FINRA Rule 2273 (“Rule 2273”) becomes effective on November 11, 2016, after initial approval by FINRA in March of this year. Rule 2273 requires all FINRA member firms that recruit a registered representative after November 11, 2016 to deliver a FINRA-created educational communication highlighting key considerations for the representative’s former customers. In response to queries from its members, FINRA released Q&A guidance addressing: (1) the format of the educational communication; (2) individualized contact; (3) delivery requirements; and (4) former customers.
Format of Educational Communication
Under Rule 2273, the educational communication must take the form of the standardized communication provided by FINRA, but a member firm may provide an accompanying written communication explaining the educational communication as long as they comply with the requirements of FINRA Rule 2210. The educational communication can be delivered multiple ways, including but not limited to, as a hyperlink in an email or as a PDF attachment to an email.
The rule states that any “individualized contact” with the customer will trigger an obligation to provide the educational communication. Individualized contact includes a broad range of communication by the recruiting firm or registered representative, such as: (1) informing the former customer that the registered representative is now associated with the recruiting firm; (2) suggesting the former customer to consider transferring his/her accounts to the new firm; (3) informing the customer that the new firm may offer better or different products; and (4) discussing the fee or pricing structure at the new firm. Further, unanticipated contact with the customer, as long as the conversation does not stray to the topics mentioned above, does not constitute “individualized contact.” Furthermore, FINRA member firms are given flexibility to reasonably design their supervisory systems to achieve compliance with Rule 2273, and thus there is no specific requirement that the registered representative or recruiting firm document individualized contact with a former customer.
If the first individualized contact is in writing, including but not limited to, the issuance of account transfer approval documents, then the educational communication must accompany the written communication. If the first individualized contact is oral, the member firm has three-business-days, not including the day of the oral communication with the former customer, to provide the educational communication.
Rule 2273 only applies to current customers, defined by FINRA as a customer who held a securities account assigned to the registered representative at the time the registered representative gave notice of departure to his or her current firm. Rule 2273 does not apply to customers who only held non-securities accounts with the registered representative’s previous firm (e.g., a bank account). Similarly, absent individualized contact, Rule 2273 does not apply when a customer holding a securities account at the registered representative’s previous firm only opens a non-securities account (e.g., a bank account) at the recruiting firm.