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FINRA Moves Closer to Fiduciary Standard with Conflicts Report

Posted by Jack Duval

Oct 22, 2013 10:54:25 AM

According to a release by FINRA CEO Richard G. Ketchum, the regulator is stepping up it's focus on conflicts of interest at Broker-Dealer firms.  (Release)  This increase in focus is significant because it takes a step closer to a fiduciary standard for Registered Representatives.  The full, 44 page report can be found here.

Some areas for BD focus include:



  • identifying and managing conflicts on an ongoing basis through an enterprise-level approach that is scaled to the size and complexity of a firm's business and that starts with a "tone from the top" that carries through to the organization's structures, policies, processes, training and culture;

  • establishing new product review processes that include perspectives independent from the business proposing products, that identify potential conflicts raised by new products, that restrict distribution of products that may pose conflicts that cannot be effectively mitigated and that periodically re-assesses products through post-launch reviews;

  • making independent decisions in the wealth management business about the products they offer without pressure to favor proprietary products or products for which the firm has revenue-sharing agreements;

  • minimizing conflicts in compensation structures between customer and broker or firm interests where possible and including heightened supervision when conflicts remain; for example, around thresholds in a firm's compensation structure;

  • mitigating conflicts of interest through disclosures and other information that enables customers to understand the factors that may affect a product's financial outcome—such as the use of scenarios and graphics for a particular product; and

  • including "best-interest-of-the-customer" standards in codes of conduct that apply to brokers' personalized recommendations to retail customers in order to maintain and increase investor trust.



Broker-Dealer compliance departments will need to establish a framework of policies and procedures to address actual and potential conflicts of interest.

 

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Topics: FINRA, Richard G. Ketchum, litigation, Conflicts of Interest, investments, report, SEC, Compliance, Dodd-Frank Act, regulation.

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