May 29, 2015
By Melanie Waddell, ThinkAdvisor
Self-regulator seeks comments, SEC approval on new plans
The Financial Industry Regulatory Authority just released two “watered down” proposals — one that requires firms to have a link on their websites to BrokerCheck and another that would require firms to provide an “educational communication” to former clients when a broker switches firms.
FINRA sent its proposed rule regarding BrokerCheck to the Securities and Exchange Commission for approval, while its Regulatory Notice 15-19 regarding recruitment compensation is out for public comment until July 13.
FINRA’s revised proposal on member websites would amend FINRA Rule 2210 (Communications with the Public) to require each of a member’s websites to include a “readily apparent reference” and hyperlink to BrokerCheck on the initial webpage that the member intends to be viewed by retail investors and any other page that includes a professional profile of one or more registered persons who do business with retail investors.
The proposal would not apply to a member that does not provide products or services to retail investors, or a directory or list of registered persons limited to names and contact information.
Jon Henschen of the broker-dealer recruiting firm Henschen & Associates sees the BrokerCheck linking requirement as just another “unnecessary expense forced on” broker-dealers.
“If regulators were willing to pay for such [website] changes, I don’t think broker-dealers and brokers would really care, but … this is just another case of unnecessary expense forced on others with no concern by regulators,” Henschen said. FINRA, he opined, has “already imposed too many expenses on our industry so that they can showcase their expensive BrokerCheck website that was paid for by the excessive fines they impose on our industry.”
FINRA’s earlier proposal, pulled in April 2013, would have required BrokerCheck links on social media profiles and possibly even websites that aggregated advisor information.
As to the broker recruitment compensation plan, FINRA wants feedback on its proposal that would require a member firm that hires or associates with a registered rep — the recruiting firm — to provide an educational communication to the rep’s former customers if any attempt is made to persuade them to transfer assets to the new firm.
According to FINRA, the educational communication “would highlight the potential implications of transferring assets to the recruiting firm and suggest questions a customer may want to ask to make an informed decision.”
The initial proposal, which FINRA filed with the SEC in March 2014 and then withdrew last June included two components: a disclosure obligation to former retail customers who the recruiting firm attempts to lure; and a reporting obligation to FINRA where a transferring rep receives a significant increase in compensation.
But securities lawyer Patrick Burns says the new “drastically watered down” FINRA proposal reducing disclosure of recruitment deals to an educational piece being sent to clients of transferring brokers “would not accomplish much and runs counter to the current industry debate and view of regulators moving towards a common fiduciary standard for brokers and advisors.”
Brokerage firms, Burns continued, “have largely been in favor of a common fiduciary standard. With that in mind, it is hard to see how the initial proposal would not be more consistent with being a fiduciary over an educational piece which essentially prompts clients, who may or may not be financially sophisticated, to ask their brokers uncomfortable questions about their compensation and other matters.”
What’s more, he opines, “it is also hard to gauge whether clients would even know what to ask their brokers after reading the brokerage firm’s educational piece (assuming clients even read it).”