FINRA Asks Broker-Dealers to Communicate “Clearly and Promptly”
The financial industry self-regulator, FINRA, issued a new regulatory notice today aimed at broker-dealers with departing brokers. The notice was intended to urge broker-dealers to be more clear and forthright with customers about departing brokers and what will happen to the customers’ accounts. If you’ve ever been in the situation where your broker has either left for another firm, left the industry, or passed away, you understand just how confusing things can get when it comes to who will be handling your investments and why.
Unfortunately, some firms seeking to keep customers with the broker-dealer even after the broker has departed will fail to present the customer will the full range of options, hoping that instead the customer will simply stick with the status quo (and leave their money with the broker-dealer). This sly practice has come under scrutiny by FINRA recently. The regulator has not prescribed specific practices for broker-dealers experiencing a departure; rather, FINRA has asked that firms “clearly and promptly” inform customers of what is happening with their accounts and answer all questions the customers may have over the departure.
The Importance of Knowing What to Do When Your Broker Departs
FINRA did not state its motive for the notice. However, we can imagine several reasons why the regulator would look to discipline broker-dealers on this point. From a customer’s point of view, as we mentioned before, it can be a very confusing time and it can be difficult to get good answers from a firm in whose interest it is for you to stay put. At the same time, customers may be under pressure from brokers hoping to take customers and accounts with them to their new broker-dealer.
One overlooked aspect of the problem is that broker-dealers who fail to communicate clearly and promptly with customers may place them with brokers that are either not a good fit for them (simply to retain the accounts) or who are underserving of the accounts, or worse. Over the past ten years litigating securities cases, we’ve seen quite a number of situations in which one broker departs with a long-standing relationship with the customers departs to be replaced by another who is unfamiliar to them. This broker may then be inexperienced or even neglectful of the account because they haven’t had an enduring relationship with the customers. This often leads to problems over time, including misconduct and unsuitable investments.
Do a Background Check on Your Broker
While broker-dealers will now have to be more careful about communicating with customers during a broker departure, customers who are undergoing a broker departure should always do a background check on a new broker. Assuming that just because a new broker works for the same broker-dealer that he or she will be of similar quality to your previous broker can be a dangerous mistake. In order to do a background check on your broker, visit FINRA’s database, BrokerCheck by clicking here.
