More On Legal & Compliancefrom The Advisor's Professional Library
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
- Best Practices for Working with Senior Investors Securities examiners deal harshly with RIAs that do not fulfill their fiduciary obligations toward senior investors, as the SEC and state securities regulators view older investors as particularly vulnerable and in need of protection.
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.