Finra Prescribes Candor in Discussing Departing Brokers
Broker-dealers are obligated to communicate “clearly and without obfuscation” to customers about brokers who join another firm or leave the securities industry, the Financial Industry Regulatory Authority said in a new regulatory notice.
“FINRA has consistently sought to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative…leaves,” the industry-financed regulator wrote in the three-page notice issued last Friday.
Michelle Ong, a Finra spokeswoman, declined to comment on the motives for the notice, but said it is part of the self-regulatory group’s continuing attempt to provide guidance on its rules.
The notice is not prescriptive, acknowledging that firms will take different approaches to communicating about departures, based on their business service models. But it warned that all firms must “promptly and clearly” tell affected customers how their accounts will be serviced and respond with “timely and complete answers, if known,” when customers ask questions about departing brokers.
Broker departures typically spark customer-contact derbies that can lead to innuendo, or direct comments, about the quality of a broker’s work and the reason for a departure, said George C. Miller, a lawyer at Shustak Reynolds & Partners in San Diego, who applauded the notice.
“We have seen everything under the sun,” he said. “To put this obligation on the departing firm will ultimately help clients, and help avoid some of that game-playing in the transition process.”
Finra understands that firms must move quickly to reassign customer accounts to avoid interruption of service, but expects them to codify policies and procedures on servicing and responding to questions about departing brokers.
Firm brokers and supervisors must give clear answers if asked about departing brokers and ways to contact them, consistent with privacy and other legal requirements, the notice said.If asked, firms must clarify that a customer has the choice to keep assets in-house, opt for another broker than the one assigned to his or her account and be able to transfer assets to another firm, the notice said. They also must offer “reasonable contact information, such as phone number, email address or mailing address of the departing representative” if customers ask for it.
Finra does not expect firms to obtain such contact information if the departing broker failed to give it to people responsible for reassigning coverage. But all information provided about the departing broker must be fair, balanced and not misleading, the notice said.
It does not address what departing brokers may say about their former firms or colleagues, nor on how aggressively they may pursue former customers.
The Protocol for Broker Recruiting permits departing brokers to take rudimentary client-contact information when they move among members of the pact, but Morgan Stanley and UBS Financial Services in late 2017 withdrew from the Protocol.
Broker mobility continues to be strong, the notice said.
“Registered representatives move with some frequency between member firms and across financial firms under various regulatory jurisdictions, such as investment advisory firms and insurance companies,” the regulator wrote in introducing the notice.
Finra in 2013 proposed a far-reaching rule that would have required hiring firms to notify former customers about bonuses and other compensation that new brokers could receive for hitting customer-transfer and other asset-accumulation goals. The conflict-of-interest disclosure proposal was replaced with a milder rule requiring hiring firms to send a broker’s former customers an “educational communication” about potential transfer fees and other issues to consider before moving their assets.
The new regulatory notice is the tenth issued by Finra this year, and is not intended as a scolding mechanism.
“We believe the vast majority of FINRA member firms are acting consistently with this guidance,” said Ong.