Finra Focuses On Educational Communication With Investors In New Compensation Proposal

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Brokerdealer.com blog update profiles a new proposal from Finra that has educating investors as their main focus. This proposal is a revised version of the one Finra filed last spring with the SEC. In the previous filing, brokers would have required brokers to disclose to investors recruiting incentives above $100,000 they received for switching to a new firm. This new proposal requires firms to send “educational communication” to investors when a broker moves to that firm. This educational communication proposal is drawing a lot of backlash as critics believe it watered down the original idea for compensation disclosures. This brokerdealer.com blog update is courtesy of InvestmentNews’ Mark Schoeff Jr.  and his article, “Finra releases revised broker compensation proposal“.

Finra released a revised proposal Wednesday for a rule designed to help investors understand the financial incentives their brokers had for switching to a new firm.

Under the rule, brokerages would have to send an “educational communication” to investors working with a broker who is moving to their firm. The document customers receive would outline questions they should ask their broker about the compensation and other inducements the broker is getting to transfer to the new firm.

The questions would help investors determine whether the broker’s financial incentives create a conflict of interest and whether investors would incur costs by following the broker to a new firm.

The broker-compensation proposal is a revised version of one the Financial Industry Regulatory Authority Inc. filed with the Securities and Exchange Commission in March 2014 but later withdrew amid industry resistance.

To continue reading about this investor educational communication focused Finra proposal, click here.

What’s Best For The Customer Doesn’t Matter According To Finra CEO Ketchum

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Brokerdealer.com blog update profiles Finra CEO, Richard Ketchum has come back at the Department of Labor (DOL), as it proposed to raise invesment advice standards for broker dealers. Ketchum claims this could cause firms to discontinue sales of individual retirement accounts as it would force there be a bias against products with higher fees, regardless of what’s best for the customer. This brokerdealer.com blog update profiling the implications of this new DOL proposal is courtesy of InvestmentNews article, “Finra’s Ketchum criticizes DOL fiduciary rule“, with an excerpt below.

Finra’s CEO Richard Ketchum criticized a Department of Labor proposal to raise investment advice standards for brokers Wednesday, saying it might cause firms to curtail — or even discontinue — sales of individual retirement accounts.

Mr. Ketchum said the DOL proposal would create a bias against financial products with higher fees, even if they’re the best recommendation for a client, and that it could force firms to move to a fee-based rather than brokerage business model. He also said it’s not a good idea to regulate retirement products, such as 401(k)s and IRAs, differently than other investments.

The Securities and Exchange Commission should take the lead in drafting a fiduciary-duty rule “across all securities products,” Mr. Ketchum told reporters on the sidelines of the Financial Industry Regulatory Authority Inc’s annual conference in Washington. SEC Chairwoman Mary Jo White favors such a rule, but has acknowledged it’s not clear whether she has the support of the five-member panel to make a proposal.

To continue reading about Finra CEO Ketchum and his take on the DOL proposal and his opinion on the SEC acting on this issue first, click here.

 

Finra Chief Says This About Broker-Dealer Fiduciary Rules

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Richard Ketchum, Finra

BrokerDealer.com 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.

To continue reading the coverage from FA Magazine, please click here

69 Red Flags Raised Before Action Was Taken Against Ponzi Scheme Involved Broker

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Brokerdealer.com blog update profiles broker, Jerry A. Cicolani Jr, who just recently was barred from the broker industry. Normally this wouldn’t be unusual, except it took 69 complaints filed against Cicolani before the Finra, or the FBI, finally did something about it. Not only had Cicolani received 69 complaints in his record, but he also was involved in a Ponzi Scheme as well. This brokerdealer.com blog update is courtesy of The New York Times’ Susan Antilla and her article, “Many Years of Overlooked Red Flags Catch Up to Stockbroker“. An excerpt from the article is below.

There are many brokerdealers who are Finra, SEC, and FBI compliant, to find one of those click here. 

In most professions, it would take only one or two acts of egregious conduct before troubled employees were shown the door. In the case of one stockbroker who has repeatedly had complaints from investors, it took 69 customer disputes filed over the last 13 years before he was barred from the business.

The stockbroker, Jerry A. Cicolani Jr., had complaint after complaint documented in his formal record. Regulators and employers spotted red flags. Yet the organization primarily responsible for monitoring the nation’s 637,000 brokers, the Financial Industry Regulatory Authority, did not bar Mr. Cicolani until September 2014.

The Securities and Exchange Commission had already sued him, in May 2014, over his role in a Ponzi scheme. His most recent employer, PrimeSolutions Securities, based in Cleveland, fired him a day after that lawsuit was filed. And his customers had lodged complaints as far back as 2002.

To continue reading about the legal implications Mr. Cicolani is now facing, click here

Broker Dealers Support Finra’s Move For Tougher Sanctions

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Brokerdealer.com blog update profiles the broker dealer industry’s support for tougher sanctions for violations of the suitability rule. It is the industry’s hope that these tougher sanctions will elevate the industry. This brokerdealer.com blog update is courtesy of InvestmentNews’ article, “Brokers back regulator’s tough stance on suitability” by Mark Schoeff Jr., with an excerpt below.

Brokers endorsed a move by their regulator this week to toughen sanctions for violations of the suitability rule even as they acknowledged the standard leaves room for interpretation.

The Financial Industry Regulatory Authority Inc.(FINRA) on Tuesday revised its Sanctions Guidelines, which included raising its suggested suspensions to two years from one for brokers making unsuitable recommendations. It also strongly advises possible barring of brokers and expulsion of firms for fraudulent activity.

Cracking down on suitability violations will help clients, said Jeremy Gottlieb, owner of Gottlieb Wealth Management. In reviewing investments of clients transferring to his firm, he often sees evidence that their portfolios were built on the basis of product sales rather than what is in their best interest.

To continue reading about these tougher sanctions that are being backed broker dealers everywhere, click here.