SEC Approves FINRA's Educational Communication Rule

The SEC approved the adoption of FINRA Rule 2273 (Educational Communication Related to Recruitment Practices and Account Transfers), which establishes an obligation for FINRA registered broker-dealers to deliver an Educational Communication in connection with firm recruitment practices and account transfers. The rule becomes effective November 11, 2016. The rule requires a broker-dealer that hires or associates with registered representatives to deliver an Educational Communication, in a format prescribed by FINRA, to former customers of the representatives. The educational communication is required to be delivered when: a) the firm, directly or through a representative, individually contacts a former customer of that representative to transfer assets; or b) a former customer of the representative, absent individual contact, transfers assets to an account assigned, or to be assigned, to the representative at the firm.

The Educational Communication is intended to prompt a former customer to make further inquiries of the transferring representative and highlights the following potential implications of transferring assets to the recruiting firm: a) whether financial incentives the representative receives may create a conflict of interest; b) that some assets may not be directly transferrable to the recruiting firm and as a result the customer may incur costs to liquidate and move those assets or incur account maintenance fees to leave them with his or her current firm; c) potential costs related to transferring assets to the recruiting firm, including differences in the pricing structure and fees the customer's current firm and the recruiting firm impose; and d) difference in products and services between the customer's current firm and the recruiting firm.

To read the FINRA Regulatory Notice 16-18, please click on the link below: http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-18.pdf

If you have any questions regarding this Alert, please contact Dan Viola at 212.573.8038 or dviola@sglawyers.com.

Cheryl Spratt