Form CRS Requires Firms to Deny Non-Existent Disciplinary History
Recent Form CRS FAQs require firms without a disciplinary history to include disclosure and to avoid any explanatory hedging language. A firm must include the question about disciplinary history and answer “No” even if neither the firm nor its representatives have a disciplinary history. A firm can answer yes for itself and no for its registered representatives (or vice versa) but cannot offer explanatory language or an addendum. A firm can provide additional documentation, however. The SEC views the disclosure as a necessary conversation starter included in Form CRS, which every adviser and broker-dealer must provide to retail clients.
We get the “conversation starter” rationale, but what conversation can get started when neither the firm nor its representatives has a disciplinary history? It might appear to a retail client as a denial of an unmade accusation. We worry that these byzantine requirements will reduce the number of firms willing to service retail clients.