More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Compliance professionals are questioning the merits of new FINRA rules that prevent people associated with mutual funds and hedge funds from serving as public arbitrators.
The Securities and Exchange Commission recently approved FINRA’s new rules, which become effective on July 1, and respond to concerns raised by “investor representatives” about such persons’ neutrality. In addition, FINRA amended the public arbitrator definition to add a two-year “cooling off” period before FINRA may permit certain individuals to serve as public arbitrators.
Other excluded persons include investment advisors, attorneys who work in the securities industry, and directors and officers of firms in the securities industry.
But Cipperman Compliance Services issued a statement declaring that it “couldn’t disagree more” with the new approach. “Why would FINRA want to exclude professionals that actually know something about the securities industry?” the compliance firm asked. “Is this plaintiff’s argument about perceived neutrality actually supported by any empirical evidence?"
Jon Henschen, president of Henschen & Associates, a broker-dealer recruiting firm, agrees that “having people with no understanding of our industry making judgments can only further the injustices toward our industry, such as frivolous claims that at one time would have been denied but now have traction.”
The “increasing trend” of using arbitrators outside the industry, he says, “makes them virtually incapable of making decisions that are objective and educated,” Henschen adds, and results in “emotion-based decisions.”
Read Stop Denying Investor Rights: End Forced Abitration Now on AdvisorOne.