Securities Litigation

On December 16, FINRA submitted for SEC approval proposed Rule 2273 to require that brokers send customers an "educational disclosure" when changing firms. Although the proposal deletes a controversial provision that would have required disclosure of hiring bonuses, it requires hiring firms to deliver the FINRA-prescribed disclosure form when contacting former customers about account transfers or receiving their transferred funds. The Rule would require the communication to accompany mailings, be hyper-linked in emails, or sent within three business days after phone calls. If former customers initiate the contact, the disclosure must accompany the account transfer documents. The disclosure requirement would remain in place for 3 months after the representative's new employment starts. The prescribed disclosure form urges investors to consider: financial-incentive conflicts of interest; non-transferable assets; costs; product comparisons; and customer-service levels. FINRA originally proposed a recruitment rule (it would have been 2243) that required disclosure of ranges of increased broker compensation, including recruitment bonuses or asset-gathering incentives. In the face of considerable opposition, FINRA withdrew that proposal on June 20, 2014. This follow-on compromise proposal substitutes the prescribed, more general, two-page "issues to consider" disclosure and reserves for future rulemaking (if appropriate) a customer-affirmation requirement. SR-FINRA-2015-57, is here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).