Finra Chief Says This About Broker-Dealer Fiduciary Rules

Richard Ketchum, Finra update profiles Finra Chairman Richard Ketchum’s position on the topic of broker-dealer guidelines and respective fiduciary standards.

Below extract is courtesy of FA Magazine

Calling a fiduciary rule for broker-dealers a “must,” Financial Industry Regulatory Authority Chairman and CEO Richard Ketchum laid out model guidelines Wednesday.

Ketchum said the standard is needed because too many brokers are pushing complex financial products on investors without appropriate fee and risk disclosures.

The regulator said a more stringent customer-focused standard for brokers other than suitability is also advisable because some firms continue to approach conflict management on a haphazardly and some fail to adequately discuss potentially higher fees involved in IRAs to permit a customer to make a fully informed decision.

He said the standard should be based on three essential tenets: active identification and management of firms’ conflicts; dramatically improved disclosure of risks associated with the product and product-related fees, firm and third party incentives; and more effective management of the compensation incentives to registered persons.

“The best interest standard should make clear that customer interests come first and that any remaining conflicts must be knowingly consented to by the customer,” said Ketchum.

To protect retail investors from conflicts of interest, the Finra CEO said the rules should require brokers to have an ongoing process to identify conflicts which could be costly to investors and develop written supervisory procedures to address how those conflicts would be eliminated or managed.

Also key to an effective fiduciary standard would be enhanced disclosures through an annual Form ADV-like document annually providing clear, plain English descriptions of conflicts, and all product and administrative fees, said Ketchum.

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