More On Legal & Compliancefrom The Advisor's Professional Library
- Scope of the Fiduciary Duty Owed by Investment Advisors A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority’s Board on Thursday approved sweeping changes involving brokers’ background checks.
The FINRA Board approved amendments to FINRA's supervision rule that would expand the obligations of firms to check the background of applicants for registration, including first-time applications as well as transfers, to verify the accuracy and completeness of the information contained in an applicant's Form U4.
Firms would also be required to adopt written procedures in this area that include searching public records.
The Form U4 is the Uniform Application for Securities Industry Registration or Transfer used by FINRA, other self-regulatory organizations (SROs) and states to elicit employment background and disciplinary information to register individuals.
FINRA also said that it plans to perform an initial search of public financial records for all registered representatives and will also conduct a search of publicly available criminal records for all registered individuals who have not been fingerprinted within the last five years.
Once these searches are completed, FINRA said that it will conduct “periodic reviews of public records to ascertain the accuracy and completeness of the information available to investors, regulators and firms.”
These efforts, FINRA stated, "also better position FINRA to assess firm and registered individual compliance with reporting requirements."
FINRA is also considering whether additional data from the Central Registration Depository (CRD) system used by regulators should be included in BrokerCheck. FINRA said that its chief economist has initiated a study to see if there is a meaningful relationship between that data – which includes failed examinations – and broker misconduct.
"These are important initiatives to improve the accuracy and totality of details reported on a registered individual’s Form U4,” said Richard Ketchum, FINRA’s chairman and CEO, in a statement. “FINRA would require firms to use publicly available records to verify that information such as criminal and bankruptcy records, civil litigations, judgments and liens are properly reported upon a registered individual's application. FINRA encourages every investor to use BrokerCheck to research the background of individuals they are trusting to invest their money.”
The amendments to the supervision rule will be submitted to the Securities and Exchange Commission for review and approval.
(Related ThinkAdvisor story: FINRA Reverses Schwab Class Action Waiver Decision)