Broker Compensation-Disclosure Rule Approved by the SEC

It is not uncommon for registered representatives to change broker-dealers over the course of their career.

In most cases, their customers will typically switch firms as well, as they follow their representative to wherever he or she may go. Seems like a non-issue, right? FINRA did not think so. FINRA became concerned that when the representatives contacted the customers to discuss the switch, the customers may not be provided all the information necessary to make an informed decision on whether to transfer their assets. Accordingly, FINRA proposed a rule that requires representatives to provide an "educational communication" to the customers so the customers can have a complete picture of the potential implications of a decision to transfer their assets. The communication will need to disclose any financial incentives received by the representatives, whether some assets may not be transferable or the customer may incur costs to transfer, and the differences in available products and services at the new firm. As FINRA explained, the customers' confidence in and relationship with the representative may be the most important factor in deciding whether to transfer assets. The "educational communication" will presumably fill in the gap of information provided to the customer in such circumstances. The rule is also designed to encourage customers to ask their representatives questions about the transfer rather than blindly following. For representatives and customers that have a long relationship, this should be a non-issue.

Posted in: FINRA, SEC
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