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SEC Approves FINRA Rule Requiring Firms to Provide an “Educational Communication” to Former Clients of Transitioning Registered Representatives

On Behalf of | Mar 10, 2016 | Financial News, FINRA Compliance

The SEC approved a disclosure rule proposed by FINRA requiring that member firms hiring or associating with a registered representative provide the representative’s former clients an “educational communication” to be written by FINRA.   The communication is intended to prompt a former client to make further inquiries of the representative and their new and old firm to the extent that the client considers the information important to their decision making.

The communication will not disclose the specifics of the transitioning representative’s compensation with their new firm.  Rather, the communication will outline in general terms things the client may consider in connection with their decision to move their accounts, such as (1) whether financial incentives received by the representative may create a conflict of interest; (2) that some assets may not directly transfer to the new firm and as a result the customer may incur costs to liquidate and move those assets or account maintenance fees to leave them with their current firm; (3) potential costs related to transferring assets to the new firm; and (4) differences in products and services between firms.

The communication will be required when the former client is contacted by the representative or their new firm to transfer assets, or absent contact by the representative or their new firm, when a former client transfers assets to the representative at their new firm.

The implementation date for the rule has not been determined.

Click here to view the SEC’s Order approving the FINRA rule.