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FINRA Seeks Comments on Proposed Rule Requiring Delivery of Educational Communications to Customers of a Transferring Representative

On Behalf of | Jun 20, 2015 | Financial News, FINRA Compliance

On May 27, 2015, FINRA released Regulatory Notice 15-19 (“RN 15-19”) seeking comment on a proposed rule which would require recruiting firms to provide educational communications to retail customers who intend to transfer their assets to a registered representative’s recruiting firm. The purpose of the educational communications would be to inform customers of potential implications of transferring assets to the recruiting firms and to suggest inquires to be made in order to make an informed decision as to whether or not to go through with the transfer. The proposed inquires include:

  1. Whether financial incentives received by the representative create a conflict of interest
  2. Whether the customers’ assets might not be directly transferrable thereby causing the customers to incur costs and fees
  3. Whether there are potential costs related to transferring assets to the recruiting firm
  4. Whether there are differences between the products and services of the customers’ current firm and the recruiting firm

The proposed rule also requires a requisite time period for the delivery of the educational communications to the customers. The proposed delivery periods are as follows:

  1. Contact by writing: requires the educational communications to be included with the written communications
  2. Contact by electronic communication: requires the educational communications to be delivered to the customers within three business days or with any other form communication sent by the recruiting firm to the customers relating to the potential transfer of assets (whichever is first)
  3. Contact by oral communication: requires the recruiting firm or representative to inform the customers that a document will be sent regarding important considerations to assist with the decision of transferring assets to the recruiting firm
  4. No contact has been made to the customers: requires the educational communications to be accompanied with the customers’ account transfer approval documentation

The proposed rule would require member firms to establish and maintain written policies and procedures to ensure compliance. FINRA encourages comment on the proposed rule before the July 13, 2015 deadline.