The importance of the client relationship summary form

By Joseph Mattera
Posted 9/10/20

As we all know during these trying times with the virus, the upcoming presidential election and all the other issues, our country is now facing more bureaucracy. The latest one in the financial world …

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The importance of the client relationship summary form

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As we all know during these trying times with the virus, the upcoming presidential election and all the other issues, our country is now facing more bureaucracy. The latest one in the financial world is the implementation of the new CRS-client relationship summary.

This form, all 12 pages, must be presented to you before you enter into any financial relationship with a financial adviser. This is another form forced onto the financial service representative mainly due to the past business dealings of dishonest financial service representatives. We all remember Bernie Madoff, the man who heisted over $50 billion giving him the recognition as the criminal who committed the largest theft in history. He is incarcerated today.

Since that time and before, there have been many Ponzi schemes. Some cases were exposed and some probably still exist today.

The U.S. Securities and Exchange Commission has tried to apprehend these criminals, but as you know some criminals are hard to find. I applaud the SEC for installing everything they can to protect the uneducated investor. Which brings me to the purpose of this column and future ones, simply to educate the public about the financial service world. I will attempt to answer any questions you may have as I will offer this column with many various financial topics for your enjoyment.

The CRS form discloses to any possible investor products that are available such as 529 plans, mutual funds, variable annuities and variable universal life insurance. Each broker dealer is required to ensure each of their financial representatives give this form to every person before they enter into any financial transaction. The CRS form should describe in general what particular product their firm offers. The form is specific in nature and offers many disclosures.

For instance, CRS asks three questions:

  • Given my financial situation, should I choose an investment advisory service?
  • How will you choose investments to recommend to me?
  • What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?

Of course you are encouraged and entitled to ask questions to any person attempting to enter into a financial transaction with you. Of course the choice is ultimately yours as to whether or not you conduct business with any financial representative. When I wrote my previous columns in the south suburbs of Chicago many moons ago, I always ended with some statement reminding people that they work hard for their money and it should matter, hence the title “Money Matters.”

The CRS continues on to discuss specific fees. This is important because most people want to know what things cost before they make a major purchase. The CRS suggests you find out in advance.

Investments come with a price, and sometime it is buried in an illustration or a prospectus. The SEC highly encourages licensed financial service people to disclose this information now more than ever before with the aid of this CRS form. You have every right and should ask the person you are dealing with to show you exactly what the fees are for any financial product a firm is offering.

The next piece of information you are allowed to know is exactly how much compensation or commission an adviser would be earning if indeed you followed through with a proposed financial transaction.

As I stated at the beginning of this column, the form I am looking at consists of 12 pages and there are more specific details that I encourage everyone to read. I’m sure many financial advisers have not read it yet, but in time they may even be tested on the CRS for continuing education requirements. My copy is specific to our company and the broker-dealer we use.

The CRS form has much more information than I can cover in this column. The key is to make sure you receive one before you enter into any financial security business such as the products mentioned above. In fact, you are supposed to receive this form before you actually sign any documents.

In conclusion, I would encourage all of you to do your due diligence before entering into any financial transaction. This is just smart business sense.

Many people work all their lives to accumulate enough money to use during their retirement. It is a big concern of most retirees, just knowing they could possibly outlive their nest egg. This CRS form is designed to give you another layer of disclosure to help people make educated decisions with their hard-earned dollars.

I hope this information helps you moving forward and I welcome any questions or thoughts you may have.

Joseph Mattera is a resident of Gold Canyon, writer of the column “Money Matters,” and works at Ensign Financial Partners in Gilbert. He can be reached at jmattera@ensignfp.com.

money, finances

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