compensation’’ for the advice.401 While we believe such advice is important for providing retail investors access to a variety of services, products, and payment options, for example, thereby increasing investor choice, we are concerned that use of the terms ‘‘adviser’’ and ‘‘advisor’’ in a name or title would continue to result in some retail investors being misled that their firm or financial professional is an investment adviser (i.e., a
fiduciary), resulting in investor harm. We believe that these terms can obscure the fact that investment advisers and broker￾dealers typically have distinct business models with varying services, fee structures, standards of conduct, and conflicts of interest.402 It is important for retail investors to better understand the distinction between investment advisers and broker-dealers and to have access to the information necessary to make an informed choice and avoid potential harm. Investor choices of firm type and financial professionals can, for example, affect the extent or type of services received, the amount and type of fees investors pay for such services, and the conflicts of interest associated with any such services. For example, if a retail investor prefers an advisory relationship with an active trading strategy, and he or she mistakenly retains a broker-dealer ‘‘financial adviser,’’ this investor potentially could incur more costs if he or she is placed in a brokerage account than he or she would have paid in an advisory account with an asset-based fee. Likewise, an investor could also be misled into believing that the broker￾dealer is subject to a fiduciary standard that may not apply,403 and provides services it may not offer, such as regular monitoring of the account, offering advice on a regular basis, and communicating with the investor on a regular basis. While we are proposing to require broker-dealers and investment advisers to provide retail investors with a relationship summary that would highlight certain features of an investment advisory or brokerage relationship, that information might be provided after the retail investor has initially decided to meet with the firm or its financial professional. The retail investor may make a selection based on such person’s name or title. If firms and financial professionals that are not investment advisers are restricted from using ‘‘adviser’’ or ‘‘advisor’’ in their names or titles, retail investors would be less likely to be confused or potentially misled about the type of financial professional being engaged or nature of the services being received. Conversely, an associated natural person of a broker￾dealer using the term ‘‘adviser’’ or ‘‘advisor’’ may result in an investor believing that such financial professional is an adviser with a fiduciary duty, as discussed in the relationship summary the investor would receive.404 Similarly, requiring firms and their associated natural persons or supervised persons, as applicable, to disclose whether the firms are broker-dealers or investment advisers would help to address investor confusion and complement the information provided in the proposed relationship summary. B. Restrictions on Certain Uses of ‘‘Adviser’’ and ‘‘Advisor’’ We are proposing to restrict any broker or dealer, and any natural person who is an associated person of such broker or dealer, when communicating with a retail investor, from using as part of its name or title
the words ‘‘adviser’’ or ‘‘advisor’’ unless such broker or dealer, is registered as an investment adviser under the Advisers Act or with a state, or any natural person who is an associated person of such broker or dealer is a supervised person of an investment adviser registered under
section 203 of the Advisers Act or with
a state and such person provides investment advice on behalf of such investment adviser.405

1. Firms Solely Registered as Broker￾Dealers and Associated Natural Persons
   In relevant part, the proposed rule would restrict a broker-dealer’s or its associated natural persons’ use of the term ‘‘adviser’’ or ‘‘advisor’’ as part of a name or title when communicating with a retail investor in particular circumstances.406 This would include names or titles which include, in whole or in part, the term ‘‘adviser’’ or ‘‘advisor’’ such as financial advisor (or adviser), wealth advisor (or adviser), trusted advisor (or adviser), and advisory (e.g., ‘‘Sample Firm Advisory’’) when communicating with any retail investor. In addition, we believe that the proposed rule should apply to communications with retail investors (i.e., natural persons), rather than

407See supra note 29 and accompanying text. See also Exchange Act proposed rule 151–2(b). 408See section 202(a)(11)(A) of the Advisers Act, defining an ‘‘investment adviser’’ as ‘‘any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.’’ 409See supra note 402 and accompanying text. We are not proposing restrictions on names or titles for investment advisers. Our staff is not aware of an investment adviser using a name or title that could cause retail investors to mistakenly believe that such adviser provides brokerage services. Studies and commenters also have not identified retail investor confusion as relating to an investment adviser’s use of names or titles. We request comment on our understanding below. 410Firms and financial professionals should keep in mind the applicability of the antifraud provisions of the federal securities laws, including section 17(a) of the Securities Act, and section 10(b) of the Exchange Act and rule 10b–5 thereunder, to the use of names or titles. See also generally FINRA Rule 2210 (stating in part ‘‘[a]ll retail communications and correspondence must: (A) Prominently disclose the name of the member, or the name under which the member’s broker-dealer business primarily is conducted as disclosed on the member’s Form BD, and may also include a fictional name by which the member is commonly recognized or which is required by any state or jurisdiction; (B) reflect any relationship between the member and any non￾member or individual who is also named; and (C) if it includes other names, reflect which products or services are being offered by the member.’’) 411For the purposes of Section III, we are defining a ‘‘dually registered firm’’ in the same manner as it is defined in the baseline of the Economic Analysis. See infra Section IV, note 453. 412See infra note 546 and accompanying text. See also Section IV.A.3.g. 413See Exchange Act proposed rule 151–2(a)(1). institutions, for reasons similar to those detailed above for the relationship summary.407 Additionally, our proposed rule appropriately applies to retail investors and not to institutions, as institutions generally would be less likely to be misled by such names or titles. The proposed rule, however, would not restrict a broker-dealer’s or its associated natural persons’ use of the terms ‘‘adviser’’ or ‘‘advisor’’ when acting on behalf of a bank or insurance company, or when acting on behalf of a municipal advisor or a commodity trading advisor. We acknowledge that there may be titles other than ‘‘adviser’’ or ‘‘advisor’’ used by financial professionals that might confuse and thus potentially mislead investors. We considered whether we should restrict
broker￾dealers from using additional terms, such as, for example, ‘‘financial consultant.’’ Given this concern, we focused our proposal on the terms ‘‘adviser’’ or ‘‘advisor’’ because they are more closely related to the statutory term ‘‘investment adviser.’’ Thus, as compared to additional terms such as ‘‘financial consultant,’’ ‘‘adviser’’ and ‘‘advisor’’ are more likely to be associated with an investment adviser and its advisory activities rather than with a broker-dealer and its brokerage activities. Moreover, the term ‘‘investment adviser,’’ as compared to terms like ‘‘financial consultant,’’ is a defined term under the Advisers Act as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities.408 As discussed above, we believe that use of the terms ‘‘adviser’’ and ‘‘advisor’’ by broker-dealers and their associated natural persons has particularly contributed to investor confusion about the typical services, fee structures, conflicts of interest, and legal standards of conduct to which broker￾dealers and investment advisers are subject.409 Conversely, we preliminarily believe that other terms, even if investors might find them confusing, unclear, or misleading (as some commenters have suggested), do not necessarily imply that a firm or its financial professional is an ‘‘investment adviser’’ who would have the principal services, compensation structures, conflicts of interest, disclosure obligations, and legal standards of conduct that are typically associated with being an investment adviser.410 Accordingly, we preliminarily do not believe these terms would cause retail investors to believe that their financial professional is an investment adviser when he or she is, in fact, a broker￾dealer. We therefore preliminarily believe that restricting use of terms that are similar to ‘‘investment adviser’’ appropriately tailors the rule to terms that are likely to result in confusion or mislead retail investors about whether such broker-dealer is an investment adviser and thus a fiduciary. As we discuss in more detail above, the proposed relationship summary is designed to provide clarity to retail investors regarding information about broker-dealers and investment advisers under a prescribed set of topics (e.g., services, fees, standards of conduct, conflicts). While the proposed relationship summary is designed to help retail investors to distinguish between investment advisers and broker-dealers, we are concerned that the effectiveness of the relationship summary could be undermined if we do not restrict a broker-dealer from using in a name or title the terms ‘‘adviser’’ and ‘‘advisor.’’ For instance, we preliminarily believe that restricting a broker-dealer or its associated natural persons from using ‘‘adviser’’ or ‘‘advisor’’ in a name or title would mitigate the risk that a retail investor would be misled into believing and expecting that
his or her ‘‘financial advisor,’’—who may solely provide brokerage services at a broker-dealer—is an investment adviser because of the name or title. For example, if a retail investor were to engage a financial professional with the title ‘‘wealth advisor’’ who solely provides brokerage services but who is associated with a dually registered firm,411 such investor would likely receive the dually registered firm’s relationship summary. The relationship summary would include a description of both business models; however, the retail investor could incorrectly match the services he or she would receive from such ‘‘wealth advisor’’ to the description in the relationship summary of investment advisory services. As a result, the retail investor may be misled to believe that the brokerage services provided by the ‘‘wealth advisor’’ are in fact the investment advisory services as described in the relationship summary. Similarly, a retail investor who engages a financial professional with the title ‘‘wealth advisor’’ who is associated solely with a broker-dealer entity would likely receive the broker-dealer’s relationship summary, which focuses on the characteristics of the broker-dealer business model. As a result, there would be an inconsistency between the description of the broker-dealer business model and the investors’ likely perceptions that their professional is an investment adviser. Therefore, the proposed restriction on the use of names or titles would increase the effectiveness of the relationship summary by reducing the risk of a mismatch between investor preferences and type of services received. We acknowledge that studies have demonstrated that many retail investors select financial professionals and firms based on personal referrals by family, friends, or colleagues.412 Even if the name or title of the firm or professional may not impact choices made by such investors, we preliminarily believe that the protections offered to other investors by the proposed restriction and disclosure requirements justify the rules.
2. Dually Registered Firms and Dual
Hatted Financial Professionals The proposed rule would permit firms that are registered both as investment advisers (including state-registered investment advisers) and broker-dealers to use the term ‘‘adviser’’ or ‘‘advisor’’ in their name or title.413 The proposed

414See Exchange Act proposed rule 151–2(a)(2). 415See section 202(a)(25) of the Advisers Act [15 U.S.C. 80b–2(a)(25)] defining ‘‘supervised person’’ as ‘‘any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser’’. 416See Exchange Act proposed rule 151–2(a)(2). 417See supra note 410. Firms and financial professionals should keep in mind the applicability of the antifraud provisions of the federal securities laws, including section 17(a) of the Securities Act, and section 10(b) of the Exchange Act and rule 10b– 5 thereunder, to the use of names or titles. 418See Regulation Best Interest Proposal, supra note 24. 419See, e.g., Comment letter of Investment Counsel Association of America (Feb. 7, 2005) (‘‘ICAA 2005 Letter); Comment letter of T. Rowe Price (Feb. 22, 2005) (‘‘T. Rowe Price 2005 Letter’’) on Broker Dealer Reproposing Release, supra note
398. See also Certain Broker-Dealers Deemed Not to
Be Investment Advisers, Exchange Act Release No. 42099 (Nov. 4, 1999) (‘‘Release 42099’’). 420Section 202(a)(11)(C) of the Advisers Act. rule would, however, only permit an associated natural person of a dually registered firm to use these terms where such person is a supervised person of a registered investment adviser and such person provides investment advice on behalf of such investment adviser.414 This would limit the ability of natural persons associated with a broker-dealer who do not provide investment advice as an investment adviser from continuing to use the term ‘‘adviser’’ or ‘‘advisor’’ simply by virtue of the fact that they are associated with a dually registered firm.415 We discuss these aspects of the rule in further detail below. a. Dually Registered Firms We are not proposing to apply the restriction to dually registered firms. We believe that it is inappropriate to restrict a dually registered firm from using a name or title that accurately describes its registration status. We recognize that under our proposed rule there might be occasions where a dually registered firm provides a particular retail investor only brokerage services, which could lead to some investor confusion. At the firm level, we do not believe that the determination of when the restriction applies should be based on what capacity a dually registered firm is acting in a particular circumstance, i.e., whether a dually registered firm is acting solely as a broker-dealer and not offering investment advisory services. If we were to apply the restriction in this manner, it could result in firms using multiple names and titles, which may lead to further confusion and create operational and compliance complexities. Accordingly, this could lead to dually registered firms avoiding the use of the title ‘‘adviser’’ or ‘‘advisor’’ unless they believe they would always offer investment advisory services, which we believe is not necessary to avoid the potential investor harm. Additionally, we also seek to avoid the potential misimpression that may result should a firm use a name or title to reflect only its brokerage services and not its investment advisory services. In such a circumstance, a retail investor may not know that such firm offers both business models and could be led to believe that only brokerage services are available. b. Dual Hatted Financial Professionals Dual hatted financial professionals of dually registered firms (including state￾registered investment advisers) can provide brokerage services, advisory services, or both. We believe it is appropriate for financial professionals that provide services as an investment adviser to retail investors to be permitted to use names or titles which include ‘‘adviser’’ and ‘‘advisor,’’ even if, as a part of their business, they also provide brokerage services. As such, our proposed rule would not restrict, for example, a financial professional that is both a supervised person of an investment adviser and an
associated person of a broker-dealer from using the term ‘‘adviser’’ or ‘‘advisor’’ in his or her name or title if such person provides investment advice to retail investors on behalf of the investment adviser.416 We believe that the relationship summary can sufficiently reduce the risk of investors being misled and avoid investor harm because it contains parallel information with respect to each of the services the dual hatted financial professional offers. By contrast, we recognize that some financial professionals of dually registered firms only provide brokerage services. We are concerned that if these financial professionals use ‘‘adviser’’ or ‘‘advisor’’ in their names or titles, retail investors may be misled about the nature of services they are receiving, and may incorrectly believe that such person would provide them investment advisory services rather than brokerage services. Therefore, we believe that a financial professional who does not provide investment advice to retail investors on behalf of the investment adviser, i.e., a financial professional that only offers brokerage services to retail investors, should be restricted from using the title ‘‘adviser’’ or ‘‘advisor’’ despite such person’s association with a dually registered firm. We recognize that, as with dually registered firms, some dual hatted financial professionals may under some circumstances only offer brokerage services to a particular retail investor, which has the potential to cause confusion. For the same reasons discussed above regarding dually registered firms, however, we do not believe that the determination of when the restriction applies should be based on what capacity a dual hatted financial professional is acting in a particular circumstance, i.e., whether a dual hatted professional is offering only brokerage services to that particular investor and not offering investment advisory services.417 Moreover, we are proposing in Regulation Best Interest to require a broker-dealer to make certain disclosures, including the capacity of the financial professional and firm.418 We request comment below on whether and if so how the proposed rule should address this particular circumstance.
C. Alternative Approaches
Over the past decade, we and commenters have expressed concern about broker-dealer marketing efforts, including through the use of titles, and whether these efforts are consistent with a broker-dealer’s reliance on the exclusion from the definition of investment adviser under section 202(a)(11)(C) of the Advisers Act.419 Under section 202(a)(11)(C), a broker￾dealer is excluded from the definition of investment adviser if its ‘‘performance of [advisory] services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor.’’ 420 In this regard, and as an alternative to our proposed rule today, we considered proposing a rule which would have stated that a broker-dealer that uses the term ‘‘adviser’’ or ‘‘advisor’’ as part of a name or title cannot be considered to provide investment advice solely incidental to the conduct of its business as a broker-dealer and therefore is not excluded from the definition of investment adviser under section 202(a)(11)(C). We also considered proposing a rule that would preclude a broker-dealer from relying on the exclusion when such a broker-dealer held itself out as an investment adviser. We are not proposing these alternatives for the reasons discussed below. However, we request comment on these alternatives below. Our concerns regarding broker-dealer marketing efforts are not new. For example, we have previously requested comment on whether we should preclude broker-dealers from relying on the solely incidental prong of the exclusion if they market their services

421See, e.g., Release 42099, supra note 419. 422See id. 423See, e.g., ICAA 2005 Letter; T. Rowe Price 2005 Letter. See also e.g. AFL–CIO 2017 Letter; CFA 2017 Letter; Comment letter of CFA Institute (Jan. 10, 2018); Comment letter of The Committee for the Fiduciary Standard (Jan. 12, 2018). 424See Broker Dealer Reproposing Release. 425As with the proposal, our alternative approach would likewise preclude an associated natural person of a dually registered firm from using the term ‘‘adviser’’ or ‘‘advisor’’ in a name or title unless he or she is a supervised person of an investment adviser and provides investment advice on behalf of such investment adviser. 426See AFL–CIO 2017 Letter, at 3 (stating that ‘‘[o]ne way for the SEC to proceed is to clarify that those firms that offer advisory services, or hold themselves out as offering such services, cannot take advantage of the existing broker-dealer ‘solely incidental to’ exemption from the Investment Advisers Act.’’); IAA 2017 Letter; AICPA 2017 Letter. 427See IAA 2017 Letter, at 11 (‘‘We urge the Commission to address this source of investor confusion by prohibiting firms or individuals from holding themselves out as trusted advisers without being subject to either the Advisers Act fiduciary principles or a new equally stringent best interest standard under the Exchange Act, discussed above.’’). See also, e.g. AFL–CIO 2017 Letter, at 3 (‘‘clarify that those firms that offer advisory services, or hold themselves out as offering such services, cannot take advantage of the existing broker-dealer ‘‘solely incidental to’’ exemption from the Investment Advisers Act. Permitting brokers to rely on this exemption when engaged in advisory activities has had the effect of exempting them from the fiduciary duty appropriate to that advisory role. Adopting this approach would require the SEC to determine what constitutes ‘‘holding out’’ as an adviser, addressing marketing practices, as well as job titles, that create the reasonable expectation among investors that they will receive advice and not just sales recommendations.’’). 428See, e.g., rule 10b–5 under the Securities Exchange Act and section 17(a) of the Securities Act. in a manner that suggests that they are offering advisory accounts, including through the use of names or titles.421 While we have never viewed the broker￾dealer exclusion as precluding a broker￾dealer from marketing itself as providing some amount of advisory services, we have noted that these marketing efforts raised ‘‘troubling questions as to whether the advisory services are not (or would be perceived by investors not to be) incidental to the brokerage services.’’ 422 Certain commenters have voiced similar concerns, arguing that the use of certain titles, such as ‘‘financial advisor,’’ is inconsistent with the broker-dealer exclusion, with some noting that the marketing of advisory services by a broker-dealer is inconsistent with those services being solely incidental to the brokerage
business.423 Others, however, contended that the titles are consistent with the services provided by broker￾dealers, whether in fee-based or commission-based accounts.424 Taking into account our concerns and the views of commenters, we considered proposing a rule which would have stated that a broker-dealer that uses the term ‘‘adviser’’ or ‘‘advisor’’ as part of a name or title would not be considered to provide investment advice solely incidental to the conduct of its brokerage business and therefore would not be excluded from the definition of investment adviser under section 202(a)(11)(C) of the Advisers Act.425 In considering this alternative, we questioned whether a broker-dealer that uses these terms to market or promote its services to retail investors is doing so because its advice is significant or even instrumental to its brokerage business. Consequently, we questioned whether that broker-dealer’s provision of advice is therefore no longer solely incidental to its brokerage business. Similarly, we believe that if a broker-dealer invests its capital into marketing, branding, and creating intellectual property in using the terms ‘‘adviser’’ or ‘‘advisor’’ in its name or its financial professionals’ titles, the broker-dealer is indicating that advice is an important part of its retail investor broker-dealer business. As compared to the more principles￾based ‘‘holding out’’ approach below, this alternative may offer more certainty and clarity to broker-dealers. It also specifically addresses our concerns about the use of ‘‘adviser’’ and ‘‘advisor,’’ as discussed in this release. We also considered a broader approach that would have precluded a broker-dealer from relying on the solely incidental exclusion of section 202(a)(11)(C) if a broker-dealer ‘‘held itself out’’ as an investment adviser to retail investors.426 For example, ‘‘holding out’’ could encompass a broker-dealer that represented or implied through any communication or other sales practice (including through the use of names or titles) that it was offering investment advice to retail investors subject to a fiduciary relationship with an investment adviser. As with our alternative approach above, we questioned whether these activities could suggest, or could reasonably be understood as suggesting, that such broker-dealer or its associated natural persons were performing investment advisory services in a manner that was not solely incidental to their business as a broker-dealer. In particular, this approach could reduce the risk that if we restricted certain titles (or limited the use of certain titles used to market services) other potentially misleading titles could proliferate. Certain commenters to Chairman Clayton’s Request for Comment also supported this approach, so that retail investors receiving advice from firms ‘‘holding out’’ as investment advisers would receive appropriate protections, either under the Advisers Act or through a heightened standard of conduct for
broker-dealers.427 However, we preliminarily believe that a ‘‘holding out’’ approach would create uncertainty regarding which activities (and the extent of such activities) would be permissible. Such an approach could also reduce investor choice, as broker￾dealers may decide to provide fewer services out of an abundance of caution. We are not proposing any of these approaches however, because we preliminarily believe that a restriction on the use of ‘‘adviser’’ and ‘‘advisor’’ in names and titles in combination with the requirement to deliver a relationship summary would be a simpler, more administrable approach to address the confusion about the difference between investment advisers and broker-dealers, and to prevent investors from being potentially misled, compared to the alternatives presented above. While we acknowledge that there are other titles or marketing communications that may contribute to investor confusion or mislead investors, our proposal is tailored toward creating greater clarity with respect to the names and titles that are most closely related to the statutory term investment adviser. In particular, our proposed rule, in combination with the relationship summary, would help distinguish between who is and who is not an investment adviser and allow retail investors to select the business model that best suits their financial goals. The restriction of the use of the terms ‘‘adviser’’ and ‘‘advisor’’ that we are proposing is intended to augment protections provided to investors by applicable provisions of the federal securities laws. Broker-dealers and their natural associated persons can face liability for intentionally, recklessly, or negligently misleading investors about the nature of the services they are providing through, among other things, materially misleading advertisements or other communications that include statements or omissions, or deceptive practices or courses of business.428 We request comment generally on our proposed restriction on the use of certain titles and in particular on the following issues:

• Given the required relationship
  summary, is it necessary to impose any restrictions on the use of names or titles?
• Do you agree with our proposed
  restriction on the use of ‘‘adviser’’ and ‘‘advisor’’? Why or why not? To what extent does the disclosure provided in Form CRS complement our proposed

429See section 208(c) of the Advisers Act: ‘‘[i]t shall be unlawful for any person registered under
section 203 of this title to represent that he is an
investment counsel or to use the name ‘investment counsel’ as descriptive of his business unless (1) his or its principal business consists of acting as investment adviser, and (2) a substantial part of his or its business consists of rendering investment supervisory services.’’ 430See FINRA, Professional Designations, available at https://www.finra.org/investors/ professional-designations. 431See Senior Designations, FINRA Notice 11–52 (Nov. 2011), available at http://www.finra.org/sites/ default/files/NoticeDocument/p125092.pdf; NASAA, NASAA Model Rule on the Use of Senior￾Specific Certifications and Professional Designations (Mar. 20, 2008), available at http:// www.nasaa.org/wp-content/uploads/2011/07/3- Senior_Model_Rule_Adopted.pdf. restriction? To what extent could it be a substitute?

• Is our approach too broad or too
  narrow? Are there additional terms that we should explicitly include in the rule? For example, do any of the following names or titles have the potential to confuse investors about the differences between investment advisers and broker-dealers: Wealth manager; financial consultant; financial manager; money manager; investment manager; and investment consultant? Why or why not? What are the names or titles most commonly used that have the potential for investor confusion? Should we consider restricting the use of names, titles, or terms that are synonymous with ‘‘adviser’’ or ‘‘advisor’’ and if so, what would those names, titles, or terms be?
• Do commenters believe that names
  or titles are a main factor contributing to investor confusion and the potential for investors to be misled, or are there other more significant factors? For example, do particular services offered by broker-dealers contribute to, or primarily cause, investor confusion and the potential for the broker-dealer’s customers to be misled into believing that the broker-dealer is an investment adviser? If so, which services specifically? For example, do commenters believe that retirement and financial planning is more often associated with investment advisers rather than broker-dealers or vice versa? Additionally, do commenters believe that monitoring is more often associated with investment advisers than broker￾dealers or vice versa?
• Our proposed rule does not apply to
  financial professionals of a broker￾dealer when acting in the capacity, for example, as an insurance broker on behalf of an insurance company or a banker on behalf of a bank. Do you believe our proposed rule is clear that such persons are excluded from the restriction? If not, how should we provide such clarification?
• As discussed above, our proposed
  rule would not prohibit dually registered firms from using the term ‘‘adviser’’ or ‘‘advisor’’ in their name or title. However, it would restrict the use of such names or titles by some associated natural persons and supervised persons of those firms, depending on whether they provide investment advice to retail investors on behalf of the investment adviser. Do you agree with our proposed approach? Is there investor confusion concerning what capacity a dually registered firm, a dual hatted financial professional, or an associated or supervised person of a dually registered firm is acting in when communicating with a retail investor? If such confusion exists, how should we address it, in addition to the proposed relationship summary? For example, are retail investors confused about which type of account their financial professional is referring to when he or she makes a particular recommendation? If this is a source of confusion, how should we address it (e.g., should we address it through affirmative disclosures of account types in account statements or another form of disclosure)?
• Given the prevalence of dually
  registered firms and their associated dual hatted financial professionals, do retail investors typically believe they are engaging a financial professional who is solely a broker-dealer or investment adviser, or do investors understand that such person is a dual hatted professional and therefore may be able to engage with them as a broker-dealer and an investment adviser? Or do retail investors currently not understand enough to distinguish among these options in any meaningful manner?
• Do commenters believe that retail
  investors will understand that there is, and will continue to be under proposed Regulation Best Interest, differences in the standards of conduct, compensation structures, and services offered (among other items) depending on the capacity in which such professional engages a retail investor?
• We are proposing to permit or
  restrict financial professionals associated with dually registered firms from using the term ‘‘adviser’’ or ‘‘advisor’’ in their name or title based on whether they provide investment advice on behalf of such investment advisers. Are there alternatives we should consider in implementing this portion of the rule? For example, should we only allow a supervised person to use such names or titles where ‘‘a substantial part of his or her business consists of rendering investment supervisory services’’ to retail investors, based upon a facts and circumstances determination? 429
• Our proposed rule would not
  prohibit dually registered firms or dually hatted financial professionals from using ‘‘adviser’’ or ‘‘advisor’’ in their names or titles, even in circumstances where the firm or financial professional provides only brokerage services to a particular retail investor. Do you agree with our approach? Why or why not? For example, should the proposed rule’s application depend on the capacity in which a financial professional engages a particular retail investor? If so, should financial professionals use multiple titles that would vary based on the capacity in which they are acting, and what titles would they use? Are there compliance challenges associated with this approach? Conversely, would this discourage dually registered firms or dually hatted financial professionals from using any title with ‘‘adviser’’ or ‘‘advisor,’’ even when they are providing advisory services? Would this discourage dually hatted financial professionals from providing brokerage services? Would a firm use different names or titles for different subsets of their financial professionals?
• Do you agree that the use of the
  terms ‘‘adviser’’ or ‘‘advisor’’ by broker￾dealers are the main sources of investor confusion? If so, what do these terms confuse investors about (e.g., the differences as to the standard of conduct their financial professional owes, the duration of the relationship, fees charged, compensation)? Are investors harmed by this confusion? If so, how? Do you agree that ‘‘adviser’’ and ‘‘advisor’’ are often associated with the statutory term ‘‘investment adviser’’? Do you believe that retail investors understand what the terms ‘‘adviser’’ and ‘‘broker-dealer’’ mean and can correctly identify what type of financial professional they have engaged?
• We understand that the terms
  ‘‘adviser’’ or ‘‘advisor’’ are included in some professional designations earned by financial professionals.430 We also understand that particular professional designations have been an area of concern for FINRA and NASAA.431 Should we include an exception to permit the use of professional designations that use the terms ‘‘adviser’’ or ‘‘advisor’’? What factors should the Commission consider if it were to include such an exception? For example, should such an exception be conditioned on prominent disclosure

432See supra notes 28–32 and accompanying text. 433See supra note 66. 434See supra note 67. 435See supra note 68. that the individual is not an investment adviser or supervised by one?

• Do you agree with the proposed
  approach in Exchange Act proposed rules 15l–2 and 15l–3 and Advisers Act proposed rule 211h–1 of limiting our proposed rules to ‘‘retail investors’’ where such persons are defined to include all natural persons as discussed above? 432 Should we instead exclude certain categories of natural persons based on their net worth or income level, such as accredited investors,433 qualified clients 434 or qualified purchasers? 435 If we did exclude certain categories of natural persons based on their net worth, what threshold should we use for measuring net worth? Should we exclude certain categories of natural persons for other reasons?
• Should we conform the definition
  of retail investor to the definition of retail customer as proposed in Regulation Best Interest, which would include non-natural persons, provided the recommendation is primarily for personal, family, or household purposes? What kind of compliance burdens would it create to base Form CRS delivery off of a definition of retail investor that only included recommendations primarily for personal, family, or household purposes? Should the definition of retail investor include trusts or similar entities that represent natural persons, as proposed? Are there other persons or entities that should be covered? Should we expand the definition to cover plan participants in workplace retirement plans who receive services from a broker-dealer or investment adviser for their individual accounts within a plan?
• What costs would broker-dealers
  impacted by our proposed rule incur as a result of having to rebrand themselves and their financial professionals along with revising their communications? Are there means to mitigate such costs? Would the costs differ if we made the broker-dealer exclusion in the Advisers Act unavailable to broker-dealers that use the terms ‘‘adviser’’ or ‘‘advisor’’?
• How would broker-dealers and
  associated natural persons of broker￾dealers who would be impacted by our proposed rule change the way they market themselves or communicate with retail investors as a result of our proposed rule? Would this cause any other changes to their business? For example, would more broker-dealer firms also register with the Commission or the states as investment advisers as a result of our proposed rule? Will firms exit the brokerage business as a result of our proposed rule? Would more associated natural persons of broker￾dealers become dual hatted?
• Would our proposed rule impact
  the marketing and communications of dually registered firms and their professionals in any manner? If so, how?
• Do investment advisers and their
  supervised persons also use names, titles, or professional designations that can lead or contribute to retail investor confusion? If so, please provide examples of these names or titles and how they can lead or contribute to confusion. Should we restrict investment advisers and their supervised persons from using these names or titles?
• What costs would our proposed
  restriction on certain names and titles impose? Are there greater or lower costs associated with our proposed rules as compared to alternative approaches that consider whether certain titles or marketing practices are consistent with advice being ‘‘solely incidental’’ to the firm’s brokerage activities and thus permissible for a firm relying on the broker-dealer exclusion from the Advisers Act? If so, what are the specific cost estimates of each approach and the components of those estimates? Are there ways to mitigate their impact and if so, what methods could be taken? Are there operational and compliance challenges associated with our proposed approach as compared to the alternatives approaches, and if so, what are they?
• We request comment on the
  alternative approach in which a broker￾dealer would not be considered to provide investment advice solely incidental to the conduct of its brokerage business if it uses the term ‘‘adviser’’ or ‘‘advisor’’ to market or promote its services and would instead treat such practices as indicating that the broker-dealer’s advisory services are not ‘‘solely incidental’’ to its conduct of business as a broker-dealer. What would be the advantages or disadvantages of using this approach instead of the approach we have proposed? Would the alternative approach address and mitigate investor confusion about the differences between broker-dealers and investment advisers? Would the alternative approach reduce the likelihood that investors may be misled as to the type of firm they are engaging with and therefore make an uninformed decision? Would the alternative approach have other effects on the analysis of when advisory activities are or are not solely incidental to brokerage activities? How would this alternative approach impact dually registered firms and dual hatted financial professionals? Are there operational and compliance challenges associated with this approach, and if so, what are they? How would broker-dealers and associated natural persons of broker-dealers impacted by the alternative approach change the way they market themselves or communicate with retail investors as a result of our proposed rule? Would this cause any other changes to their business?
• Would the alternative approach
  discussed above that would preclude a broker-dealer or an associated natural person of a broker-dealer from relying on the broker-dealer exclusion of
  section 202(a)(11)(C) of the Advisers Act
  if it ‘‘held itself out’’ as an investment adviser address investor confusion? What would be the advantages or disadvantages of using this approach instead of the approach we have proposed? Which communications or level of advice do you think imply that a broker-dealer or its associated natural person is ‘‘holding out’’ as an investment adviser? How would an approach that focuses on ‘‘holding out’’ as an investment adviser impact access to advice from different kinds of firms, and how retail investors pay for this advice? How would this approach affect competition? Would this ‘‘holding out’’ approach address any confusion that may arise from broker-dealer marketing efforts focusing on the ongoing relationship between the broker and the investor? Are there operational and compliance challenges associated with this approach, and if so, what are they?
• Instead of a prohibition or
  restriction on the use of certain terms, should we permit such terms but require broker-dealers and their associated natural persons other than dual registrants and dual hatted financial professionals to include a disclaimer in their communications that they are not an investment adviser or investment adviser representative, respectively, each time they use or refer to the term ‘‘adviser’’ or ‘‘advisor’’? Would this approach address investor confusion or mitigate the likelihood that investors may be misled when broker￾dealers and their associated natural persons use the term ‘‘adviser’’ or ‘‘advisor’’? Should this approach be coupled with an affirmative obligation that a dually registered broker-dealer or its dual hatted associated natural persons disclose that it is an investment adviser or an investment adviser representative, respectively, when using terms other than ‘‘adviser’’ or ‘‘advisor’’? Would this requirement discourage broker-dealers from using

436See ERISA § 408 (g)(11)(A); Code § 4975(f)(8)(J)(i) and 29 CFR 2550.408g–1. In addition, under the DOL’s BIC Exemption, the term ‘‘Adviser’’ would mean an individual who is an employee or other agent (including a registered representative) of a state or federally registered investment adviser, registered broker-dealer, bank or similar financial institution, or an insurance company. See Corrected BIC Exemption, infra note 504, section VIII(a). 437See Exchange Act proposed rule 15l–3(a) and Advisers Act proposed rule 211h–1(a). We note that in Form ADV investment advisers are required to state that registration with the Commission does not imply a certain level of skill or training. See Item 1.C. of Form ADV Part 2A. We are requesting comment on whether we should require broker￾dealers and investment advisers to include this statement in addition to disclosing their applicable regulatory status. 438See Exchange Act proposed rule 15l–3(b). 439See Advisers Act proposed rule 211h–1(b). 440For similar reasons, we are requiring the use of the terms ‘‘supervised person’’ and ‘‘associated person’’ as they are defined legal terms generally describing the financial professional’s association with the investment adviser or broker-dealer, respectively. 441See supra Section III.A. See also, e.g., RAND Study, supra note 5, at 19, 20 (‘‘Many [industry interview] participants reported that they thought that offering such [fee-based account] products and services meant that broker-dealers and investment advisers became less distinguishable from one another. They claimed that bundling of advice and sales by broker-dealers also added to investor confusion . . . . [Industry Representative] interviews suggest that individual investors do not distinguish between investment advisers and broker-dealers. Marketplace changes that have resulted in investment advisers and broker-dealers offering similar services have added to investor confusion.’’). these terms even if they were not prohibited? How would this approach impact our proposed rule requiring disclosure of the firm’s regulatory status and the financial professional’s association with the firm? How would this approach impact dually registered firms and dually hatted financial professionals? Are there operational and compliance challenges associated with this approach, and if so, what are they?

• We recognize that the term
  ‘‘adviser’’ is used differently in connection with the regulation of investment advisory services provided to workplace retirement plans and IRAs under ERISA and the prohibited transaction provisions of the Internal Revenue Code. For example, a statutory exemption for the provision of investment advice to participants of ERISA-covered workplace retirement plans and IRAs, and related DOL regulations, define the term ‘‘fiduciary adviser’’ broadly to include a variety of persons acting in a fiduciary capacity in providing investment advice, including investment advisers registered under the Advisers Act or under state laws, registered broker-dealers, banks or similar financial institutions providing advice through a trust department, and insurance companies, and their affiliates, employees and other agents.436 Given that there are definitions of ‘‘adviser’’ under other federal regulations that capture entities and individuals who are not regulated under the Advisers Act, would a restriction on the use of the term ‘‘adviser’’ that applies only to registered broker-dealers and their registered representatives contribute to investor confusion or result in conflicting regulations, and possibly increased compliance burdens, or affect competition?
• What would be the effect on
  competition by prohibiting broker￾dealers from using these terms? What would be the effect on competition by the alternative approaches described? D. Disclosures About a Firm’s Regulatory Status and a Financial Professional’s Association We are also proposing rules under the Exchange Act and the Advisers Act to require a broker-dealer and an investment adviser registered under
  section 203 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.437 We are also proposing as part of our proposed Exchange Act rule to require 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.438 In addition, we are proposing as part of our Advisers Act rule to require 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.439 For example, an investment adviser registered with the Commission would prominently disclose the following on its print or electronic communications: ‘‘[Name of Firm], an investment adviser registered with the Securities and Exchange Commission’’ or ‘‘[Name of Firm], an SEC-registered investment adviser.’’ Dually registered firms would similarly be required to prominently disclose both registration statuses in their print or electronic communications, for example: ‘‘[Name of Firm], an SEC￾registered broker-dealer and SEC￾registered investment adviser.’’ Similarly, an associated natural person of a broker-dealer would prominently disclose the following, for example, on his or her business card or signature block: ‘‘[Name of professional], a [title] of [Name of Firm], an associated person of an SEC-registered broker-dealer.’’ Alternatively, a supervised person of an investment adviser would prominently disclose the following on, for example, his or her business card or signature block: ‘‘[Name of professional], a [title] of [Name of Firm], a supervised person of an SEC-registered investment adviser.’’ Finally, a financial professional who is both an associated person of a broker-dealer and a supervised person of an investment adviser would prominently disclose the following, for example: ‘‘[Name of professional], a [title] of [Name of Firm], an associated person of an SEC￾registered broker-dealer and a supervised person of an SEC- registered investment adviser.’’ Our proposed registration disclosure rules, like the proposed restriction on names and titles, or our proposed alternative approaches, complement our proposed requirement that broker￾dealers and investment advisers deliver a relationship summary to retail investors. Even if a firm uses various titles, such as ‘‘wealth consultant’’ or ‘‘wealth manager,’’ the legal term for these firms is ‘‘investment adviser’’ and/ or ‘‘broker-dealer.’’ These statutory terms have meaning because they relate to a particular regulatory framework that is designed to address the nature and scope of the firm’s activities, which the firm would describe for a retail investor in the relationship summary.440 Accordingly, we preliminarily believe that
  requiring a firm to disclose whether it is a broker-dealer or an investment adviser in print or electronic communications to retail investors would assist retail investors to determine which type of firm is more appropriate for their specific investment needs. For similar reasons, we preliminarily believe 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. We acknowledge that in the studies and the comments received, retail investors generally believe broker￾dealers and investment advisers are similar, and that they did not understand differences between them.441 As discussed above, while we acknowledge that broker-dealers and investment advisers are similar in that they provide investment advice, they commonly are dissimilar in a variety of key areas such as disclosure of conflicts of interest, types of fees charged, and standard of conduct. In particular, the

442See Exchange Act proposed rule 15l–3(c)(1) and Advisers Act proposed rule 211h–1(c)(1). 443See supra note 442. 444See Exchange Act proposed rule 15l–3(c)(2) and Advisers Act proposed rule 211h–1(c)(2). See also Proposed Amendments to Investment Company Advertising Rules, Investment Company Act Release No. 25575 (May 17, 2002); Amendments to Investment Company Advertising Rules, Investment Company Act Release No. 26195 (Sept. 29, 2003) (stating that ‘‘radio and television advertisements [must] give the required narrative disclosures emphasis equal to that used in the major portion of the advertisement’’). See also 17 CFR 230.420. 445Similarly, we are not requiring firms to send new communications to replace all older print communications as this would be overly burdensome and costly for firms. proposed relationship summary would inform retail investors about many of these differences, and in so doing, would be addressing investor confusion. As a result, even if investors are currently confused, over time they should better understand that investment advisers and broker-dealers may be different, and how they are different. Similarly, our proposed rules to require a firm to disclose whether it is a broker-dealer or an investment adviser in print or electronic communications to retail investors would help to facilitate investor understanding, even if investors currently may not understand the differences between investment advisers and broker-dealers. We believe that disclosures that are as important as whether a firm is a broker￾dealer or an investment adviser or whether a financial professional is associated with a broker-dealer or is a supervised person of an investment adviser, should not be inconspicuous or placed in fine print. Accordingly, we are proposing to require a firm and its financial professionals to disclose their registration statuses in print communications in a type size at least as large as and of a font style different from, but at least as prominent as, that used in the majority of the communication.442 To be ‘‘prominent,’’ for example, we believe the disclosures should be included, at a minimum, on the front of a business card or in another communication, in a manner clearly intended to draw attention to it. In addition, we are proposing to require the disclosure to be presented in the body of the communication and not in a footnote.443 If a communication is delivered through an electronic communication or in any publication by radio or television, the disclosure must be presented in a manner reasonably calculated to draw retail investors’ attention to it.444 For example, in a televised or video presentation, a voice overlay and on-screen text could clearly convey the required information. Finally, we propose to stage the compliance date to ensure that firms and financial professionals can phase out certain older communications from circulation through the regular business lifecycle rather than having to retroactively change
them.445 We request comment generally on our proposed requirement to disclose a firm’s regulatory status and, for financial professionals, their association with such firm, and in particular on the following issues:

• Does our proposed rule requiring
  disclosure of a firm’s registration status, either alone or in combination with the proposed relationship summary, sufficiently address the concerns addressed by our proposed restriction on certain names or titles? If not, why not?
• Would the proposed rules requiring
  disclosure of registration status and the financial professional’s association with the firm give retail investors greater clarity about various aspects of their relationship with a financial professional (e.g., his or her services, compensation structures, conflicts of interest, and legal obligations)?
• To what extent do firms already
  clearly and conspicuously disclose their federal and/or state registration as investment advisers or broker-dealers? To what extent do financial professionals already disclose their association with the broker-dealer or investment adviser? If such status is disclosed, is it typically in fine print or presented in a manner that it is not easily recognizable to investors?
• Do retail investors understand what
  it means for a firm to be ‘‘registered’’ with the Commission or a state? Additionally, do retail investors understand what it means for a financial professional to be an ‘‘associated person’’ of a broker-dealer or a ‘‘supervised person’’ of an investment adviser?
• Would our proposed rules improve
  clarity and consistency for investors in identifying a firm’s regulatory status and a financial professional’s association with a firm or will it lead to unnecessary, wordy, and possibly redundant disclosure? If the latter, how can we address this?
• Are we correct that investors would
  find it helpful to know whether a firm is registered as an investment adviser or a broker-dealer or a financial professional is associated with a broker￾dealer or supervised by an investment adviser so that they can refer to the relationship summary to better understand the practical implications of the firm’s registration and such financial professional’s association with that firm?
• Should dually registered firms be
  required to disclose both registration statuses? Would this requirement cause more confusion or help to address it? If so, how? By requiring a financial professional to disclose whether he or she is an associated person of a broker￾dealer or a supervised person of an investment adviser, would we be assisting retail investors in understanding the capacity in which their financial professional services them? For example, would retail investors serviced by dual hatted financial professionals understand that their financial professional may act in dual capacities (i.e., brokerage and advisory)?
• Are our proposed requirements
  prescribing the presentation of the disclosure appropriate? Should we consider removing any of these requirements? Alternatively, are there requirements we should add? If so, which requirements and why? Are there requirements that we should modify? For example, could the Commission’s objective of ensuring prominence of disclosure be served through a more principles-based approach, or through different requirements (e.g., that the disclosure be not 20% smaller than the principal text)?
• Should the account statement or
  other disclosure clarify whether a retail investor has an advisory or a brokerage account? If so, how?
• Should our proposed rules define
  ‘‘communication’’? For example, should we include in the rule a definition that tracks FINRA’s definition of ‘‘communication’’ in Rule 2210? In particular, FINRA Rule 2210 defines a ‘‘communication’’ as correspondence, retail communications and institutional communications. ‘‘Correspondence’’ means any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar day period and ‘‘Retail communication’’ means any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar day period. Finally, ‘‘Institutional communication’’ means any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a member’s internal communications. Are there other definitions of ‘‘communication’’ we should consider? As an alternative to the word

446See FINRA Rule 2210(a); rule 206(4)–1 under the Advisers Act. 447See FINRA Rule 2210(b)(1)(D)(iii) (exempting certain communications from principal pre￾approval). 448See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f). 449See 15 U.S.C. 78w(a)(2). 450 Id. 451 15 U.S.C. 80b–2(c). 452 ‘‘Proposed rules’’ used in this economic analysis is inclusive of Form CRS and related proposed forms as well as the proposed rules themselves. 453Not all firms that are dually registered as an investment adviser and a broker-dealer offer both brokerage and advisory accounts to retail investors—for example, some dual registrants offer advisory accounts to retail investors but offer only brokerage services, such as underwriting services, to institutional clients. For purposes of the discussion of the baseline in this economic analysis, a dual registrant is any firm that is dually registered with the Commission as an investment adviser and a broker-dealer. For the purposes of the relationship summary, however, we propose to define dual registrant as a firm that is dually registered as a broker-dealer and an investment adviser and offers services to retail investors as both a broker-dealer and investment adviser. See supra note 25. 454See Risk Management Controls for Brokers or Dealers with Market Access, Securities Exchange Act Release No. 63241 (Nov. 3, 2010) [75 FR 69791, 69822 (Nov. 15, 2010)]. 455Assets are estimated by Total Assets (allowable and non-allowable) from Part II of the FOCUS filings (Form X–17A–5 Part II, available at https://www.sec.gov/files/formx-17a-5_2.pdf) and correspond to balance sheet total assets for the broker-dealer. The Commission does not have an estimate of the total amount of customer assets for broker-dealers. We estimate broker-dealer size from the total balance sheet assets as described above. 456Approximately $3.91 trillion of total assets of broker-dealers (98%) are at firms with total assets in excess of $1 billion. Of the 30 dual registrants in the group of broker-dealers with total assets in excess of $1 billion, total assets for these dual registrants are $2.46 trillion (62%) of aggregate broker-dealer assets. Of the remaining 88 firms, 81 have affiliated investment advisers. 457Because this number does not include the number of broker-dealers who are also registered as state investment advisers, the number undercounts the full number of broker-dealers that operate in both capacities. Further, not all firms that are dually registered as an investment adviser and a broker￾dealer offer both brokerage and advisory accounts to retail investors—for example, some dual registrants offer advisory accounts to retail investors but offer only brokerage services, such as underwriting services, to institutional customers. For purposes of the discussion of the baseline in this economic analysis, a dual registrant is any firm that is dually registered with the Commission as an investment adviser and a broker-dealer. 458Some broker-dealers may be
affiliated with investment advisers without being dually registered. From Question 10 on Form BD, 2,145 broker-dealers report that directly or indirectly, they either control, are controlled by, or under common control with an entity that is engaged in the securities or investment advisory business. Comparatively, 2,478 (19.57%) SEC-registered investment advisers report an affiliate that is a Continued ‘‘communication’’ in our proposed rules, should we use ‘‘advertisements’’ as defined in rule 206(4)–1 under the Advisers Act, or a different term? 446

• Should the proposed rules apply to
  all communications to retail investors, including oral communications? On the other hand, are there certain types of written communications that could be exempted, e.g. communications that do not make any financial or investment recommendation or otherwise promote a product or service of the member? 447
• Should we permit the use of
  hyperlinks to the registration status disclosure statement for electronic communications rather than requiring the disclosure statement on the communication itself? Would permitting hyperlinks limit or promote the effectiveness of this disclosure requirement, and if so, how?
• Should we require broker-dealers,
  investment advisers and financial professionals to state that registration with the Commission does not imply a certain level of skill or training? Are there potential benefits or drawbacks to requiring this type of statement?
  IV. Economic Analysis
  We are sensitive to the economic effects, including the costs and benefits that stem from the proposed 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.448 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.449 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.450
  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, also to consider whether the action will promote efficiency, competition, and capital formation, in addition to the protection of investors.451 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 particularly challenging due to the difficulty of predicting how market participants would act under the conditions of the proposed rules. For example, although we expect that the proposal would increase retail investors’ understanding of the services provided to them, investors could respond differently to the increased understanding—by transferring to a different financial firm or professional, hiring a financial professional for the first time, or entirely abandoning the financial services market while moving their assets to other products or markets (e.g., bank deposits or insurance products). The Commission encourages commenters to provide any data and information that could help us quantify these long-term effects. In the economic analysis that follows, we first examine the current regulatory and economic landscape to form a baseline for our analysis. We then analyze the likely economic effects— including benefits and costs and impact on efficiency, competition, and capital formation—arising from the proposed rules relative to the baseline discussed below. A. Baseline This section discusses, as it relates to this proposal, the current state of the broker-dealer and investment adviser markets, the current regulatory environment, and the current state of retail investor perceptions in the market.

1. Providers of Financial Services
   a. Broker-Dealers
   As noted above, one market that would be affected by these proposed rules 452 is the market for broker-dealer services, including firms that are dually registered as broker-dealers and investment advisers.453 The market for broker-dealer services encompasses a small set of large broker-dealers and thousands of small broker-dealers competing for niche or regional segments of the market.454 As of December 2017, there were approximately 3,841 registered broker￾dealers with over 130 million customer accounts. In total, these broker-dealers have close to $4 trillion in total assets.455 More than two-thirds of all brokerage assets and close to one-third of all customer accounts are held by the 16 largest broker-dealers, as shown in
   Table 1, Panel A.456 Of the broker￾dealers registered with the Commission
   as of December 2017, 366 broker-dealers were dually registered as investment advisers; 457 however, these firms hold nearly 90 million (68%) customer

broker-dealer in Section 7A of Schedule D of Form ADV, including 1,916 SEC-registered investment advisers that report an affiliate that is a registered broker-dealer. Approximately 75% of total assets under management of investment advisers are managed by these 2,478 investment advisers. 459We examined Form BD filings to identify broker-dealers reporting non-securities business. For the 546 broker-dealers reporting such business, staff analyzed the narrative descriptions of these businesses on Form BD, and identified the most common types of businesses: Insurance (208), management/financial/other consulting (101), advisory/retirement planning (80), mergers & acquisitions (71), foreign exchange/swaps/other derivatives (31), real estate/property management (31), tax services (15), and other (141). Note that a broker-dealer may have more than one line of non￾securities business. 460The value of customer accounts is not available from FOCUS data for broker-dealers. Therefore, to obtain estimates of firm size for broker-dealers, we rely on the value of broker￾dealers total assets as obtained from FOCUS reports. Retail sales activity is identified from Form BR, which categorizes retail activity broadly (by marking the ‘‘sales’’ box) or narrowly (by marking the ‘‘retail’’ or ‘‘institutional’’ boxes as types of sales activity). We use the broad definition of sales as we preliminarily believe that many firms will just mark ‘‘sales’’ if they have both retail and institutional activity. However, we note that this may capture some broker-dealers that do not have retail activity, although we are unable to estimate that frequency. We request comment on whether firms that intermediate both retail and institutional customer activity generally market only ‘‘sales’’ on Form BR. 461Total assets and customer accounts for broker￾dealers that serve retail customers also include institutional accounts. Data available from Form BD and FOCUS data is not sufficiently granular to identify the percentage of retail and institutional accounts at firms. 462Of the 36 dual registrants in the group of retail broker-dealers with total assets in excess of $500 million, total assets for these dual registrants are $2.19 trillion (60%) of aggregate retail broker-dealer assets. Of the remaining 72 retail broker-dealers, 67 have affiliated investment advisers. 463The data is obtained from FOCUS filings as of December 2017. Note that there may be a double￾counting of customer accounts among in particular the larger broker-dealers as they may report introducing broker-dealer accounts as well in their role as clearing broker-dealers. 464 In addition to the approximately 130 million individual accounts at broker-dealers, there are approximately 293,000 omnibus accounts (0.2% of total accounts at broker-dealers), across all 3,841 broker-dealers, of which approximately 99% are held at broker-dealers with greater than $1 billion in total assets. See also supra note 455. Omnibus accounts
reported in FOCUS data are the accounts of non-carrying broker-dealers with carrying broker￾dealers. These accounts may have securities of multiple customers (of the non-carrying firm), or securities that are proprietary assets of the non￾carrying broker-dealer. We are unaware from the data available to determine how many customer accounts non-carrying broker-dealers may have. The data does not allow the Commission to parse the total assets in those accounts to determine to whom such assets belong. Therefore, our estimate may be underinclusive of all customer accounts held at broker-dealers. 465Customer Accounts includes both broker￾dealer and investment adviser accounts for dual registrants. dealers (14%) reported at least one type of non-securities business, including insurance, retirement planning, mergers & acquisitions, and real estate, among others.459 Approximately 74% of registered broker-dealers report retail customer activity.460 Panel B of Table 1 limits the broker￾dealers to those that report some retail investor activity. As of December 2017, there were approximately 2,857 broker￾dealers that served retail investors, with over $3.6 trillion in assets (90% of total broker-dealer assets) and 128 million (96%) customer accounts.461 Of those broker-dealers serving retail investors, 360 are dually registered as investment advisers.462
TABLE 1—PANEL A: REGISTERED BROKER-DEALERS AS OF DECEMBER 2017 463
[Cumulative Broker-Dealer Total Assets and Customer Accounts 464] Size of broker-dealer (total assets) Total number of BDs Number of dual-registered BDs Cumulative total assets Cumulative number of customer Accounts 465 >$50 billion ....................................................................................................... 16 10 $2,717 bil. 40,969,187 $1 billion to $50 billion ..................................................................................... 102 20 1,196 bil. 81,611,933 $500 million to $1 billion .................................................................................. 38 7 26 bil. 4,599,330 $100 million to $500 million ............................................................................. 118 26 26 bil. 1,957,981 $10 million to $100 million ............................................................................... 482 94 17 bil. 2,970,133 $1 million to $10 million ................................................................................... 1,035 141 4 bil. 233,946 <$1 million ........................................................................................................ 2,055 68 1 bil. 5,588 Total .......................................................................................................... 3,841 366 3,987 bil. 132,348,098
TABLE 1—PANEL B: REGISTERED RETAIL BROKER-DEALERS AS OF DECEMBER 2017
[Cumulative Broker-Dealer Total Assets and Customer Accounts] Size of broker-dealer (total assets) Total number of BDs Number of dual-registered BDs Cumulative total assets Cumulative number of customer accounts >$50 billion ....................................................................................................... 15 10 $2,647 bil. 40,964,945 $1 billion to $50 billion ..................................................................................... 70 19 923 bil. 77,667,615 $500 million to $1 billion .................................................................................. 23 7 16 bil. 4,547,574 $100 million to $500 million ............................................................................. 93 25 20 bil. 1,957,981 $10 million to $100 million ............................................................................... 372 94 14 bil. 2,566,203 $1 million to $10 million ................................................................................... 815 139 3 bil. 216,158 <$1 million ........................................................................................................ 1,469 66 $.4 bil. 5,588 Total .......................................................................................................... 2,857 360 $3,624 bil. 127,926,064

466FOCUS data does not provide mark-ups or mark-downs as a separate revenue category and they are not included as part of the brokerage commission revenue. 467Source: FOCUS data. 468Fees, as detailed in the FOCUS data, include fees for account supervision, investment advisory and administrative services. Beyond the broad classifications of fee types included in fee revenue, we are unable to determine whether fees such as 12b–1 fees, sub-accounting, or other such service fees are included. The data covers both broker￾dealers and dually-registered firms. FINRA’s Supplemental Statement of Income, Line 13975 (Account Supervision and Investment Advisory Services) denotes that fees earned for account supervision are those fees charged by the firm for providing investment advisory services where there is no fee charged for trade execution. Investment Advisory Services generally encompass investment advisory work and execution of client transactions, such as wrap arrangements. These fees also include fees charged by broker-dealers that are also registered with the Commodity Futures Trading Commission (‘‘CFTC’’), but do not include fees earned from affiliated entities (Item A of question 9 under Revenue in the Supplemental Statement of Income). 469With respect to the FOCUS data, additional granularity of what services comprise ‘‘advisory services’’ is not available. 470A rough estimate of total fees in this size category would be 102 broker-dealers with assets between $1 billion and $50 billion multiplied by the average fee revenue of $91 million, or $9.381 billion in total fees. Divided by the number of customer accounts in this size category (81,611,933), the average account would be charged approximately $115 in fees per quarter, or $460 per year. 471The data obtained from December 2017 FOCUS reports and averaged across size groups. 472Fees, as detailed in the FOCUS data, include fees for account supervision, investment advisory and administrative services. The data covers both broker-dealers and dually-registered firms. 473See id.
Table 2 reports information on
brokerage commissions,466 fees, and selling concessions from the fourth quarter of 2017 for all broker-dealers, including dual registrants.467 On average, broker-dealers, including those that are dually registered as investment advisers, earn about $2.1 million per quarter in revenue from commissions and more than double that amount in fees,468 although the Commission notes that fees encompass a variety of fees, not just those related to advisory services.469 The level of revenues earned from broker-dealers for commissions and fees increases with broker-dealer size, but also tends to be more heavily weighted towards commissions for broker-dealers with less than $10 million in assets and is weighted more heavily towards fees for broker-dealers with assets in excess of $10 million. For example, for the 102 broker-dealers with assets between $1 billion and $50 billion, average revenues from commissions are $25 million, while average revenues from fees are approximately $91 million.470 In addition to revenue generated from commissions and fees, broker-dealers may also receive revenues from other sources, including margin interest, underwriting, research services, and third-party selling concessions, such as from sales of investment company (‘‘IC’’) shares. As shown in Table 2, Panel A, these selling concessions are generally a smaller fraction of broker￾dealer revenues than either commissions or fees, except for broker￾dealers with total assets between $10 million and $100 million. For these broker-dealers, revenue from third-party selling concessions is the largest category of revenues and constitutes approximately 44% of total revenues earned by these firms.
Table 2, Panel B, below provides
aggregate revenues by revenue type (commissions, fees, or selling concessions) for broker-dealers delineated by whether the broker-dealer is also a dual registrant. Broker-dealers dually registered as investment advisers have a significantly larger fraction of their revenues from fees compared to commissions or selling concessions, whereas broker-dealers that are not dually registered generated approximately 43% of their advice￾related revenues as commissions and only 32% of their advice-related revenues from fees, although we lack granularity to determine whether advisory services, in addition to supervision and administrative services, contribute to fees at standalone broker￾dealers.
TABLE 2—PANEL A: AVERAGE BROKER-DEALER REVENUES FROM REVENUE GENERATING ACTIVITIES 471
Size of broker-dealer in total assets N Commissions Fees 472 Sales of IC shares >$50 billion ....................................................................................................... 16 $176,193,599 $365,014,954 $20,493,769 $1 billion–$50 billion ........................................................................................ 102 25,109,619 91,966,559 18,808,687 $500 million–$1 billion ..................................................................................... 38 6,322,803 11,312,112 6,724,401 $100 million–$500 million ................................................................................ 118 7,698,889 11,338,175 4,536,407 $10 million–$100 million .................................................................................. 483 1,801,079 2,811,290 3,653,475 $1 million–$10 million ...................................................................................... 1,035 633,720 372,757 217,444 <$1 million ........................................................................................................ 2,049 66,503 38,618 26,270 Average of All Broker-Dealers .................................................................. 3,841 2,132,544 4,897,521 1,322,759
TABLE 2—PANEL B: AGGREGATE TOTAL REVENUES FROM REVENUE GENERATING ACTIVITIES FOR BROKER-DEALERS
BASED ON DUAL REGISTRANT STATUS Broker-dealer type N Commissions Fees 473 Sales of IC shares Dual Registered as IAs .................................................................................... 366 $4.27 bil. $15.88 bil. $2.8 bil. Standalone Registered BDs ............................................................................ 3,475 3.92 bil. 2.93 bil. 2.28 bil. All .............................................................................................................. 3,841 8.19 bil. 18.81 bil. 5.08 bil.

474See generally Form BD.
475See Item 11 and Disclosure Reporting Pages, Form BD. 476See Exchange Act rule 15b3–1(a). 477See supra Section II.B.7. 478FINRA Rule 8312 governs the information FINRA releases to the public via BrokerCheck. See supra note 280 and accompanying text. 479A broker-dealer also may be liable if it does not disclose ‘‘material adverse facts of which it is aware’’. See, e.g., Chasins v. Smith, Barney & Co., 438 F.2d at 1172; SEC v. Hasho, 784 F. Supp. at 1110; Release 48758, supra note 243 (‘‘When a securities dealer recommends stock to a customer, it is not only obligated to avoid affirmative misstatements, but also must disclose material adverse facts of which it is aware. That includes disclosure of ‘‘adverse interests’’ such as ‘‘economic self-interest’’ that could have influenced its recommendation.’’) (citations omitted). 480See, infra Section IV.A.1.c; FINRA Notice 10– 54, supra note 12. Generally, all registered broker￾dealers that deal with the public must become members of FINRA, a registered national securities association, and may choose to become exchange members. See Exchange Act section 15(b)(8) and Exchange Act rule 15b9–1. FINRA is the sole national securities association registered with the SEC under section 15A of the Exchange Act. Accordingly, for purposes of discussing a broker￾dealer’s regulatory requirements when providing advice, we focus on FINRA’s regulation, examination and enforcement with respect to member broker-dealers. FINRA disclosure rules include but are not limited FINRA rules 2210(d)(2) (communications with the public), 2260 (disclosures), 2230 (customer account statements and confirmations), and 2270 (day-trading risk disclosure statement). 481 In addition to SEC-registered investment advisers, which are the focus of this section, the proposed rules and proposed Form CRS could also affect banks, trusts, insurance companies, and other providers of financial advice. 482Of the approximately 12,700 SEC-registered investment advisers, 7,979 (64%) report in Item 5.G.(2) of Form ADV that they provide portfolio management services for individuals and/or small businesses. In addition, there are approximately 17,800 state-registered investment advisers, of which 145 are also registered with the Commission. Approximately 13,800 state-registered investment advisers are retail facing (see Item 5.D of Form ADV). 483See supra note 457. 484 Item 7.A.1 of Form ADV. 485We use the responses to Items 5.D.(a)(1), 5.D.(a)(3), 5.D.(b)(1), and 5.D.(b)(3) of Part 1A. If at least one of these responses was filled out as greater than 0, the firm is considered as providing business to retail investors. Form ADV Part 1A. 486The aggregate AUM reported for these investment advisers that have retail investors includes both retail AUM as well as any institutional AUM also held at these advisers. 487Estimates are based on IARD system data as of December 31, 2017. The AUM reported here is specifically that of those non-high net worth clients. Of
the 7,600 investment advisers serving retail investors, 360 may also be dually registered as broker-dealers.
i. Disclosures for Broker-Dealers
Broker-dealers register with and report information to the Commission, the SROs, and other jurisdictions through Form BD. Form BD requires information about the background of the applicant, its principals, controlling persons, and employees, as well as information about the type of business the broker-dealer proposes to engage in and all control affiliates engaged in the securities or investment advisory business.474 Broker-dealers report whether a broker-dealer or any of its control affiliates have been subject to criminal prosecutions, regulatory actions, or civil actions in connection with any investment-related activity, as well as certain financial matters.475 Once a broker-dealer is registered, it must keep its Form BD current by amending it promptly when the information is or becomes inaccurate for any reason.476 In addition, firms report similar information and additional information to FINRA pursuant to FINRA Rule 4530.477 The current Paperwork Reduction Act estimate for the total industry-wide annual filing burden to comply with rule 15b1–1 and file Form BD is approximately 4,999 hours, with an estimated internal cost of compliance associated with those burden hours for all broker-dealers of $1,394,721. A significant amount of information concerning broker-dealers and their associated natural persons, including information from Form BD, Form BDW, and Forms U4, U5, and U6, is publicly available through FINRA’s BrokerCheck system. This information includes violations of and claims of violations of the securities and other financial laws by broker-dealers and their financial professionals; criminal or civil litigation, regulatory actions, arbitration, or customer complaints against broker￾dealers and their financial professionals; and the employment history and licensing information of financial professionals associated with broker￾dealers, among other things.478 Broker-dealers are subject to other disclosure requirements under the federal securities laws and SRO rules. For instance, under existing antifraud provisions of the Exchange Act, a broker-dealer has a duty to disclose material information to its customers conditional on the scope of the relationship with the customer.479 Disclosure has also been a feature of other regulatory efforts related to financial services, including those of DOL and certain FINRA rules.480 b. Investment Advisers Other parties that would be affected by the proposed rules and proposed Form CRS are SEC-registered investment advisers.481 This section first discusses SEC-registered investment advisers, followed by a discussion of state-registered investment advisers. As of December 2017, there are approximately 12,700 investment advisers registered with the Commission. The majority of SEC￾registered investment advisers report that they provide portfolio management services for individuals and small businesses.482 Of all SEC-registered investment advisers, 366 identified themselves as dually registered
broker-dealers.483 Further, 2,478 investment advisers (20%) reported an affiliate that is a broker-dealer, including 1,916 investment advisers (15%) that reported an SEC-registered broker-dealer affiliate.484 As shown in Panel A of
Table 3 below, in aggregate, investment
advisers have over $72 trillion in assets under management (‘‘AUM’’). A substantial percentage of AUM at investment advisers is held by institutional clients, such as investment companies, pooled investment vehicles, and pension or profit sharing plans; therefore, although the dollar value of AUM for investment advisers and of customer assets in broker-dealer accounts is comparable, the total number of accounts for investment advisers is only 27% of the number of customer accounts for broker-dealers. Based on staff analysis of Form ADV data, approximately 60% of investment advisers (7,600) have some portion of their business dedicated to retail investors, including both high net worth and non-high net worth individual clients, as shown in Panel B of Table
3.485 In total, these firms have
approximately $32 trillion of assets under management.486 Approximately 6,600 registered investment advisers (52%) serve 29 million non-high net worth individual clients and have approximately $5.33 trillion in assets under management, while nearly 7,400 registered investment advisers (58%) serve approximately 4.8 million high net worth individual clients with $6.56 trillion in assets under management.487

488Pursuant to the Dodd-Frank Act, Item 2.A. of
Part 1A of Form ADV requires an investment
adviser to register with the SEC if it (i) is a large adviser that has $100 million or more of regulatory assets under management (or $90 million or more if an adviser is filing its most recent annual updating amendment and is already registered with the SEC); (ii) is a mid-sized adviser that does not meet the criteria for state registration or is not subject to examination; (iii) meets the requirements for one or more of the revised exemptive rules under section 203A discussed below; (iv) is an adviser (or subadviser) to a registered investment company; (v) is an adviser to a business development company and has at least $25 million of regulatory assets under management; or (vi) received an order permitting the adviser to register with the Commission. Although the statutory threshold is $100 million, the SEC raised the threshold to $110 million for those investment advisers that do not already file with the SEC. 489There are 79 investment advisers with latest reported Regulatory Assets Under Management in excess of $110 million but are not listed as registered with the SEC. For the purposes of this rulemaking, these are considered erroneous submissions. 490We use the responses to Items 5.D.(a)(1), 5.D.(a)(3), 5.D.(b)(1), and 5.D.(b)(3) of Part 1A. If at least one of these responses was filled out as greater than 0, the firm is considered as providing business to retail investors. Form ADV Part 1A. 491The aggregate AUM reported for these investment advisers that have retail investors includes both retail AUM as well as any institutional AUM also held at these advisers. 492Estimates are based on IARD system data as of December 31, 2017. The AUM reported here is specifically that of those non-high net worth investors. Of the 13,471 investment advisers serving retail investors, 144 may also be dually registered as broker-dealers. 493Some investment advisers report on Item 5.E. of Form ADV that they receive ‘‘commissions.’’ As a form of deferred sales load, all payments of ongoing sales charges to intermediaries would constitute transaction-related compensation. Intermediaries receiving those payments should consider whether they need to register as broker￾dealers under section 15 of the Exchange Act.
TABLE 3—PANEL A: REGISTERED INVESTMENT ADVISERS (RIAS) AS OF DECEMBER 2017
[Cumulative RIA assets under management (AUM) and accounts] Size of investment adviser (AUM) Number of RIAs Number of dual-registered RIAs Cumulative AUM Cumulative number of accounts >$50 billion ....................................................................................................... 246 15 $48,221 bil. 17,392,968 $1 billion to $50 billion ..................................................................................... 3,238 115 21,766 bil. 11,560,805 $500 million to $1 billion .................................................................................. 1,554 53 1,090 bil. 2,678,084 $100 million to $500 million ............................................................................. 5,568 129 1,303 bil. 3,942,639 $10 million to $100 million ............................................................................... 1,103 24 59 bil. 198,659 $1 million to $10 million ................................................................................... 172 2 1 bil. 5,852 <$1 million ........................................................................................................ 778 28 .02 bil. 31,291 Total .......................................................................................................... 12,659 366 72,439 bil. 35,810,298
TABLE 3—PANEL B: RETAIL REGISTERED INVESTMENT ADVISERS (RIAS) AS OF DECEMBER 2017
[Cumulative RIA assets under management (AUM) and accounts] Size of investment adviser (AUM) Number of RIAs Number of dual-registered RIAs Cumulative AUM Cumulative number of accounts >$50 billion ....................................................................................................... 106 15 $22,788 bil. 16,638,548 $1 billion to $50 billion ..................................................................................... 1,427 114 8,472 bil. 10,822,275 $500 million to $1 billion .................................................................................. 934 52 652 bil. 2,602,220 $100 million to $500 million ............................................................................. 4,114 126 917 bil. 3,814,900 $10 million to $100 million ............................................................................... 711 24 40 bil. 231,663 $1 million to $10 million ................................................................................... 98 1 .4 bil. 5,804 <$1 million ........................................................................................................ 198 29 .02 bil. 31,271 Total .......................................................................................................... 7,588 361 32,870 bil. 34,146,681 As an alternative to registering with the Commission, smaller investment advisers could register with state regulators.488 As of December 2017, there are 17,635 state registered investment advisers,489 of which 145 are also registered with the Commission. Of the state-registered investment advisers, 236 are dually registered as broker￾dealers, while 5% (920) report a broker￾dealer affiliate. In aggregate, state￾registered investment advisers have approximately $341 billion in AUM. Eighty-two percent of state-registered investment advisers report that they provide portfolio management services for individuals and small businesses, compared to just 64% for SEC-registered investment advisers. Approximately 77% of state￾registered investment advisers (13,470) have some portion of their business dedicated to retail investors,490 and in aggregate, these firms have approximately $308 billion in AUM.491 Approximately 12,700 (72%) state￾registered advisers serve 616,000 non￾high net worth retail clients and have approximately $125 billion in AUM, while over 11,000 (63%) state-registered advisers serve approximately 194,000 high net worth retail clients with $138 billion in AUM.492
Table 4 details the compensation
structures employed by approximately 12,700 investment advisers. Approximately 95% are compensated through a fee-based arrangement, where a percentage of assets under management are remitted to the investment adviser from the investor for advisory services. As shown in the table below, most investment advisers rely on a combination of different compensation types, beyond fee-based compensation, including fixed fees, hourly charges, and performance based fees. Less than 4% of investment advisers charge commissions 493 to their investors.

494A wrap fee program sponsor is as a firm that sponsors, organizes, or administers the program or selects, or provides advice to clients regarding the selection of, other investment advisers in the program. See General Instructions to Form ADV. 495See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 194; see also Brochure Adopting Release, supra note 157. See also 913 Study, supra note 3, at n.92. For example, if an adviser selects or recommends other advisers to investors, it must disclose any compensation arrangements or other business relationships between the advisory firms, along with the conflicts created, and explain how it addresses these conflicts. See Item 10 of Form ADV Part 2A. See also 913 Study, supra note 3, at n.93. Other potential conflicts of interest include acting as a principal in transactions with investors and compensation received thereof; incentives provided by third parties to sell their services and products; and agency cross-trades, where the advisers is also a broker-dealer and executes a client’s order by crossing the orders with those of non-advisory clients. See Interpretation of Section 206(3) of the Investment Advisers Act of 1940, Investment Advisers Act Release No. 1732 (Jul. 20, 1998), at n.3. 496See Advisers Act rules 203–1 and 204–1. Part 1A (1B) of Form ADV is the registration application for the Commission (and state securities authorities). Part 2 of Form ADV consists of a narrative ‘‘brochure’’ about the adviser and ‘‘brochure supplements’’ about certain advisory personnel on whom clients may rely for investment advice. See Brochure Adopting Release, supra note 157. 497Part 2A of Form ADV contains 18 mandatory disclosure items about the advisory firm, including information about an adviser’s: (1) Range of fees; (2) methods of analysis; (3) investment strategies and risk of loss; (4) brokerage, including trade aggregation polices and directed brokerage practices, as well as the use of soft dollars; (5) review of accounts; (6) client referrals and other compensation; (7) disciplinary history; and (8) financial information, among other things. Much of the disclosure in Part 2A addresses an investment adviser’s conflicts of interest with its investors, and is disclosure that the adviser, as a fiduciary, must make to investors in some manner regardless of the form requirements. See Brochure Adopting Release, supra note 157. 498Part 2B, or the ‘‘brochure supplement,’’ includes information about certain advisory personnel that provide retail client investment advice, and contains educational background, disciplinary history, and the adviser’s supervision of the advisory activities of its personnel. See Instruction 5 of General Instructions for Form ADV. Registrants are not required to file Part 2B (brochure supplement) electronically, but must preserve a copy of the supplement(s) and make them available upon request. 499See Brochure Adopting Release, supra note 157. 500See Investment Adviser Public
Disclosure, available at https://adviserinfo.sec.gov/. 501See infra Section V.A.2. 502See supra note 11. 503See 29 CFR 2550.408g–1(b)(7). In general, firms and financial professionals who receive commissions or other transaction-related compensation in connection with providing certain fiduciary investment recommendations relating to the assets of ERISA-covered workplace retirement plans and IRAs could violate provisions under the Code prohibiting fiduciaries from engaging in self￾dealing and receiving compensation from third parties in connection with investments by these plans and IRA (and, with respect to such plans, substantially similar prohibited transaction rules that apply under ERISA to transactions involving ERISA plans but not IRAs). To receive such compensation, firms have historically complied with one or more prohibited transaction exemptions (‘‘PTEs’’) issued by the DOL over time, which generally required (among other conditions) disclosures about, e.g., direct and indirect compensation received in connection with a recommended transactions. See Definition of the Term ‘‘Fiduciary;’’ Conflict of Interest Rule— Retirement Investment Advice, 81 FR 20945, 20991–92 (Apr. 8, 2016) (to be codified at 20 C.F.R. pts. 2509, 2510 and 2550) (‘‘DOL Fiduciary Rule Adopting Release’’) (describing action to adopt new and amended PTEs and revoke certain PTEs applicable to investment advice services). 504See Best Interest Contract Exemption, 81 FR 21002, 21006–7 (Apr. 8, 2016) (‘‘BIC Exemption
TABLE 4—REGISTERED INVESTMENT ADVISERS COMPENSATION BY TYPE
Compensation type Yes No
A percentage of assets under management ........................................................................................................... 12,041 617 Hourly charges ......................................................................................................................................................... 3,670 8,988 Subscription fees (for a newsletter or periodical) .................................................................................................... 119 12,539 Fixed fees (other than subscription fees) ................................................................................................................ 5,406 7,252 Commissions ........................................................................................................................................................... 490 12,168 Performance-based fees ......................................................................................................................................... 4,780 7,878 Other ........................................................................................................................................................................ 1,846 10,812 As discussed above, many investment advisers participate in wrap fee programs. As of December 31, 2017, more than 5% of the SEC-registered investment advisers sponsor a wrap fee program and more than 9% act as a portfolio manager for one or more wrap fee programs.494 From the data available, we are unable to determine how many advisers provide advice about investing in wrap fee programs, because advisers providing such advice may be neither sponsors nor portfolio managers.
ii. Disclosures for Investment Advisers
As fiduciaries, investment advisers have a duty to provide full and fair disclosure of material facts and are subject to express disclosure requirements in Form ADV.495 Consistent with this duty and those requirements, investment advisers file Form ADV to register with the Commission or state securities authorities, as applicable, and provide an annual update to the form.496 Part 1 of Form ADV provides information to regulators, and made available to clients, prospective clients, and the public, about the registrants’ ownership, investors, and business practices. Advisers also prepare a Form ADV Part 2A narrative brochure that contains information about the investment adviser’s business practices, fees, conflicts of interest, and disciplinary information,497 in addition to a Part 2B brochure supplement that includes information about the specific individuals, acting on behalf of the investment adviser, who actually provide investment advice and interact with the client.498 Currently, the Part 2A brochure is the primary client-facing disclosure document,499 however, Parts 1 and 2A are both made publicly available by the Commission through IAPD,500 and advisers are generally required to deliver Part 2A and Part 2B to their clients. The current Paperwork Reduction Act estimate of the average annual cost and hour burden for investment advisers to complete, amend, and file all parts of Form ADV are $6,051 and 23.77 hours.501
c. Disclosure Obligations for Broker￾Dealers and Investment Advisers Under
DOL Rules and Exemptions
As noted, firms and financial professionals providing services to customers in retirement accounts, including workplace retirement plans and IRAs, are subject to certain disclosure obligations under rules and exemptions issued by the DOL under ERISA and the prohibited transaction provisions of the Code.502 For example, DOL regulations under a statutory exemption for investment advice services provided to plan participants and IRAs requires firms and financial professionals to disclose information about the services that they will provide and their fees and other compensation, and to acknowledge that the adviser is acting as a fiduciary.503 More recently, the DOL’s BIC Exemption would require that firms seeking to rely on the exemption to receive commissions and other fees in connection with making investment recommendations to IRAs and participants of ERISA-covered plans (including advice relating to rollovers from plans or between account types) 504

Release’’) Best Interest Contract Exemption; Correction (Prohibited Transaction Exemption 2016–01), 81 FR 44773 (July 11, 2016) (‘‘Corrected BIC Exemption’’), as amended 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016– 01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02); Prohibited Transaction Exemption 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84–24), 82 FR 56545 (Nov. 29, 2017). Depending on how they are compensated, investment advisers receiving a level fee may not be subject to the full set of contract, disclosure and other conditions of the BIC Exemption. 505See Corrected BIC Exemption, supra note, 504, at sections II and III. Ongoing website disclosure would include information about certain material conflicts of interest and third party payments, a
schedule of typical fees and service charges, a
description of the compensation and incentive arrangements for individual financial professionals, and a written description of the financial institution’s policies and procedures. Id., at section
III. In the case of recommendations provided to an
IRA, the firm also would be required to enter into a written contract with the IRA owner that includes an acknowledgement of fiduciary status and an enforceable promise to adhere to certain ‘‘impartial conduct standards’’ (including a best interest standard of conduct). Id., at section II(a). 506See DOL Fiduciary Rule Adopting Release, supra note 503. 507See Chamber of Commerce of the U.S.A., e. al.
v. U.S. Dep’t of Labor, et. al., No. 17–10238 (5th Cir.
Mar 15, 2018).
508See SIFMA and Deloitte, The DOL Fiduciary Rule: A study on how financial institutions have responded and the resulting impacts on retirement investors (Aug. 9, 2017), available at https:// www.sifma.org/wp-content/uploads/2017/08/ ;Deloitte-White-Paper-on-the-DOL-Fiduciary-Rule￾August-2017.pdf. 509 In order to obtain this information, the Commission would need to know which financial firms have retirement-based accounts as part of their business model. Under the current reporting regime for both broker-dealers and investment advisers, they are not required to disclose whether (or what fraction) of their accounts are held by retail investors in retirement-based accounts. 510See BIC Exemption Release, supra note 504, at 21006–07 (DOL states that it ‘‘anticipates that the [DOL Fiduciary Rule] will cover many investment professionals who did not previously consider themselves to be fiduciaries under ERISA or the Code.’’). 511As of December 2017, 3,841 broker-dealers filed Form BD. Retail sales by broker-dealers were obtained from Form BD. 512The DOL’s Regulatory Impact Analysis estimated that the numbers of broker-dealers and investment advisers (including state-registered investment advisers) that could be affected by their rule are approximately 2,500 and 17,500, respectively. See Regulatory Impact Analysis for Final Rule and Exemptions, Definition Of The Term ‘‘Fiduciary’’ Conflicts Of Interest—Retirement Investment Advice (Apr. 2016), at 215–229, available at https://www.dol.gov/sites/default/files/ ebsa/laws-and-regulations/rules-and-regulations/ completed-rulemaking/1210-AB32-2/conflict-of￾interest-ria.pdf. generally must (among other conditions) provide disclosure about the services to be performed (including monitoring of recommendations, offering proprietary products and limiting recommendations) and how the investor will pay for services, material conflicts of interest (including third party compensation to the firm, affiliates and financial professionals), and must also make certain ongoing disclosures on a public website.505 The DOL adopted the BIC Exemption in connection with the amendment of its regulation defining ‘‘investment advice,’’ which had the effect of expanding the circumstances under which broker-dealers and investment advisers may be fiduciaries for purposes of the prohibited transaction provisions under ERISA and the Code (the ‘‘DOL Fiduciary Rule’’).506 Although a decision of the Court of Appeals for the Fifth Circuit recently vacated the DOL Fiduciary Rule,507 we understand that many firms already have taken steps to implement conditions under the BIC Exemption.508 The Commission does not currently have data on the number of firms that are subject to disclosure obligations under applicable DOL rules and exemptions.509 However, because we understand that most broker-dealers expected that they would be required to comply with the BIC Exemption to continue to provide services to retail investors in IRAs and
participant￾directed workplace retirement plans,510 the Commission can broadly estimate the maximum number of broker-dealers that could be subject to disclosure obligations under DOL rules and exemption including the BIC Exemption from the number of broker-dealers that have retail investor accounts. Approximately 74.4% (2,857) of registered broker-dealers report sales to retail customers.511 Similarly, approximately 60% (7,600) of investment advisers serve high net worth and non-high net worth individual clients. The Commission believes that this number likely overestimates those broker-dealers and investment advisers that provide retirement account services. Therefore, these 2,850 broker-dealers and 7,600 investment advisers that provide retail services represent an upper bound of the number of broker-dealers and investment advisers that would likely be subject to compliance with disclosure obligations under DOL rules and exemptions and may have taken steps to comply with the contract, disclosure and other conditions under the DOL’s BIC Exemption.512 d. Trends in the Relative Numbers of Providers of Financial Services Over time, the relative number of broker-dealers and investment advisers has changed. Figure 1 presented below shows the time series trend of growth in broker-dealers and investment advisers between 2005 and 2017. Over the last 13 years, the number of broker-dealers has declined from over 6,000 in 2005 to less than 4,000 in 2017, while the number of investment advisers has increased from approximately 9,000 in 2005 to over 12,000 in 2017. This change in the relative numbers of broker-dealers and investment advisers over time likely affects the competition for advice, and potentially alters the choices available to investors on how to receive or pay for such advice, the nature of the advice, and the attendant conflicts of interest. BILLING CODE 8011–01–P

513See, Hester Peirce, Dwindling numbers in the financial industry, Brookings Center on Markets and Regulation (May 15, 2017), available at https:// www.brookings.edu/research/dwindling-numbers￾in-the-financial-industry/ (‘‘Brookings Report’’) which notes that ‘‘SEC restrictions have increased by almost thirty percent [since 2000],’’ and that regulations post-2010 were driven in large part by the Dodd-Frank Act, page 5. Further, the Brookings Report observation of increased regulatory restrictions on broker-dealers only reflects CFTC or SEC regulatory actions, but does not include regulation by FINRA, SROs, NFA, or the MSRB. 514The Brookings Report, supra note 513, also discusses the shift from broker-dealer to investment advisory business models for retail investors, in
part due to the DOL Fiduciary Rule (page 7). See
also the RAND Study, supra note 5, which documents a shift from transaction-based to fee￾based accounts prior to recent regulatory changes. Declining transaction-based revenue due to declining commission rates and competition from discount brokerage firms has made fee-based products and services more attractive. Although discount brokerage firms generally provide execution-only services and do not compete directly in the advice market with full service broker-dealers and investment advisers, entry by discount brokers has contributed to lower commission rates throughout the broker-dealer industry. Further, fee-based activity generates a steady stream of revenue regardless of the customer trading activity, unlike commission-based accounts. 515Commission staff examined a sample of recent Form 10–K or Form 10–Q filings of large broker￾dealers, many of which are dually registered as investment advisers, that have a large fraction of retail customer accounts to identify relevant broker￾dealers. See, e.g., Edward Jones 9/30/2017 Form 10– Q available at https://www.sec.gov/Archives/edgar/ data/815917/000156459017023050/ck0000815917- 10q_20170929.htm; Raymond James 9/30/2017 Form 10–K available at https://www.sec.gov/ Archives/edgar/data/720005/000072000517000089/ rjf-20170930x10k.htm; Stifle 12/31/2016 Form 10– K available at https://www.sec.gov/Archives/edgar/ data/720672/000156459017022758/sf-10q_ 20170930.htm; Wells Fargo 9/30/2017 10–Q available at https://www.sec.gov/Archives/edgar/ data/72971/000007297117000466/wfc￾09302017x10q.htm; and Ameriprise 12/31/2016 Form 10–K available at https://www.sec.gov/ Archives/edgar/data/820027/;000082002 717000007/ameriprisefinancial12312016.htm. We note that discussions in Form 10–K and 10–Q filings of this sample of broker-dealers here may not be representative of other large broker-dealers or of small to mid-size broker-dealers. Some firms have reported record profits as a result of moving clients into fee-based accounts, and cite that it provides ‘‘stability and high returns.’’ See ‘‘Morgan Stanley Wealth Management fees climb to all-time high,’’ Bloomberg, Jan. 18, 2018, available at https:// www.bloomberg.com/news/articles/2018-01-18/ morgan-stanley-wealth-management-fees-hit￾record-on-stock-rally. Morgan Stanley increased the percentage of client assets in fee-based accounts from 37% in 2013 to 44% in 2017, while decreasing the dependence on transaction-based revenues from 30% to 19% over the same time period (Morgan Stanley Strategic Update, (Jan. 18, 2018), available at https://www.morganstanley.com/about-us-ir/ shareholder/4q2017-strategic-update.pdf). See also Beilfuss, Lisa & Brian Hershberg, WSJ Wealth Adviser Briefing: The Reinvention of Morgan and Merrill, Adviser Profile, The Wall Street Journal (Jan. 25, 2018), available at https://blogs.wsj.com/ moneybeat/2018/01/25/wsj-wealth-adviser-briefing￾the-reinvention-of-morgan-and-merrill-adviser￾profile/. Increases in the number of investment advisers
and decreases in the number of broker-dealers could have occurred for a number of reasons, including anticipation of possible regulatory changes to the industry, other regulatory restrictions, technological innovation (i.e., robo-advisers and online trading platforms), product proliferation (e.g., index mutual funds and exchange￾traded products), and industry consolidation driven by economic and market conditions, particularly among broker-dealers.513 Commission staff has observed the transition by broker￾dealers from traditional brokerage services to also providing investment advisory services (often under an investment adviser registration, whether federal or state), and many firms have been more focused on offering fee-based accounts than accounts that charge commissions. 514 Broker-dealers have indicated that the following factors have contributed to this migration: Provision of stability or increase in profitability,515 perceived lower regulatory burden, and provisions of more services to retail customers. Further, there has been a substantial increase in the number of retail clients at investment advisers, both high net worth clients and non-high net worth clients as shown in Figure 2. Although the number of non-high net worth retail customers of investment advisers dipped between 2010 and 2012, since EP09MY18.002</GPH>

high net worth retail clients have been added. With respect to assets under management, we observe a similar, albeit more pronounced pattern for non￾high net worth retail clients as shown in
Figure 3. For high net worth retail
clients, there has been a pronounced increase in AUM since 2012, although AUM has leveled off since 2015. BILLING CODE 8011–01–C e. Registered Representatives of Broker￾Dealers, Investment Advisers and Dually Registered Firms We estimate the number of associated natural persons of broker-dealers through data obtained from Form U4, which generally is filed for individuals who are engaged in the securities or investment banking business of a broker-dealer that is a member of a self￾regulatory organization (‘‘registered EP09MY18.003</GPH> 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000
Figure 2: Time Series of the Number of Retail Clients of
Investment Advisers (2010- 2017) 2010-09 2011-09 2012-09 2013-09 2014-09 2015-09 2016-09 2017-09 -Estimated Non-HNW Clients - Estimated HNW Clients
Figure 3: Time Series of the Retail Clients of
Investment Advisers Assets under Management (2010- 2017) 5,000,000,000,000 ~""-;:::-"~"-~"-""m"~"--~L=--~-=~----m￾4,000,000,000,000 ~~~-~""'-""''i 3,000,000,000,000 ,~~~~~~~~~--"-""~-~-~"""-~m-"~--~~~~~ 2, 000,000,000,000 "fmm~m"""-"'"~~~~""'""~'-"'"--"""'""""""m""~~~-,m-~"~~~"-"'""""m"m"~m"-~"~""mm"m"-' 1,000,000,000,000 +--~~~~-~~~~~~~~~-"-~""-~~~~~-,"~ 0 ~-~---r-~~~~~~"-~-~~--~~~, 2010-092011-092012-092013-092014-092015-092016-092017-09 -Estimated Non-HNW Client RAUM - - Estimated HNW Client RAUM

516The number of associated natural persons of broker-dealers may be different from the number of registered representatives of broker-dealers, because clerical/ministerial employees of broker-dealers are associated persons, but are not required to register with the firm. Therefore, using the registered representative number does not include such persons. However, we do not have data on the number of associated natural persons and therefore are not able to provide an estimate of the number of associated natural persons. We believe that the number of registered representatives is an appropriate approximation because they are the individuals at broker-dealers that provide advice and services to customers. 517See Advisers Act rule 203A–3. However, we note that the data on numbers of registered IARs may undercount the number of supervised persons of investment advisers who provide investment advice to retail investors because not all supervised persons who provide investment advice to retail investors are required to register as IARs. For example, Commission rules exempt from IAR registration supervised persons who provide advice only to non-individual clients or to individuals that meet the definition of ‘‘qualified client.’’ As discussed above, the definition of retail investor for purposes of this proposed rulemaking would include qualified clients who are natural persons and trusts that represent natural persons. Proposed General Instruction 9.(e) to Form CRS. In addition, state securities authorities may impose different criteria for requiring registration as an investment adviser representative. 518We calculate these numbers based on Form U4 filings. Representatives of broker-dealers, investment advisers, and issuers of securities must file this form when applying to become registered in appropriate jurisdictions and with self-regulatory organizations. Firms and representatives have an obligation to amend and update information as changes occur. Using the examination information contained in the form, we consider an employee a financial professional if he has an approved, pending, or temporary registration status for either Series 6 or 7 (RR) or is registered as an investment adviser representative in any state or U.S. territory (IAR). We limit the firms to only those that do business with retail investors, and only to licenses specifically required to be licensed as an RR or IAR. 519See supra notes 460 and 485. 520The classification of firms as dually registered, standalone broker-dealers, and standalone investment advisers comes from Forms BD, FOCUS, and ADV as described earlier. The number of representatives at each firm is obtained from Form U4 filings. Note that all percentages in the table have been rounded to the nearest whole percentage point. 521We calculate these numbers based on Form U4 filings. 522See supra notes 460 and 485. 523Firm size is defined as total assets from the balance sheet (source: FOCUS reports) for broker￾dealers
and dual registrants and is assets under management for investment advisers (source: Form ADV). representatives’’ or ‘‘RR’’s). 516 Similarly, we approximate the number of supervised persons of registered investment advisers through the number of registered investment adviser representatives (or ‘‘registered IAR’’s), who are supervised persons of investment advisers who meet the definition of investment adviser representatives in Advisers Act rule 203A–3 and are registered with one or more state securities authorities to solicit or communicate with clients.517 We estimate the number of registered representatives and registered IARs (together ‘‘registered financial professionals’’) at broker-dealers, investment advisers, and dual registrants by considering only the employees of those firms that have Series 6 or Series 7 licenses or are registered with a state as a broker-dealer agent or investment adviser representative.518 We only consider employees at firms who have retail￾facing business, as defined previously.519 We observe in Table 5, that approximately 61% of registered financial professionals are employed by dually registered entities. The percentage varies by the size of the firm. For example, for firms with total assets between $1 billion and $50 billion, 72% of all registered financial professionals in that size category are employed by dually registered firms. Focusing on dually registered firms only, approximately 59.7% of total licensed representatives at these firms are dual￾hatted, approximately 39.9% are only registered representatives; and less than one percent are only registered investment adviser representatives.
TABLE 5—TOTAL LICENSED REPRESENTATIVES AT BROKER-DEALERS, INVESTMENT ADVISERS, AND DUALLY REGISTERED
FIRMS WITH RETAIL INVESTORS 520 Size of firm (total assets for standalone BDs and dually registered firms; AUM for standalone IAs) Total number of representatives % of represent￾atives in dually registered firms % of represent￾atives in standalone BD % representa￾tives in standalone IA >$50 billion ............................................................................................... 82,668 75 8 18 $1 billion to $50 billion ............................................................................. 150,662 72 10 18 $500 million to $1 billion .......................................................................... 31,673 67 16 16 $100 million to $500 million ..................................................................... 62,539 58 24 18 $10 million to $100 million ....................................................................... 116,047 52 47 1 $1 million to $10 million ........................................................................... 37,247 34 63 2 <$1 million ................................................................................................ 13,563 7 87 6 Total Licensed Representatives ....................................................... 494,399 61 27 12 In Table 6 below, we estimate the number of employees who are registered representatives, registered investment adviser representatives, or both (‘‘dual￾hatted representatives’’).521 Similar to
Table 5, we calculate these numbers
using Form U4 filings. Here, we also limit the sample to employees at firms that have retail-facing businesses as discussed previously.522 In Table 6, approximately 24% of registered employees at registered broker-dealers or investment advisers are dual-hatted representatives. However, this proportion varies significantly across size categories. For example, for firms with total assets between $1 billion and $50 billion,523 approximately 36% of all registered employees are both registered representatives and investment adviser representatives. In contrast, for firms with total assets below $1 million, 15% of all employees are dual-hatted representatives.

524See supra notes 520–521. Note that all percentages in the table have been rounded to the nearest whole percentage point. 525Comment letter of FINRA to File Number 4– 606; Obligations of Brokers, Dealers and Investment Advisers (Nov. 3, 2010), at 1, available at https:// www.sec.gov/comments/4-606/4606-2836.pdf. 526 In order to obtain the percentage of IARs that are dually registered as registered representatives of broker-dealers, we sum the representatives at dually-registered entities and those at investment advisers, across size categories to obtain the aggregate number of representatives in each of the two categories. We then divide the aggregate dually￾registered representatives by the sum of the dually￾registered representatives and the IARs at investment adviser-only firms. We perform a similar calculation to obtain the percentage of registered representatives of broker-dealers that are dually registered as IARs. 527Form U4 requires disclosure of registered representatives’ and investment adviser representatives’ criminal, regulatory, and civil actions similar to those reported on Form BD or Form ADV as well as certain customer-initiated complaints, arbitration, and civil litigation cases. See generally Form U4. 528Form U5 requires information about representatives’ termination from their employers. 529See FINRA, Current Uniform Registration Forms for Electronic Filing in Web CRD, available at http://www.finra.org/industry/web-crd/current￾uniform-registration-forms-electronic-filing-web￾crd. 530Source: Form BD. 531E.g. ‘‘ABC Advisor.’’ 532From the full sample of broker-dealers with retail investors (2,857) and investment advisers with retail investors (7,600), the Commission staff used a random number generator to select 20 firms in each of the size categories listed in Table 7, from which to construct a sample of firms for which staff hand-collected data on firm descriptions from firm website homepages and ‘‘About’’ pages, as available. When a size category contained less than 20 firms we sampled all firms in that category. Relative to the overall proportion of firms, we oversampled firms from the larger size categories because they employ a majority of all licensed representatives and are therefore the firms the average retail investor is most likely to come in contact with. Overall, 83 randomly selected standalone broker-dealers, 100 randomly selected investment advisers, and 91 randomly selected dual registrants based on the previously identified size categories (either total assets for broker-dealers and dual registrants or assets under management for investment advisers) provided the sample reviewed in the staff study. Further, the 917 Financial Literacy Study (see supra note 20) showed that a substantial percentage of retail investors use information obtained from firm websites in making the selection of their financial professional. 533See Table 7, Panel A for firm level identifiers for broker-dealers, Panel B for identifiers
for investment advisers, and Panel C for dual registrants. Not all firms provided a description of their firm on their website, which we coded as ‘‘N/ A’’ for not available. 534For purposes of our classification analysis, if ‘‘ABC & Co.’’ were to be a SEC-registered standalone broker-dealer and, on ABC’s webpage in describing its business and operations, ABC refers to itself as a brokerage firm and a wealth manager, we would classify, ABC & Co. as using both ‘‘brokerage’’ and ‘‘wealth manager’’ as descriptors in our analysis.
TABLE 6—NUMBER OF EMPLOYEES AT RETAIL FACING FIRMS WHO ARE REGISTERED REPRESENTATIVES, INVESTMENT
ADVISER REPRESENTATIVES, OR BOTH 524 Size of firm (total assets for standalone BDs and dually registered firms; AUM for standalone IAs) Total number of employees Percentage of dual-hatted representatives Percentage of RRs only Percentages of IARs only >$50 billion ............................................................................................... 216,655 18 17 1 $1 billion to $50 billion ............................................................................. 292,663 36 11 3 $500 million to $1 billion .......................................................................... 50,531 15 40 6 $100 million to $500 million ..................................................................... 112,119 23 24 8 $10 million to $100 million ....................................................................... 189,318 19 41 1 $1 million to $10 million ........................................................................... 61,310 19 39 1 <$1 million ................................................................................................ 19,619 15 46 3 Total Employees at Retail Facing Firms .......................................... 942,215 24 24 3 Approximately 88% of investment adviser representatives are dual-hatted as registered representatives. This percentage is relatively unchanged from
2010. According to information
provided in a FINRA comment letter in connection with the 913 Study, 87.6% of registered investment adviser representatives were dually registered as registered representatives as of mid￾October 2010.525 In contrast, approximately 50% of registered representatives were dually registered as investment adviser representatives at the end of 2017.526 With respect to disclosure made about licensed individuals, broker-dealers and investment advisers must report certain criminal, regulatory, and civil actions and complaint information and information about certain financial matters in Forms U4 527 and U5 528 for their representatives. Self-regulatory organizations, regulators and jurisdictions report disclosure events on Form U6.529 FINRA’s BrokerCheck system discloses to the public certain information on registered representatives and investment adviser representatives such as principal place of business, business activities, owners, and criminal prosecutions, regulatory actions, and civil actions in connection with any investment-related activity. f. Current Use of Names and Titles Although many financial services firms are registered as broker-dealers, investment advisers, or are dually registered, both firms and financial professionals use a variety of terms to label both the firm and the professional. Approximately 103 broker-dealers that are not dually registered as investment advisers use the term ‘‘adviser,’’ ‘‘advisor,’’ or ‘‘advisory’’ as part of their current company name.530 Of these broker-dealers, 16 reported at least one type of non-securities business. Approximately 39 percent of the 103 broker-dealers described above used a proper name coupled with the term ‘‘advisor’’ alone,531 and an additional 31 percent used a proper name coupled with the term ‘‘capital advisor.’’ In addition to those terms, less than 10% of these broker-dealers use the terms ‘‘financial advisor,’’ ‘‘investment advisor,’’ or ‘‘wealth advisor’’ in their corporate name. The remainder of the broker-dealers (approximately 25 firms) use unique combinations of other words along with ‘‘adviser,’’ ‘‘advisor’’ or ‘‘advisory.’’ In addition to company names or professional titles, firms are likely to use labels or terms other than their formal company names to describe themselves in corporate descriptions, marketing material, or other communications with the public. To gauge the extent that registered broker-dealers and investment advisers use terms other than their registration status as descriptors, Commission staff conducted an analysis to evaluate the different terms that broker-dealer, investment adviser, and dually￾registered firms use to describe themselves.532 Commission staff reviewed firm websites to collect the terms that were used on the website to describe the firm.533 Many firms provided multiple descriptions of their businesses.534 As shown below in Panel A of Table 7, over 50% of broker-dealers sampled use the term ‘‘broker,’’ ‘‘dealer,’’ ‘‘broker-dealer,’’ or
‘‘brokerage’’ to

535Broker-dealers are randomly drawn from Form BD data (as of Dec. 2017). The data on firm descriptions is hand collected from individual broker-dealer websites. 536 Investment advisers are randomly drawn from Form ADV data (as of Dec. 2017). The data on firm descriptions is hand collected from individual investment adviser websites. 537 Dual registrants are randomly drawn from Form BD data (as of Dec. 2017). The data on firm descriptions is hand collected from individual dually-registered firms’ websites. 538RAND Study, supra note 5. 539 Internet survey administered to members of the American Life Panel; 654 (out of 1000) households completed the survey. describe their business, while less than 10% use ‘‘financial advisor,’’ ‘‘wealth advisor,’’ or ‘‘investment advisor.’’ Registered investment advisers (Panel B) are more likely to use the term ‘‘investment advisor,’’ ‘‘wealth advisor,’’ or ‘‘financial advisor’’ as a description of their business compared to broker￾dealers (approximately 40%). Nearly 50% of the sampled standalone investment advisers use the term ‘‘investment manager’’ or ‘‘wealth manager’’ to describe their business model compared to less than 10% of broker-dealers that use these terms. Dually registered firms (Panel C) are much more diverse in their use of firm descriptions; approximately 40% use the term ‘‘brokerage,’’ ‘‘broker-dealer,’’ ‘‘broker,’’ or ‘‘dealer,’’ while nearly 30% use a firm description that contains the term ‘‘adviser’’ or ‘‘advisor.’’
TABLE 7—PANEL A: DESCRIPTION OF STANDALONE BROKER-DEALER FIRMS ON FIRM WEBSITES 535
Broker￾dealer
Investment bank
Wealth/ investment management Advisory Other N/A >$50 billion ............................................... 2 2 0 2 0 0 $1 billion to $50 billion ............................. 15 6 0 1 $500 million to $1 billion .......................... 14 2 0 0 1 0 $100 million to $500 million ..................... 12 7 4 2 4 0 $10 million to $100 million ....................... 11 2 5 3 4 0 Total .................................................. 54 19 9 7 9 1
TABLE 7—PANEL B: DESCRIPTION OF STANDALONE INVESTMENT ADVISER FIRMS ON FIRM WEBSITE 536
Broker￾dealer
Investment bank
Wealth/ investment management Advisory Other N/A >$50 billion ............................................... 0 1 16 3 4 0 $1 billion to $50 billion ............................. 0 0 13 5 8 0 $500 million to $1 billion .......................... 0 0 10 13 9 0 $100 million to $500 million ..................... 0 0 6 7 9 3 $10 million to $100 million ....................... 2 0 2 10 7 1 Total .................................................. 2 1 47 38 37 4
TABLE 7—PANEL C: DESCRIPTION OF DUALLY-REGISTERED FIRMS ON FIRM WEBSITE 537
Broker￾dealer
Investment bank
Wealth/ investment management Advisory Other N/A >$50 billion ............................................... 5 8 2 4 1 0 $1 billion to $50 billion ............................. 7 8 5 6 9 0 $500 million to $1 billion .......................... 3 1 2 1 2 0 $100 million to $500 million ..................... 13 3 1 7 6 0 $10 million to $100 million ....................... 10 1 3 10 7 0 Total .................................................. 38 21 13 28 25 0 Regarding the use of titles by individual financial professionals, a 2008 RAND Study,538 found that households responding to the survey 539 reported a wide variety of titles were used by financial professionals with whom they worked. The RAND Study
Table 6.3 (replicated below in Table 8)
provides an overview of the most commonly used titles by services provided. As shown in the table, financial professionals providing brokerage services use a large variety of titles to describe their business and the services that they offer, including ‘‘financial advisor,’’ ‘‘financial consultant,’’ ‘‘banker,’’ and ‘‘broker.’’ Around 31% of professionals providing only brokerage services used titles containing the terms ‘‘adviser’’ or ‘‘advisor.’’ Professionals providing advisory services or both brokerage and advisory services similarly also use a wide variety of titles, but the proportion of professionals who use titles containing the terms ‘‘adviser’’ or ‘‘advisor’’ are somewhat larger at 35%. Note that the RAND Study did not distinguish financial professionals’ use of tiles based on whether they were RRs or IARs, but rather by type of services provided.

540See ICI Research Perspective, The Role of IRAs in U.S. Households’ Saving for Retirement, 2016 (Jan. 2017), available at https://www.ici.org/pdf/ per23-01.pdf. 541The data is obtained from the Federal Reserve System’s 2016 Survey of Consumer Finances (‘‘SCF’’), a triennial survey of approximately 6,200 U.S. households and imputes weights to extrapolate the results to the entire U.S. population. As noted, some survey respondent households have both a brokerage and an IRA. Federal Reserve, Survey of Consumer Finances (2016), available at https:// www.federalreserve.gov/econres/scfindex.htm. The SCF data does not directly examine the incidence of households that could use advisory accounts instead of brokerage accounts; however, some fraction of IRA accounts reported in the survey could be those held at investment advisers. 542 Id. To the extent that investors have IRA accounts at banks that are not also registered as broker-dealers, our data may overestimate the numbers of IRA accounts held by retail investors that could be subject to this proposed rulemaking. 543The SCF specifically asks participants ‘‘Do you get advice from a friend, relative, lawyer, accountant, banker, broker, or financial planner? Or do you do something else?’’ (see Federal Reserve, Codebook for 2016 Survey of Consumer Finances (2016), available at https://www.federalreserve.gov/ econres/files/codebk2016.txt). Other response choices presented by the survey included ‘‘Calling Around,’’ ‘‘Magazines,’’ ‘‘Self,’’ ‘‘Past Experience,’’ ‘‘Telemarketer,’’ and ‘‘Insurance Agent,’’ as well as other choices. Respondents could also choose ‘‘Do Not Save/Invest.’’ The SCF allows for multiple responses, so these categories are not mutually exclusive. However, we would note that the list of terms in the question did not specifically include ‘‘investment adviser.’’
TABLE 8—REPLICATION OF TABLE 6.3 OF THE RAND STUDY—PROFESSIONAL TITLES MOST COMMONLY REPORTED BY
RESPONDENTS
Title All individual professionals Provide advisory services only Provide brokerage services only Provide both types of services Advisor ............................................................................................................. 11 9 Banker .............................................................................................................. 21 2 8 11 Broker, stockbroker, or registered representative ........................................... 38 0 8 30 CFP (Certified Financial Planner) .................................................................... 21 3 3 15 Financial adviser or financial advisor .............................................................. 78 7 11 60 Financial consultant ......................................................................................... 25 2 0 23 Financial planner ............................................................................................. 44 6 1 37 Investment adviser or investment advisor ....................................................... 22 3 3 16 President or vice president .............................................................................. 20 0 2 18
2. Investor Account Statistics
Investors seek financial advice and services to achieve a number of different goals, such as saving for retirement or children’s college education. As shown above in Figures 2 and 3, the number of retail investors and their assets under management associated with investment advisers has increased significantly, particularly since 2012. As of December 2016, nearly $24.2 trillion is invested in retirement accounts, of which $7.5 trillion is in IRAs.540 In 2016, a total of
43.3 million U.S. households have
either an IRA or a brokerage account, of which an estimated 20.2 million U.S. households have a brokerage account and 37.7 million households have an IRA (including 72% of households that also hold a brokerage account).541 Table 9 below provides an overview of account ownership segmented by account type (e.g., IRA, brokerage, or both) and investor income category based on the Survey of Consumer Finances (SCF).542
TABLE 9—OWNERSHIP BY ACCOUNT TYPE IN THE U.S. BY INCOME GROUP
[As reported by the 2016 SCF] Income category % Brokerage only % IRA only % Both brokerage and IRA Bottom 25% ................................................................................................................................. 1.2 7.6 2.4 25%–50% ..................................................................................................................................... 3.2 14.5 5.4 50%–75% ..................................................................................................................................... 4.1 21.4 11.4 75%–90% ..................................................................................................................................... 7.5 33.4 16.5 Top 10% ...................................................................................................................................... 12.0 24.7 43.9 Average ........................................................................................................................................ 4.4 18.3 11.6 One question in the SCF asks what sources of information households’ financial decision-makers use when making decisions about savings and investments. Respondents can list up to fifteen possible sources from a preset list that includes ‘‘Broker’’ or ‘‘Financial Planner’’ as well as ‘‘Banker,’’ ‘‘Lawyer,’’ ‘‘Accountant,’’ and a list of non-professional sources.543 Panel A of
Table 10 below presents the breakdown
of where households who have brokerage accounts seek advice about savings and investments. The table shows that of those respondents with brokerage accounts, 23% (4.7 million households) used advice services of broker-dealers for savings and investment decisions, while 49% (7.8 million households) took advice from a ‘‘financial planner.’’ Approximately 36% (7.2 million households) sought advice from other sources such as bankers, accountants, and lawyers. Almost 25% (5.0 million households) did not use advice from the above sources. Panel B of Table 10 below presents the breakdown of advice received for households who have an IRA. 15% (5.7 million households) relied on advice services of their broker-dealers, 48% (18.3 million households) obtained advice from financial planners. Approximately 41% (15.5 million households) sought advice from bankers, accountants, or lawyers, while the 25% (9.5 million households) used no advice or sought advice from other sources.

544 Id.
545 Id.
546See RAND Study, supra at 5; 917 Financial Literacy Study, supra note 20. 547The Commission notes that only one-third of the survey respondents that responded to ‘‘method to locate individual professionals’’ also provided information regarding locating the financial firm. 548See 917 Financial Literacy Study, supra note 20. 549The data used in the 917 Financial Literacy Study comes from the Siegel & Gale Investor Research Report (Jul. 26, 2012), available at https:// www.sec.gov/news/studies/2012/917-financial￾literacy-study-part3.pdf, at 249–250.
TABLE 10—PANEL A: SOURCES OF ADVICE FOR HOUSEHOLDS WHO HAVE A BROKERAGE ACCOUNT IN THE U.S. BY
INCOME GROUP 544
Income category
% Taking advice from brokers % Taking advice from financial planners % Taking advice from lawyers, bankers, or accountants % Taking no advice or from other sources Bottom 25% ..................................................................................................... 20.55 53.89 35.64 24.30 25%–50% ......................................................................................................... 22.98 38.03 43.92 32.36 50%–75% ......................................................................................................... 20.75 52.00 31.42 23.61 75%–90% ......................................................................................................... 22.56 48.94 32.25 28.10 Top 10% .......................................................................................................... 25.29 50.53 38.47 21.06 Average .................................................................................................... 23.02 49.02 35.99 24.94
TABLE 10—PANEL B: SOURCES OF ADVICE FOR HOUSEHOLDS WHO HAVE AN IRA IN THE U.S. BY INCOME GROUP 545
Income category
% Taking advice from brokers % Taking advice from financial planners % Taking advice from bankers, accountants, or lawyers % Taking no advice or from other sources Bottom 25% ..................................................................................................... 12.14 38.30 43.69 31.85 25%–50% ......................................................................................................... 9.79 43.82 40.67 32.74 50%–75% ......................................................................................................... 14.93 45.20 41.23 25.23 75%–90% ......................................................................................................... 14.68 52.14 41.65 24.26 Top 10% .......................................................................................................... 21.40 55.40 40.03 18.56 Average .................................................................................................... 15.25 48.45 41.17 25.28
3. Investor Perceptions About Broker￾Dealers and Investment Advisers
Although many retail investors rely on broker-dealers and investment advisers to help them achieve financial goals, evidence indicates that many retail investors do not understand, or are confused by, among other items, the different standards of conduct applicable to broker-dealers and investment advisers, and are also confused and potentially misled by the titles used by firms and financial professionals. In the subsections below, we review in greater detail five aspects of investor perceptions with respect to:
(1) How investors search for financial professionals and firms and; (2) the nature of the relationship with their financial professional (investment adviser or broker-dealer) and the meaning of company names and professional titles; (3) the structure and level of fees in the industry; (4) the existing conflicts of interest; (5) and the disciplinary history of the financial professional or firm. g. How Investors Select Financial Firms or Professionals A number of surveys show that retail investors predominantly find their current financial firm or financial professional from personal referrals by family, friends, or colleagues.546 For instance, the RAND Study reported that 46% of survey respondents indicated that they located a financial professional from personal referral, although this percentage varied depending on the type of service provided (e.g., only 35% of survey participants used personal referrals for brokerage services). After personal referrals, RAND survey participants ranked professional referrals (31%), print advertisements (4%), direct mailings (3%), online advertisements (2%), and television advertisements (1%), as their source of locating individual professionals. The RAND Study separately inquired about locating a financial firm, which yielded substantially different results from the selection of the financial professional.547 Respondents reported selecting financial firm (of any type) based on: Referral from family or friends (29%), professional referral (18%), print advertisement (11%), online advertisements (8%), television advertisements (6%), direct mailings (2%), with a general ‘‘other’’ category (36%). The 917 Financial Literacy Study provides similar responses, although it allowed survey respondents to identify multiple sources from which they obtained information that facilitated the selection of the current financial firm or financial professional.548 In the 917 Financial Literacy Study,549 51% of survey participants received a referral from family, friends, or colleagues. Other sources of information or referrals came from: referral from another financial professional (23%), online search (14%), attendance at a financial professional-hosted investment seminar (13%), advertisement (e.g., television or newspaper) (11.5%), other (8%), while approximately 4% did not know or could not remember how they selected their financial firm or financial professional. Twenty-five percent of survey respondents indicated that the ‘‘name or reputation of the financial firm or financial professional’’ affected the selection decision. h. Nature of the Relationship Comment letters as well as several studies provide us with information about retail investor confusion about the distinctions among different types firms and financial professionals. Several

550See, e.g., CFA 2017 Letter; PIABA 2017 Letter; IAA 2017 Letter; Pefin 2017 Letter. 551See Chamber 2017 Letter, at 10; Committee for the Fiduciary Standard 2017 Letter, at 3; Pefin 2017 Letter, at 9. 552See 913 Study, supra note 3, at section III.A. 553 Id. See also AFL–CIO 2017 Letter; AARP 2017 Letter. 554See, e.g., Comment letters on 913 Study, available at https://www.sec.gov/comments/4-606/ 4-606.shtml. Comment letter of Bert Oshiro (Aug. 29, 2010) (‘‘Years ago, I was pretty sure who I was dealing with based on their titles. . . Today it’s a totally different story. All kinds of products such as securities, insurance, fee based products, bank accounts, loans, health insurance, auto/ homeowners insurance, etc. are sold by people calling themselves: Financial advisors; financial consultants; investment advisors; investment consultants; financial planners; asset managers; financial services advisors; [and] registered representatives. . . It has come to the point that I really don’t know who I’m dealing with.’’); Comment letter of Larry J. Massung (Aug. 29, 2010) (‘‘I believe there is considerable confusion within the general public with the fiduciary duty, responsibilities, and titles of brokers, dealers and investment advisors’’); and Comment letter of Cecylia Escarcega (Aug. 30, 2010) (‘‘Personally, I find the titles confusing because the broker, dealer or investment advisor typically does not tell me what their role is and the scope of their fiduciary duty to me as an investor’’). 555The Commission retained Siegel and Gale in 2004 to conduct the focus group testing in order to determine how investors distinguish the roles, legal obligations, and compensation structures between broker-dealers and investment advisers. See Siegel & Gale Study, supra note 549. 556The RAND Study contained two components:
(1) An analysis of business practices at broker￾dealers and investment advisers based on regulatory filings and interviews with stakeholders (including members of the broker-dealer and investment adviser industries); and (2) a survey of 654 households or focus group testing on household investment behavior and preferences, experience with financial service providers, and understanding of the different types of providers. See RAND Study, supra note 5. 557See CFA Survey, supra note 5. 558The Commission notes that the results of the Siegel & Gale Study relied on a small sample of focus group testing conducted over a decade ago. While relevant to our understanding of investor perception about broker-dealers and investment advisers, the results of the study may not reliably reflect the current views of the general population of U.S. retail investors. 559RAND study participants ‘‘commented that the interchangeable titles and ‘we do it all’ advertisements [by broker-dealers] made it difficult to discern broker-dealers from investment advisers.’’ Although the RAND Study indicates that investors are confused the services provided and the titles used by financial professionals, more than 70% of participants also answered that they were ‘‘very satisfied with the service received from the firm,’’ that ‘‘they trust the firm acts in their best interest,’’ and that ‘‘the firm provides a valuable service.’’ These numbers increased to 80% when the length of time spent at a firm was at least 10 years. The Commission notes that the results of the RAND Study relied on testing conducted nearly 10 years ago; therefore, the results of the study may not reliably reflect the current views of the general population of U.S. retail investors 560See RAND Study, supra note 5, at 111. The fact sheet provided to RAND Study participants included information on the definition of broker and investment adviser, including a description of common job titles, legal duties and typical compensation. Participants in the RAND Study focus groups indicated that they were confused over common job titles of broker-dealers and investment advisers, thought that because brokers are required to be licensed, investment advisers were not as qualified as brokers, deemed the term ‘‘suitable’’ too vague, and concluded that it would be difficult to prove whether or not an investment adviser was not acting in the client’s best interest. 561See CFA Study, supra note 5. 562 In some circumstances, broker-dealers may owe a fiduciary duty to their customers. For example, there is a body of case law holding that Continued commenters in response to Chairman Clayton’s recent Request for Comment highlighted investor confusion about whether financial services providers are subject to the fiduciary duty.550 Particularly, some commenters tied investor confusion about the standard of care applicable to financial service providers to the names or titles of such firms and financial professionals.551 Similarly, during
the public comment process as part of the 913 Study, commenters indicated that retail investors did not understand or found confusing the distinctions between broker-dealers and investment advisers, for example, in terms of services provided and applicable standards of care.552 Investor advocate groups submitted comments that reiterated the view that many market participants also believe that financial professionals should act in investors’ best interests.553 913 Study commenters also expressed beliefs that certain titles used by firms and financial professionals are confusing to investors.554 Further findings of investor confusion about the roles and titles of financial professionals comes from studies conducted by Siegel & Gale 555 in 2004, RAND 556 in 2008 and CFA in 2010.557 The Siegel & Gale Study found that focus group participants did not understand that the roles and legal obligations of broker-dealers differed from investment advisers, and were further confused by different labels or titles used by advice providers (e.g., financial planner, financial advisor, financial consultant, broker-dealer, or investment adviser). More specifically, participants in the Siegel & Gale Study focus groups believed that brokers executed trades and were focused on ‘‘near-term’’ advice, while financial advisors and consultants provided many of the same services as brokers, but also provided a greater scope of long-term planning advice (e.g., portfolio allocation). ‘‘Investment adviser,’’ on the other hand, was a term unfamiliar to many participants, but financial professionals using this label were perceived to provide similar services to financial advisors and financial consultants. Financial planners were viewed to provide services related to insurance and estate planning in addition to investment advice, and encompassed long-term financial planning including college, retirement, and other long-term savings and investment goals. The Siegel & Gale Study focus group participants assumed that financial advisors/consultants, investment advisers, and financial planners provided planning services, while brokers, financial advisors/ consultants, and investment advisers provided trade execution services.558 Further, the focus group participants generally did not understand certain legal terms, such as ‘‘fiduciary.’’ Similarly, the RAND Study generally concluded that investors did not understand the differences between broker-dealers and investment advisers and that common job titles contributed to investor confusion.559 Further, participants responded similarly that investment advisers and brokers are required to act in the client’s best interest. Similar to the Siegel and Gale Study, focus group participants did not understand the term fiduciary, or how the fiduciary standard differed from suitability. In addition, the RAND Study noted that the confusion about titles, services, legal obligations, and compensation persisted even after a fact sheet on
broker-dealers and investment advisers was provided to participants.560 Similar to the Siegel and Gale Study and the RAND Study, the CFA Survey concluded that investors do not understand differences between broker￾dealers and investment advisers, or the standards of conduct that apply to advice or recommendations made by these firms. For example, approximately 34% of investors surveyed believed that ‘‘offering advice’’ was a primary service of broker-dealers.561 With respect to conduct-related questions, 91% of those surveyed believed that broker-dealers and investment advisers should follow the same investor protection rules if providing the same sort of advisory services, while 85% believed that the person providing advice should put the retail customer’s interest ahead of theirs and should disclose fees and commissions earned or any conflicts of interest that could affect the advice provided. More than two-thirds believed that a fiduciary duty is owed to customers by broker-dealers, suggesting a degree of investor confusion.562

broker-dealers that exercise discretion or control over customer assets, or have a relationship of trust and confidence with their customers, owe customers a fiduciary duty, or the scope of obligations that attach by virtue of that duty. See, e.g., U.S. v. Skelly, 442 F.3d 94, 98 (2d Cir. 2006) (fiduciary duty found ‘‘most commonly’’ where ‘‘a broker has discretionary authority over the customer’s account’’); United States v. Szur, 289 F.3d 200, 211 (2d Cir. 2002) (‘‘Although it is true that there ‘is no general fiduciary duty inherent in an ordinary broker/customer relationship,’ a relationship of trust and confidence does exist between a broker and a customer with respect to those matters that have been entrusted to the broker.’’) (citations omitted); Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951, 953– 954 (E.D. Mich. 1978), aff’d, 647 F.2d 165 (6th Cir.
1981) (recognizing that a broker who has de facto
control over non-discretionary account generally owes customer duties of a fiduciary nature; looking to customer’s sophistication, and the degree of trust and confidence in the relationship, among other things, to determine duties owed); Arleen W. Hughes, Exchange Act Release No. 4048 (Feb. 18,
1948) (Commission Opinion), aff’d sub nom.
Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949) (noting that fiduciary requirements generally are not imposed upon broker-dealers who render investment advice as an incident to their brokerage unless they have placed themselves in a position of trust and confidence, and finding that Hughes was in a relationship of trust and confidence with her clients). 563The 917 Financial Literacy Study, supra note 20, uses the term financial intermediary when discussing the importance of certain disclosures of firms or financial professionals. 564See 917 Financial Literacy Study, supra note 20, at 67. 565 23% of respondents also preferred the ‘‘status quo’’—‘‘the way it was presented’’ in the example. 566See FINRA Report on Conflicts of Interest, (Oct. 2013), at 6, available at http://www.finra.org/ sites/default/files/Industry/p359971.pdf (‘‘Investor Survey’’).
i. Fees
The 917 Financial Literacy Study showed that, prior to engaging an investment adviser,563 approximately 76.4% of survey participants indicated that disclosure of the fees and compensation of investment advisers was an absolutely essential element to any disclosure.564 With respect to how investors prefer information about fees and compensation to advisers, 23% of respondents preferred a table format with examples, 21% preferred a bulleted format with examples, 20% preferred a bulleted format, and 12% preferred a table format.565 In 2015, FINRA conducted an ‘‘Investor Survey’’ which included questions about investors’ understanding of fees charged for investment services.566 Approximately 70% of survey participants reported that they thought investment firm (generically referred to as ‘‘adviser’’ in the study) compensation and account fees to be very clear, with less than 4% stating that they thought compensation to be unclear. Between 54.7% and 57.6% of respondents indicated that they considered account fees to be ‘‘reasonable,’’ while between 0% and 2.3% of respondents indicated that account fees were not reasonable. Of investors that have commission-based accounts, approximately 28% believed that commissions did not affect advice given. Those percentages decline to 15% or less when asked to consider whether selling incentives and third party compensation had not affected the advice provided by investment firms.
TABLE 11—INVESTOR PERCEPTION OF COMPENSATION TO FINANCIAL PROFESSIONALS
[As obtained from the 2015 FINRA Investor Survey] Unadvised (%) Advised:
asset fee
(%)
Advised:
commission￾based fee
(%)
Advisor Compensation Clear?
Very ...................................................................................................................................... NA 70.9 68.5 Somewhat ............................................................................................................................. NA 27.6 28.0 Not ........................................................................................................................................ NA 1.5 3.5 Account Fees Clear? Very ...................................................................................................................................... 68.0 70.3 74.7 Somewhat ............................................................................................................................. 29.0 29.7 23.5 Not ........................................................................................................................................ 2.9 0 1.8 Account Fees Reasonable? Agree .................................................................................................................................... 55.6 54.7 57.6 Somewhat Agree .................................................................................................................. 42.1 45.3 40.2 Disagree ............................................................................................................................... 2.3 0 2.2 Commissions Affect Advice? Great Deal ............................................................................................................................ 58.3 21.8 29.7 Somewhat ............................................................................................................................. 32.8 57.8 42.5 Not At All .............................................................................................................................. 8.9 20.4 27.7 Selling Incentives Affect Advice? Great Deal ............................................................................................................................ 66.1 41.9 44.3 Somewhat ............................................................................................................................. 28.4 43.7 40.6 Not At All .............................................................................................................................. 5.5 14.4 15.1 Third Party Compensation Affects Advice? Great Deal ............................................................................................................................ 68.6 32.8 41.4 Somewhat ............................................................................................................................. 26.3 56.4 45.3 Not At All .............................................................................................................................. 5.1 10.8 13.4

567Experimental evidence from the U.S. mutual fund market is provided by, James J. Choi, David Laibson, & Brigitte C. Madrian, Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds Review of Financial Studies 23(4): 1405– 1432 (Nov. 14, 2009) (‘‘Choi Laibson Article’’) (finding that experimental subjects fail to minimize fees among four different actual S&P 500 index funds and 80–90% of the subjects in the study presented with simplified fee disclosures still failed to select the lowest-priced options among products with similar characteristics). Field-based evidence from the payday loans market is provided by, Marianne Bertrand & Adair Morse, Information Disclosure, Cognitive Biases, and Payday Borrowing, The Journal of Finance 46(6): 1865–1893 (Nov. 14, 2011). For a comprehensive survey of the literature see George Loewenstein, Cass R. Sunstein, & Russell Golman, Disclosure: Psychology Changes Everything, Annual Review of Economics 6: 391– 419 (Aug. 2014) (‘‘Loewenstein Sunstein Article’’). 568Section 917 of the Dodd-Frank Act further required the Commission to conduct a study to identify the level of financial literacy among retail investors as well as methods and efforts to increase the financial literacy of investors. See 917 Financial Literacy Study, supra note 20. 569See S. Sah & G. Loewenstein, Nothing to declare: Mandatory and voluntary disclosure leads advisors to avoid conflicts of interest, Psychological Science 25, 575–584 (2014). 570See 917 Financial Literacy Study, supra note 20, at nn. 311 and 498 and accompanying text (Approximately 67.5% of the online survey respondents considered information about an adviser’s disciplinary history to be absolutely essential, and about 20.0% deemed it important, but not essential, and ‘‘When asked how important certain factors would be to them if they were to search for comparative information on investment advisers, the majority of online survey respondents identified the fees charged and the adviser’s disciplinary history as the most important factors.’’). 571For example, the FINRA 2015 Investor Survey finds that only 24% of investors are aware of Investor.gov; only 16% are aware of BrokerCheck; only 14% are aware of the IAPD website, and only 7% have used BrokerCheck. Investor Survey, supra note 566. 572 2009 National Survey Initial Report, supra note 275. 573See Investor Survey, supra note 566. 574See supra Section II. 575See, e.g., Confirmation Requirements and Point of Sale Disclosure Requirements for Transactions in Certain Mutual Funds and Other Securities, and Other Confirmation Requirement Amendments, and Amendments to the Registration Form for Mutual Funds, Exchange Act Release No. 8358 (Jan. 29, 2004) [69 FR 6437 (Feb. 10, 2004)] (‘‘The Commission believes that permitting investors to more readily obtain information about distribution-related costs that have the potential to reduce their investment returns and to give investors a better understanding of some of the
distribution-related arrangements that create conflicts of interest for brokers, dealers, municipal securities dealers, and their associated natural persons. The disclosure of information about these costs and arrangements can help investors make better informed investment decisions.’’). See also P. Healy & K. Palepu, Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical corporate disclosure literature, Journal of Accounting and Economics 31, 405–440 (2001). 576See, Michael Jensen & William Meckling, Theory of the firm: Managerial behavior, agency costs, and ownership structure, Journal of Financial Economics 3, 305–360 (1976); Patel, S. and G. Dallas, Transparency and disclosure: Overview of methodology and study results, United States, Standard & Poor’s, New York (2002); A. Ferrell, Mandatory disclosure and stock returns: Evidence from the over-the-counter market, The Journal of Legal Studies 36, 213–253 (2007). Regarding the effect of corporate disclosures on improved corporate governance, see, e.g. B. Hermalin & M. Weisbach, Transparency and corporate governance, NBER Working paper No. W12875 (2007); R. Lambert, C. Leuz, & R. Verrecchia, Accounting information, disclosure, and the cost of capital, Journal of Accounting Research 45, 385–420 (2007). 577See L. Holder-Webb, J. Cohen, L. Nath, & D. Wood, A survey of governance disclosures among U.S. firms, Journal of Business Ethics 83, 543–563 (2008); Z. Rezaee, Causes, consequences, and Continued Academic evidence also indicates that retail investors exhibit limited understanding of the fees and commissions of financial products. Several academic studies show that even when disclosures are provided to investors, investors experience difficulty in accounting for and understanding how fees affect their financial choices.567 j. Conflicts of Interest Studies have found that investors consider conflicts of interest to be an important factor in the market for financial advice. For example, in the 917 Financial Literacy Study,568 approximately 52.1% of survey participants indicated that an essential component of any disclosure would be their financial intermediary’s conflicts of interest, while 30.7% considered information about conflicts of interest to be important, but not essential. Investors also were asked to rate their level of concern about potential conflicts of interest that their adviser might have. Approximately 36% of the investors expressed concerns that their adviser might recommend investments in products for which its affiliate receives a fee or other compensation, while 57% were concerned that their adviser would recommend investments in products for which it gets paid by other sources. In addition to conflicts directly related to compensation practices of financial professionals, some investors were concerned about conflicts related to the trading activity of these firms. For example, more than 26% of participants were concerned that an
adviser might buy and sell from its account at the same time it is recommending securities to investors; and more than 55% of investors were also concerned about their adviser’s engaging in principal trading. Approximately 70% of the participants in the 917 Financial Literacy Study indicated that they would read disclosures on conflicts of interest if made available, with 48% requesting additional information from their adviser, 41% increasing the monitoring of their adviser, and 33% proposing to limit their exposure of specific conflicts. The majority of investors (70%) also wanted to see specific examples of conflicts and how those related to the investment advice provided. Academic research also suggests that information about conflicts of interest could improve individual decisions.569 k. Disciplinary History Survey evidence indicates that knowledge of a firm’s and financial professional’s disciplinary history is among the most important items for retail investors deciding whether to receive financial services from a particular firm, according to one study.570 Despite this, most investors do not actively seek disciplinary information for their advisers and broker-dealers.571 A recent FINRA survey, however, found that only 15% of survey respondents checked their financial professional’s background, although the Commission notes that the study encompasses a wide group of advisers, such as debt counselors and tax professionals.572 Another FINRA survey found that only 7% of survey respondents use FINRA’s BrokerCheck and approximately 14% of survey respondents are aware of the Investment Adviser Public Disclosure (IAPD) website.573 B. Form CRS Relationship Summary

1. Broad Economic Considerations
   We are proposing to require broker￾dealers, investment advisers, and firms that are dually registered to deliver a relationship summary to retail investors.574 The economic tradeoffs involved in disclosures made by financial firms and financial professionals are complex and affected by a wide range of factors, which we consider in more detail below. In this
   section, we discuss the characteristics of
   disclosures that may effectively convey information that is useful to retail investors when they are searching for a financial firm and to facilitate matching between retail investors’ expectations and the choice of financial firm or financial professional. Disclosure requirements provide benefits to participants in financial markets because disclosing parties may lack private incentives to voluntarily disclose or standardize relevant information.575 Disclosure can benefit not only investors but also the disclosing parties,576 as well as provide indirect benefits to financial markets.577

deterrence of financial statement fraud, Critical Perspectives on Accounting 16, 277–298 (2005). 578For comparison, the disclosure conditions under applicable DOL regulations and exemptions apply only to financial firms and financial professionals servicing IRAs and ERISA-covered retirement plans and participants in such plans. 579See, Justine S. Hastings & Lydia Tejeda￾Ashton, Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico, NBER Working Paper 14538 (Dec. 2008) (finding that providing fee disclosures to Mexican investors in peso rather than percentage terms caused financially inexperienced investors to focus on fees); See, Richard G. Newell & Juha Siikamaki, Nudging Energy Efficiency Behavior, Resources for the Future Discussion Paper 13–17 (Jul. 10, 2013) (finds that providing dollar operating costs in simplified energy efficiency labeling significantly encouraged consumers to choose higher energy efficiency appliances, while another related study presents similar evidence from payday loans). 580See Tversky, A., Kahneman, D., 1981. The framing of decisions and the psychology of choice. Science 211, 453–458 (‘‘Tversky Kahneman
Article’’).
581See, Daylian Cain, George Loewenstein & Don Moore, The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest, Journal of Legal Studies 34: 1–25 (Jan. 2005) (‘‘Cain 2005 Article’’); Daylian Cain, George Loewenstein & Don Moore, When Sunlight Fails to Disinfect: Understanding the Perverse Effects of Disclosing Conflicts of Interest, Journal of Consumer Research 37: 1–45 (Aug. 27, 2010); Bryan Church & Xi Kuang, Conflicts of Disclosure and (Costly) Sanctions: Experimental Evidence, Journal of Legal Studies 38 2: 505–532 (Jun. 2009); Christopher Tarver Robertson, Biased Advice, Emory Law Journal 60: 653–703 (Feb. 17, 2011). These papers study conflicts of interest in general, experimental settings, not specialized to the provision of financial advice. 582Although disclosures in general may cause negative unintended consequences, existing rules and regulations for broker-dealers and investment advisers, as well as proposed Regulation Best Interest, are likely to moderate the effects of moral licensing or strategic bias for financial professionals. 583See J. Dana, D. Cain & R. Dawes, What you don’t know won’t hurt me: Costly (but quiet) exit in dictator games, Organizational Behavior and Human Decision Processes 100:193–201 (2006). 584 Daylian Cain, George Loewenstein & Don Moore, The burden of disclosure: Increased compliance with distrusted advice, Journal of Personality and Social Psychology, 104(2): 289–304 (2013) (‘‘Burden of Disclosure Article’’). 585See id. 586See Loewenstein Sunstein Article, supra note
567. The paper provides a comprehensive survey of
the literature relevant to disclosure regulation. 587See Nisbett RE & Ross L. Human Inference:
Strategies and Shortcomings of Social Judgment (1980). Englewood Cliffs, NJ: Prentice Hall. David Hirshleifer & Siew Hong Teoh, Limited attention, information disclosure, and financial reporting, Journal of Accounting and Economics 36, 337–386 (Dec. 2003). Although the majority of the information proposed for Form CRS may be publicly available in a number of existing regulatory forms and platforms, including, for example, Form ADV (and IAPD) or BrokerCheck, or may be included in disclosures developed to meet disclosure requirements under DOL regulations or exemptions, such as the BIC Exemption, the Commission preliminary believes that all retail investors would benefit from short summary disclosure that focuses on certain aspects of a firm and its services to retail investors which could be supplemented by additional disclosure. Like other public-facing disclosures, the objective of Form CRS would be to provide relevant and reliable information to investors. The relationship summary would apply to a broad array of relationships, spanning different firms as well as both retirement and non-retirement accounts.578 By requiring both investment advisers and broker-dealers to deliver to existing and prospective retail investors and file a publicly available concise relationship summary that discusses, in one place, both types of services and their differences, the proposed rules for Form CRS would also help retail investors to compare certain different types of accounts and firms. Given that most of the information provided by Form CRS would already have been made available by investment advisers through other regulatory disclosures, and by some broker-dealers through contracts or other voluntary disclosures, the focus of this economic analysis is on the effects of the format and structure of the proposed Form CRS disclosures. Studies have found that the format and structure of disclosure may improve (or decrease) investor understanding of the disclosures being made.579 Before elaborating on the characteristics of an effective disclosure regime, we note that some studies undertaken outside the market for financial services find that sometimes certain disclosures may result in unintended consequences. In general, the structure of the disclosure may affect the choices that investors make. Every disclosed item not only presents a piece of new information to retail investors but also provides a frame within which all other items are evaluated.580 This framing effect could lead investors to draw different conclusions depending on how information is presented. For example, if the disciplinary history information is presented first, it could affect the way investors perceive all subsequent disclosures in the relationship summary and, possibly, discount more heavily the information provided by firms with disciplinary events than by firms with clean record. The effect of the disciplinary history information would be moderated if this information is provided at
the end of the relationship summary. Existing research has also found that conflict of interest disclosures can increase the likelihood that the disclosing party would act on the conflict of interest.581 This bias can be caused by ‘‘moral licensing,’’ a belief that the disclosing party has already fulfilled its moral obligations in the relationship and therefore can act in any way, or it can be caused by ‘‘strategic biasing,’’ aimed at compensating the disclosing party for the anticipated loss of profit due to the disclosure.582 Experimental evidence also suggests that disclosure could turn some clients or customers into ‘‘reluctant altruists.’’ 583 For example, if financial professionals disclose that they earn a referral fee if a customer enrolls in a program, the customer may implicitly feel that they are being asked to help their financial professional receive the fee. One study also found evidence that disclosure of a professional’s financial interests (particularly in face-to-face interactions) can induce a panhandler effect, whereby customers may face an implicit social pressure to meet the professional’s financial interests.584 The above literature indicates that conflicts of interest disclosures could undermine the intended benefits of the disclosures for investors if investors become reluctant altruists or feel an obligation to succumb to the panhandler effect. However, these studies also suggest certain factors that may mitigate the unintended consequences. For example, in the case of the ‘‘panhandler effect,’’ researchers have found that distancing the client or customer from the financial professional either in the decision or disclosure phase can dampen this effect.585 Academic research has identified a set of characteristics, including targeted and simple disclosures, salience, and standardization, that may increase the effectiveness of a disclosure regime. Adhering to these characteristics is expected to increase the benefits of a disclosure document to consumers. These characteristics, discussed below, frame our analysis of the economic impacts of the proposed rule.586 First, existing research demonstrates that individuals exhibit limited ability to absorb and process information.587 These cognitive limitations suggest that more targeted and simpler disclosures may be more effective in communicating information to investors than more complex disclosures. As discussed more thoroughly below, costs, such as increased investor confusion or reduced understanding of the key elements of the disclosure, are likely to

588See, e.g., S.B. Bonsall IV & B.P. Miller, The Impact of Narrative Disclosure Readability on Bond Ratings and the Cost of Capital, The Review of Accounting Studies 2 (2017) and A. Lawrence, Individual Investors and Financial Disclosure, Journal of Accounting & Economics 56, 130–47 (2013). 589See supra notes 35, 46—48 and accompanying text. See also S. Agarwal, S. Chomsisengphet, N. Mahoney & J. Stroebel, Regulating consumer financial products: evidence from credit cards, NBER Working Paper 19484 (Jun. 2014) (finding that a series of requirements in the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), including several provisions designed to promote simplified disclosure, has produced substantial decreases in both over-limit fees and late fees, thus saving U.S. credit card users $12.6 billion annually). 590 Daniel Kahneman, Thinking, Fast and Slow, New York: Farrar, Strauss, Giroux (2013). Susan Fiske & Shelley E. Taylor, Social cognition: From Brains to Culture, SAGE Publications Ltd; 3rd ed. (2017). 591 J. Hattie, Visible learning. A synthesis of over 800 meta-analyses relating to achievement, Oxon:
Routledge (2008) (‘‘Hattie’’).
592 I. Benbasat & A.S. Dexter, An Investigation of the Effectiveness of Color and Graphical Presentation under Varying Time Constraints, MIS Quarterly 10, 59–83 (Mar. 1986) (‘‘Benbasat & Dexter’’). 593See, e.g., JR Kling, S. Mullainathan, E. Shafir, LC Vermeulen & MV Wrobel, Comparison friction:
experimental evidence from Medicare drug plans, Quarterly Journal of Economics 127, 199–235 (2012) (finding that in a randomized field experiment, in which some senior citizens choosing between Medicare drug plans that were randomly selected to receive a letter with personalized, standardized, comparative cost information (‘‘the intervention group’’) while another group (‘‘the comparison group’’) received a general letter referring them to the Medicare website, plan switching was 28% in the intervention group, but only 17% in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 a year among letter recipients); CK Hsee, GF Loewenstein, S. Blount & MH Bazerman, Preference reversals between joint and separate evaluations of options: a review and theoretical analysis, Psychological Bulletin 125, 576–590 (Oct. 2006). 594See Loewenstein Sunstein Article, supra note 567. 595Economic effects of the proposal on the market for financial services, including on indirectly￾affected parties such as banks or insurers that are not regulated by the SEC, are considered in the following section. 596See 917 Financial Literacy Study, supra note 20. 597See 913 Study, supra note 3, at section III.A.; Siegel & Gale Study, supra note 550; RAND Study, supra note 5. increase as disclosure documents become longer, more convoluted, or more reliant on narratives.588 Moreover, empirical evidence suggests that simplification benefits consumers of disclosed information.589 These results appear to support requirements of simple disclosures, which provide benefits to consumers of that information. A second characteristic of an effective disclosure is salience, or the tendency to ‘stand out’ or contrast with other information on a page. Salience detection is a key feature of the human cognition allowing individuals to focus their limited mental resources on a subset of the available information and causing them to over-weight this information in their decision making processes.590 Within the context of disclosures, more salient information, such as information presented in bold text, would be more effective in attracting attention than less salient information, such as information presented in a footnote. There is also empirical evidence that visualization improves individual perception of information.591 For example, one experimental study shows that tabular reports lead to better decision making and graphical reports lead to faster decision making (when people are subject to time constraints).592 A third characteristic of effective disclosure is standardization. People are generally able to make more coherent and rational decisions when they have comparative information that allows them to assess relevant trade-offs.593 Standardization could be particularly important for the disclosure of certain quantitative aspects of financial services, such as the level and structure of fees. Finally, personalization may further
enhance the effectiveness of disclosure.594 This approach might involve, for example, adjusting the presentation to take account of the receiver’s interests, expectations, or format preferences or to tailor the information based on what the receiver already knows in order not to repeat existing knowledge. Personalization is usually achieved at the expense of standardization, however, and can be costly to create. Current reporting and disclosure requirements for broker-dealers and registered investment advisers including Form BD and Form ADV may provide detailed information to investors. However, because these existing reports and disclosures (which serve the purposes for which they were created) are made in multiple, sometimes lengthy forms, and made available at different websites or delivery methods, it can be difficult for investors to grasp the most important features of the financial services and products they receive. In addition, the information available to retail investors about broker-dealers on BrokerCheck does not include the same information that investment advisers provide in the Form ADV brochure and brochure supplement. The relatively low financial literacy of many investors also makes it less likely that they would be able to effectively compile this information on their own and use it in their decision making. Furthermore, most financial firms and professionals could lack the incentives and resources to disclose the main aspects of their business practices to their customers in the absence of the proposed requirements. In evaluating the broad economic issues related to disclosure, the Commission preliminarily believes that all retail investors would benefit from a short summary that focuses on certain aspects of the firm and its financial professionals and its services. By requiring both investment advisers and broker-dealers to provide a concise relationship summary that discusses both types of services and their differences, the relationship summary would help all retail investors to understand these aspects of a particular firm, to compare different types of accounts, and to compare one firm with other firms. The relationship summary would also highlight, in one place, the services, some categories of fees, specified conflicts of interest, and whether the firm or its financial professionals currently have reportable disciplinary events.
2. Economic Effects of the Relationship
Summary
This section analyzes the anticipated economic effects from the proposed relationship summary to the directly affected parties: retail investors, and broker-dealers and investment advisers that offer brokerage or advisory services to retail investors.595 a. Retail Investors As noted above, substantial evidence suggests that retail investors lack financial literacy and do not understand many basic financial concepts, such as the implications of investment costs for investment performance.596 This, in turn, supports the notion that a well￾functioning market for financial services may provide benefits to investors by helping them obtain information and guidance from firms and financial professionals and thereby make better investment decisions. At the same time, however, evidence also suggests that investors do not fully comprehend the nature of the business relationships and responsibilities in the market which makes them vulnerable to confusion and being misled by firms and financial professionals; 597 it also implies that any improvement of retail investor understanding of their relationship with

598For purposes of the relationship summary, we propose to define a standalone investment adviser as a registered investment adviser that offers services to retail investors and (i) is not dually registered as a broker-dealer or (ii) is dually registered as a broker-dealer but does not offer services to retail investors as a broker-dealer. We propose to define a standalone broker-dealer as a registered broker-dealer that offers services to retail investors and (i) is not dually registered as an investment adviser or (ii) is dually registered as an investment adviser but does not offer services to retail investors as an investment adviser. Proposed General Instruction 9.(f) to Form CRS. 599See supra Section IV.B.1. 600See commenters’ feedback in the Financial Literacy Study, supra note 20, at iv, xx, 21–22. 601See supra note 593. 602See supra Section IV.B.1. financial professionals could improve investor’s investment decisions. The content of the proposed relationship summary is intended to alert retail investors to information that would help them to choose a firm or a financial professional and prompt retail investors to ask informed questions. It is also intended to facilitate comparisons across firms that offer the same or substantially similar services. Specifically, the relationship summary would provide information on the relationships and services offered by investment advisers and broker-dealers, the standards of conduct applicable to those services, certain categories of fees and costs of the services offered, comparisons of brokerage and investment advisory services (for standalone broker-dealers and investment advisers),598 conflicts of interest, and some additional information, including the existence of currently reportable legal or disciplinary events. The Commission believes that the information in the relationship summary could help alleviate investor confusion and would promote effective communication between the firm and its retail investors and assist investors in making an informed choice when choosing an investment firm and professional and type of account to help to ensure they receive services that meet their preferences and expectations. Although the relationship summary applies only to broker-dealers and registered investment advisers, its impact could extend beyond the current and prospective clients of these institutions and impact a larger set of investors through various channels such as public filings and website posting. Both the content and the form of the relationship summary are designed to increase the likelihood that the disclosed information is consumed easily and effectively by retail investors. We discuss the potential benefits and costs of the relationship summary and its components in detail below.
i. Structure of the Relationship
Summary
The structure of the relationship summary is designed to facilitate retail investors’ absorption of the provided information. The proposed design intentionally restricts the length of the relationship summary, whether in electronic or paper format, to four pages on 81⁄2 x 11 inch paper if converted to PDF format, with a specified font size and margin requirements. Existing research suggests that shorter disclosures help investors absorb and process information.599 Shorter disclosure would also facilitate a layered approach to disclosure. The Commission acknowledges that a limit on overall document length (or equivalent length for electronic disclosure) may entail limiting the information provided through the relationship summary. However, based on the studies described above, we preliminarily believe that limiting the length of the relationship summary appropriately trades off the benefits of additional detail against the costs of increased complexity associated with longer disclosures. Similarly, while the required standardization across the relationship summary limits the ability of firms to provide customized information to potential retail investors, we preliminarily believe these constraints are appropriate to facilitate comparability. In addition, firms would be required to use short sentences, active voice, and plain language throughout the relationship summary. Firms would not be permitted to use legal jargon, highly technical business terms, or multiple negatives. Existing research also shows that visualization helps individuals absorb information more efficiently.600 Consistent with this research, firms would be permitted to use graphical presentations, and dual registrants would be required in certain aspects, to use tables to simplify and highlight the information. For example, dual registrants will be required to provide a side-by-side tabular presentation of all relevant information provided in the relationship summary. Moreover, the disclosure would involve a certain degree of standardization across firms. In particular, firms would be required to use the same headings, prescribed wording, and present the information under the headings in the same order. 601 Additionally, firms would be prohibited from adding any items to those prescribed by the Commission and any information other than what the Instructions require or permit. As discussed above, standardization facilitates comparisons of content across disclosures.602 We believe that allowing only the required and permitted information would promote standardization of the information presented to retail investors, and would allow retail investors to focus on information that we believe is particularly helpful in deciding among firms. At the same time, we acknowledge that standardization of disclosures not only limits personalization that may be valuable to retail investors but also could result in disclosures that are less precise. Further, all information in the relationship
summary must be true and not misleading. In particular, the Instructions permit firms to omit or modify any prescribed statement that is inapplicable to their business or would be misleading to a reasonable retail investor. In addition, for certain items, firms will have some flexibility in how they include the required information.
ii. Introduction
The proposed Introduction of the relationship summary would highlight to retail investors the type of accounts and services the firm offers to retail investors, and the firm’s SEC registration status. In addition, the introduction would require prescribed wording stating there are different ways for investors to get help with their investments, and that they should carefully consider what type of account and services would be right for them and that there are suggested questions at the end of the disclosure. An introduction designed in this manner may benefit retail investors by clarifying that there are choices available in terms of accounts and services and that the some services, firms, or financial professionals may be a better fit than others for the investor. This in turn may trigger a closer read of the relationship summary and perhaps also additional information gathering by the investor that could lead to a more informed choice of financial professional and better fit between the investor’s need and the type of accounts and services they use.
iii. Relationships and Services
In the second section of the relationship summary, firms would discuss specific information about the nature, scope, and duration of its relationships and services, including the types of accounts and services the firm offers, how often it offers investment advice, and whether the firm monitors

603See, e.g., Siegel & Gale Study, supra note 5 and RAND Study, supra note 5. See also CFA Survey, supra note 5. 604See supra Section II.B.4. the account. As noted above, the relationships and services of firms can differ in nature, scope, and duration. The Commission believes that a better understanding of the relationships and services could lower search costs and the risk of mismatch for retail investors, by facilitating cross-firm comparisons, and make it easier for them to find a firm and a financial professional that most closely meet their expectations, depending on how important different types of fee structures, services, standards of conduct or other information points are to them.
iv. Obligations to the Retail Investor—
Standard of Conduct
The third section of the relationship summary briefly describes in plain language the firm’s legal standard of conduct. As noted above, studies show that many retail investors are confused about the standard of conduct that applies to firms and financial professionals,603 and the Commission believes that providing retail investors with a brief description of legal obligations of firms and professionals could help alleviate this confusion. Furthermore, to the extent this section makes the issue of standard of conduct more salient to the investors, it may encourage additional information gathering by the investors about the standard of conduct, which could further increase investors’ understanding. Investor understanding of the obligations of their firms and financial professionals with respect to each type of account could help investors align their expectations with the expected conduct of their firm or financial professional. For example, depending on their preferences, some investors might find an advisory account more appropriate. Other investors could prefer the services and standards of conduct associated with a brokerage account. Thus, to the extent the proposed disclosure of obligations in the relationship summary increase investors understanding in this area, it may improve the match between investors’ preferences and expectations and the type of accounts and services they select while preserving investor choice.
v. Summary of Fees and Costs
The Commission is also proposing that firms include an overview of specified types of fees and expenses that retail investors will pay in connection with their brokerage and investment advisory accounts.604 This section would include a description of the principal type of fees that the firm will charge retail investors as compensation for the firm’s advisory or brokerage services, including whether the firm’s fees vary and are negotiable, and factors that would help a reasonable retail investor understand the fees that he or she is likely to pay. As such, the improved disclosure of the categories of fees, including wrap fees, could help improve retail investor’s decision to engage a firm and a financial professional.
vi. Comparisons
The Commission is also proposing to require standalone investment advisers and standalone broker-dealers to provide comparisons to the other type of firm. Standalone broker-dealers would include information about the following: (i) The primary types of fees that investment advisers charge; (ii) services generally provided by investment advisers, (iii) advisers’ standard of conduct; and (iv) certain incentives advisers have based on the investment adviser’s asset-based fee structure. For investment advisers, this
section would include parallel
categories of information regarding broker-dealers. The choice between a brokerage account and an advisory account in part may determine the types of fees and costs and standard of conduct associated with the account. Retail investors who are provided with more information would be more likely to match their choice of the type of account with their expectations; if retail investors do not understand the differences between of broker-dealers and investment advisers, they are less likely to be able to match their expectations for financial services providers with their choices. Thus, the Commission preliminary believes that having a clear explanation of differences in the fees, scope of services, standard of conduct, and incentives that are generally relevant to advisory and brokerage accounts may help retail investors who are considering one such type of relationship to compare how their preferences and expectations might be better met with the other type of relationship.
vii. Conflicts of Interest
The Commission is also proposing that firms summarize their conflicts of interest related to certain financial incentives. Specifically, firms would be required to disclose conflicts relating to:
(i) Financial incentives to offer to, or recommend that the retail investor invest in, certain investments because (a) such products are issued, sponsored, or managed by the firm or its affiliates, (b) third parties compensate the firm when it recommends or sells the investments, or (c) both; (ii) financial incentives to offer to, or to recommend that the retail investor invest in, certain investments because the manager or sponsor of those investments or another third party (such as an intermediary) shares revenue it earns on those products with the firm; and (iii) the firm buying investments from and selling investments to a retail investor from the firm’s account (i.e., principal trading). Including these disclosures prominently, in one place, at or before the start of a retail investor’s relationship with a firm or financial professional could facilitate retail investors’ understanding of the incentives that may be present throughout the course of the relationship. Such disclosure of financial incentives could assist investors in matching their expectations when choosing a firm or professional and type of account to help to ensure they receive services that meet their expectations. In addition, to the extent that the specified conflicts of interest disclosures could draw retail investors’ attention to conflicts, monitoring of firms and financial professionals by retail investors could be improved. The first category of conflicts noted above makes the promotion of own and third party products more salient for retail investors. The possibility that an investor may request an explanation of a transaction regarding a recommended investment or strategy, and associated costs thereof, could serve as an additional disciplinary device for firms and financial professionals and align better their interests with the interests of retail investors. Similarly, the disclosures in the relationship summary about revenue sharing arrangements may induce retail investors to more carefully pay attention to investments with such arrangements and request further information. Principal trading could also make retail investors vulnerable to transactions that transfer value from their accounts to the accounts of the firm, and so the disclosure of principal trading information could draw retail investors’ attention to possible conflicts that could emerge from principal transactions and generate increased scrutiny of such transactions by investors. While the Commission preliminarily believes that disclosures of conflicts of

605See Genevie`ve Helleringer, Trust Me, I Have a Conflict of Interest! Testing the Efficacy of Disclosure in Retail Investment Advice, Oxford Legal Studies Research Paper No. 14/2016 (Mar. 2016), available at https://ssrn.com/abstract= 2755734; and Cain 2005 Article, supra note 581. As discussed above, existing and proposed rules and regulations for broker-dealers and investment advisers could mitigate the negative unintended consequences of disclosures of conflicts of interest. 606See supra Section IV.B.1. 607See Burden of Disclosure Article, supra note
584. Further, this ‘‘panhandler effect’’ suggests that
in some cases disclosure of financial professionals’ conflicts of interests (particularly in face-to-face interactions) may create social pressure on retail investors to meet the financial professionals’ interests. 608Under the Advisers Act, an adviser is a fiduciary whose duty is to serve the best interest of its clients, including an obligation not to subrogate clients’ interest to its own. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 194 (the United States Supreme Court held that, under section 206 of the Investment Advisers Act of 1940, advisers have an affirmative obligation of utmost good faith and full and fair disclosure of all material facts to their clients, as well as a duty to avoid misleading them). Section 206 applies to all firms and persons meeting the Advisers Act’s definition of investment adviser, whether registered with the Commission, a state securities authority, or not at all. See also Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979) (‘‘[T]he Act’s legislative history leaves no doubt that Congress intended to impose enforceable fiduciary obligations.’’). 609See Regulation Best Interest Proposal, supra note 24. Proposed Regulation Best Interest would establish a standard of conduct for broker-dealers and associated persons of broker-dealers to act in the best interest of the retail customer at the time at recommendation is made without placing the financial or other interest of the broker-dealer or associated person of a broker-dealer ahead of the interest of the retail customer. The standard of conduct obligation shall be satisfied if the broker￾dealer or associated person of the broker-dealer discloses at the time of the recommendation material facts relating to the scope and terms of the relationship, which may be satisfied in part by the relationship summary, and all material conflicts associated with the recommendation. In addition, broker-dealers would be required to satisfy the Care and Conflicts of Interest Obligations, as discussed more fully in the Regulation Best Interest Proposal. 610For example, a broker-dealer may recommend a security even when a conflict of interest is present, but that recommendation must be suitable. See FINRA Rule 2111. The antifraud provisions of the federal securities laws and the implied obligation of fair dealing prohibit a broker-dealer from, among other things, making unsuitable recommendations and require broker-dealers to investigate an issuer before recommending the issuer’s securities to a customer. See, e.g., Hanly v. SEC, 415 F.2d 589, 596 (2d Cir. 1969). See also Municipal Securities Disclosure, Exchange Act Release No. 26100 (Sept. 22, 1988), at n.75. The fair dealing obligation also requires a broker-dealer to reasonably believe that its securities recommendations are suitable for its customer in light of the customer’s financial needs, objectives and circumstances (customer-specific suitability). See Release 8662, supra note 118, at 18
(involving excessive trading and recommendations of speculative securities without a reasonable basis). 611Consistent with this belief, one study also finds that regulations and legal sanctions on conflicted advice can mitigate the effects of moral licensing discussed above. See Bryan Church & Xi Kuang, Conflicts of Disclosure and (Costly) Sanctions: Experimental Evidence, Journal of Legal Studies 38 2: 505–532 (Jun. 2009). 612See Parts 1 and 2 of Form ADV; Form BD; Form U4. 613See 917 Financial Literacy Study, supra note 20. 614See Mark Egan, Gregor Matvos & Amit Seru, The Market for Financial Adviser Misconduct, Journal of Political Economy (Dec. 14, 2017), available at https://ssrn.com/abstract=2739170. interest in the relationship summary could match retail investor expectations with the choices of firms and financial professionals, some studies have found that disclosures of conflicts of interest, in some cases, could undermine the motivations of people to behave ethically or to take moral license in their actions.605 In the context of providing investment advice, the perception that an investor has been warned (via the disclosure) of a firm’s and financial professional’s potential bias may make them believe that they are less obligated to provide unbiased advice.606 Further, other studies have suggested that disclosures of conflicts of interest could also make firms and financial professionals appear more trustworthy and as a result reduce the incentives for retail investors to examine additional information more carefully.607 The Commission preliminarily believes, however, that the securities laws and existing rules and regulations thereunder, such as investment advisers’ fiduciary duty,608 broker￾dealers’ requirements under proposed Regulation Best Interest 609 standard, as well as under existing self-regulatory organizations’ rules and the Exchange Act,610 reduce the risk that broker￾dealers and investment advisers might use the proposed relationship summary to exploit potential conflicts of interest between themselves and their retail investors because these regulations may raise the cost of misconduct.611
viii. Additional Information
To facilitate the layered disclosure that the relationship summary provides, we are proposing to require that firms include a separate section (‘‘Additional Information’’) in the relationship summary outlining where retail investors can find more information about the firm’s legal and disciplinary events, services, fees, and conflicts. Retail investors may benefit from information on where to find disclosures of the disciplinary events of firms and financial professionals. For some retail investors, the disciplinary history of the firm or the financial professional may affect their choices related to obtaining investment advice. By providing information on whether the firm or financial professionals have disciplinary history and where to obtain more detailed information through layered disclosure may facilitate retail investors’ ability to match their expectations with their choice of financial service provider. The required disclosure would succinctly state whether or not the firm or its financial professionals have legal and disciplinary events, based on whether or not they or their financial professionals currently disclose or are currently required to disclose certain legal or disciplinary events to the Commission, self-regulatory organizations, state securities regulators or other jurisdictions, as applicable. The Additional Information section would also highlight where retail investors can find more information about the disciplinary history of the firm and its financial professionals on ‘‘Investor.gov.’’ While the disclosure of the existence of disciplinary events does not provide new information to the market,612 this simple disclosure in the relationship summary, if applicable, could help retail investors more easily identify firms that have reported disciplinary events for themselves or their financial professionals and where to find more information about the events. By including this disclosure, in combination with the requirement to include a specific question for retail investors to ask about disciplinary history in the ‘‘Key Questions to Ask’’
section (discussed further below), the
relationship summary would potentially make retail investors more likely to seek out disciplinary history information to use in their evaluation of firms and financial professionals and would make them better informed when they choose a firm and a financial professional. Finally, retail investors themselves have indicated that they consider disciplinary information important.613 Further, by drawing attention to disciplinary histories of financial professionals for retail investors, firms could become more selective in their employment decisions, which could benefit retail investors by having a potentially more trustworthy pool of financial professionals to select from when they choose providers of investment advice, and reduce potential harm to retail investors. As such, the overall quality of financial advice provided to retail investors could increase, to the extent that legal and regulatory compliance is correlated with advice quality.614 As a consequence, such disclosures of disciplinary history could promote retail investor confidence in the market. One potential cost of the increased salience of the existence of disciplinary events may be that retail investors could

615We are proposing to allow firms to modify or omit portions of any of these questions that are not applicable to their business. We are also proposing to require a standalone broker-dealer and a standalone investment adviser, to modify the questions to reflect the type of account they offer to retail investors (e.g., advisory or brokerage account). In addition, we are proposing that firms could include any other frequently asked questions they receive following these questions. Firms would not, however, be permitted to exceed fourteen questions in total. See supra Section II.B.8. 616See proposed Item 8 of Form CRS. 617Anchoring is a cognitive bias, whereby receivers of information strongly rely on the initial information received when making decisions, and do not sufficiently adjust to new information received. See, Anderson, Jorgen Vitting, Detecting Anchoring in Financial Markets, Journal of Behavior Finance 11, 129–133 (2010) available at https://www.tandfonline.com/doi/abs/10.1080/ 15427560.2010.483186. 618See, e.g., Tversky Kahneman Article, supra note 580, on the importance of framing. 619Although the 917 Financial Literacy Study indicated that nearly 90% of survey participants believed that certain disclosures would have been helpful to have in advance of their selection of their current adviser, under the current proposal, firms may and are highly encouraged, though not required, to deliver the relationship summary in Continued be deterred from hiring a firm or financial professional with a disciplinary record, even if they would be better off to do so, without further investigating the nature of the disciplinary event. Alternatively, an investor may also incorrectly assume that a firm that does not report legal/ disciplinary history is a ‘‘better’’ or a ‘‘more compliant’’ firm than a firm that does report such history; i.e., the lack of currently reportable disciplinary history could signify a stamp of approval for some investors. Therefore, disclosures of the existence of disciplinary events could have an unintended consequence of keeping some investors out of the market for financial advice or by selecting financial professionals that could lead to a mismatch with the expectations of the retail investor. This section would also include disclosure of how investors can contact the firm, the SEC, or FINRA (when applicable) if they have problems with their investments, investment accounts, or financial professionals. Highlighting this information may encourage more outreach by investors when they experience such problems, which may increase the likelihood of investors seeking resolution of their or the firm’s problems. Further, to the extent investors’ awareness of how to report problems is increased, it may have some incremental disciplining effect ex ante on financial professionals to the benefit of all retail investors in this market. For example, if retail investors, once aware of how to contact the Commission or FINRA are more
likely to do so as a result of the information provided by the relationship summary, firms and financial professionals may improve standards and implement policies and procedures aimed at reducing conduct that would warrant potential outreach to regulators by retail investors. Finally, this section would state where to find more information about the firm and its financial professionals. Broker-dealers would be required to direct retail investors to additional information about their brokers and services on BrokerCheck, their firm websites (if they have a website; if not, they would state where retail investors can find up-to-date information), and the retail investor’s account agreement. Investment advisers likewise would be required to direct retail investors to additional information in the firm’s Form ADV Part 2 brochure and any brochure supplement provided by a financial professional to the retail investor. If an adviser has a public website and maintains a current version of its firm brochure on the website, the firm would be required to provide the website address (if an adviser does not have a public website or does not maintain its current brochure on its public website, then the adviser would provide the IAPD website address). Making these links to websites available could be important given that low levels of financial literacy could make it less likely that investors would effectively compile information on their own to use in decision making.
ix. Key Questions To Ask
The proposed relationship summary is expected to benefit retail investors either directly, by providing information about the corresponding firm and financial professional, or indirectly, by encouraging investors to acquire additional information. The relationship summary would also include suggested key questions to encourage retail investors to have conversations with their financial professionals about how the firm’s services, fees, conflicts, and disciplinary events affect them. Under the ‘‘Key Questions To Ask’’ heading, firms would be required to include ten questions,615 as applicable to their particular business, to help retail investors to elicit more information concerning the items discussed in the relationship summary.616 Given that standardization of disclosures limits personalization that may be valuable to retail investors, the Commission preliminarily believes that the proposed questions would serve an important purpose in the relationship summary—namely, to prompt retail investors to ask their financial professionals for more personalized information. The proposed list of questions in the relationship summary may alter the actions not only of retail investors but also of firms and their financial professionals. In anticipation of having to answer these key questions, firms may find it in their self-interest to train their staff and develop materials that could help them address the question in greater detail. Such a voluntary response by firms would likely benefit investors to the extent the answers given to the questions may become more informative and more accurate. However, some firms may develop standardized answers in anticipation of the key questions that become less informative to the retail investor than a back and forth conversation. We believe the proposed set of questions cover a broad range of issues that are likely to be important to retail investors and provide benefits, such as a platform from which to begin a dialogue with their financial professional. However, potential costs may arise for some retail investors. One such potential cost of the proposed questions is that they may anchor the attention of retail investors to the list and reduce the likelihood that they would explore other potential questions that could be important to them based on their unique circumstances.617 In addition, framing the questions as ‘‘Key Questions’’ could lead some retail investors to believe that any other questions they may have due to their own particular circumstances may be of second order importance, even if they may not be.618
x. Other Benefits and Costs to Investors
As indicated in the 917 Financial Literacy Study, retail investors consider the proposed disclosures in the relationship summary to be important pieces of information. With respect to content, disclosure items identified as absolutely essential for retail investors were: Adviser’s fees (76%), disciplinary history (67%), adviser’s conflicts of interest (53%), and adviser’s methodology in providing advice (51%). Approximately 54% of investors also believe that disclosures that provided comparative adviser information would be useful. In light of this evidence, the Commission preliminarily believes the disclosure would provide valuable information to retail investors and potentially encourage further information gathering by retail investors that assist them in making an informed choice of what type of account matches their preferences and expectations.619