More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial 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.