On January 28, 2019, FINRA released its Regulatory Notice 19-04 announcing its 529 plan self-reporting initiative. This initiative is part of FINRA efforts to have broker-dealers promptly remedy potential supervisory and suitability violations related to recommendations of share classes for 529 plans. Continue reading “Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report”
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Last week, FINRA issued its 2018 “Report on FINRA Examination Findings.” This report tracks FINRA’s 2018 Priorities letter, which this blog has previously covered. Putting its member firms on notice, FINRA advised that it issued the report as another resource for firms to “strengthen their compliance programs and supervisory controls.” Not surprisingly, the first highlighted observation is “Suitability for Retail Customers.” Specifically, FINRA reported that:
In Parts 1 and 2 of this post, we talked about the current and proposed rules applicable to rollover recommendations by broker-dealers and RIAs. Part 1 discussed the DOL and FINRA rules that apply now. In Part 2, we explained the SEC proposals. In this post, we talk about how to make a compliant rollover recommendation, regardless of which set of rules applies.
(“Rollover recommendation” refers to advice to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA that is being advised by the broker-dealer or RIA.)
In our first post on this topic, we discussed the existing rules that apply to rollover recommendations by broker-dealers and RIAs. This discussion included the ERISA guidance that remains after the 5th Circuit’s decision vacating the Fiduciary Rule, as well as FINRA’s Regulatory Notice 13-45. In this post, we focus on the SEC’s best interest proposals for broker-dealers and RIAs and where that may take firms in the future. In our next, and final, post in this series, we’ll talk about how to make a compliant rollover recommendation.
(As a reminder, by “rollover” recommendation, we mean a recommendation to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA being advised by the broker-dealer or RIA.)
Continue reading “Recommending Rollovers in the Evolving Regulatory Environment (Part 2)”
Florham Park partner Tracey Salmon-Smith will participate in The Knowledge Group’s live webcast “FINRA Arbitrations: A Comprehensive Guide for 2018 and Beyond” on Friday, September 7, 2018. This is a must-attend event for attorneys practicing before FINRA and anyone interested in understanding the significant issues relating to FINRA Arbitrations.
In December 2017, the FINRA issued a proposal that will revamp and strengthen expungement rules. Proposed changes include adjustments to the timeframe of filing expungement requests and the mandated unanimous consent of a FINRA arbitration panel to grant expungement. Brokers, however, are opposing to the proposed changes.
During the webcast, Tracey and a panel of key thought leaders and practitioners will offer a discussion of the fundamentals and updates regarding these proposed changes as well as other developments concerning significant issues surrounding FINRA Arbitrations. This live webcast aims to help you to avoid common pitfalls and risk issues in the evolving climate of FINRA forum.
It was once said that “bureaucracy defends the status quo long past the time when the quo has lost its status.” FINRA, apparently a proponent of this idea, recently completed an overhaul of its Department of Enforcement’s structure in an attempt to create a “unified enforcement function.” Specifically, Susan Schroeder, FINRA’s head of enforcement, will head a single enforcement team charged with making decisions on investigations and penalties.
Prior to this consolidation, enforcement was split into two units. One was tasked with handling disciplinary matters concerning trading, and a second unit handled cases referred from FINRA’s other divisions, such as the Office of Fraud Detection.
The ultimate goal of this consolidation is “to facilitate more consistent decision-making and outcomes,” as well as “to better target developing issues that can harm investors and market integrity, and ensure a uniform approach to charging and sanctions.” Additionally, independent commentators believe that FINRA’s new enforcement structure might make investigations shorter and increase transparency.
To savvy observers this consolidation will not come as a surprise. It is the result of FINRA 360, “FINRA’s ongoing comprehensive and improvement initiative” announced July 2017. Consolidation of enforcement functions was listed, among others, as a way to make FINRA a “more effective, efficient regulator.” Other FINRA 360 priorities include: Reporting on FINRA examination findings, reviewing engagement initiatives, and retrospective rule review.
It is unclear whether FINRA’s consolidation will achieve its goals. FINRA’s efforts, however, serve as a welcome sign to firms and commentators, as FINRA appears genuinely interested in improving its overall efficacy and efficiency.
With recent developments in the regulatory landscape – the demise of the DOL Fiduciary Rule, the SEC’s proposed Regulation Best Interest (Reg BI) and RIA fiduciary interpretation, and the existing FINRA guidance on rollovers – it’s important for firms to understand the rules for rollover recommendations. This article discusses the rules as they apply to both broker-dealers and RIAs. While there are similarities in the application, there are also material differences. Continue reading “Recommending Rollovers in the Evolving Regulatory Environment (Part 1)”
FINRA recently issued a regulatory notice encouraging member firms to provide notification if either the firms or their associated persons or affiliates were engaging in, or planned to engage in, any activities related to digital assets such as cryptocurrencies and other virtual coins.
Citing the rapid market growth, the increasing interest from retail investors, and investor protection concerns, FINRA stated it has a keen interest in remaining abreast of the extent of member involvement in digital assets. Continue reading “FINRA Regulatory Notice Encourages Member Firms to Voluntarily Provide Information on Their Digital Asset Activities”
On May 24, 2018, President Trump signed into law the Senior Safe Act, which is aimed at curbing elder financial abuse. The Senior Safe Act is the latest effort to protect senior investors, as both FINRA and the SEC included protecting senior investors among their 2018 priorities. This blog has previously covered, at length, the SEC and FINRA 2018 exam priorities. Elder protection was also one of the SEC’s 2017 priorities and has been a FINRA priority since 2016.
In a previous post, we discussed why broker-dealers and their representatives will likely still be fiduciaries to ERISA plans and IRA investors in many cases despite the DOL Fiduciary Rule’s impending death (we say “impending” because, while the Fifth Circuit’s ruling in mid-March vacates the Fiduciary Rule in its entirety, the court’s official order implementing this decision has yet to be issued). To review, this is because broker-dealers and their representatives often satisfy all the prongs of the soon-to-be reinstated 1975 fiduciary regulation’s “Five-Part Test” defining when investment recommendations rise to the level of “fiduciary” advice. Previous industry assumptions that brokers and other “sellers” of investments generally were not fiduciaries under the 1975 regulation should no longer be relied upon. In this post, we’ll examine how the Fiduciary Rule’s impending demise will affect prohibited transaction and compensation issues for broker-dealers in light of their likely continuing status as fiduciaries. Continue reading “Why Fiduciary Status Still Matters in a Post-Fiduciary Rule World: A Look at Prohibited Transactions And Compensation”