The Financial Industry Regulatory Authority says insurers ought to be able to keep new reps from replacing existing customers’ variable annuities without using the customers’ personal information.
Officials at FINRA, Washington, give that advice in FINRA Regulatory Notice 07-36.
The new notice is a sequel to a notice FINRA issued in February. In the earlier notice, FINRA officials write about the importance of financial services companies keeping close tabs on registered representatives who have been hired away from competitors.
A rep’s new company must work to prevent the rep from replacing customers’ mutual funds, variable annuities and variable life insurance policies simply because the funds and variable products were issued by the rep’s old company, FINRA officials write in FINRA Notice To Members 07-06.
FINRA is the self-regulatory group formed when the National Association of Securities Dealers, Washington, merged with the compliance arm of the New York Stock Exchange.
When a rep shifts from one company to another, the rep might have trouble servicing the old products and also might have trouble collecting trail commissions from the old company.
In that case, reps “may be tempted to recommend to customers that they replace their existing mutual funds or variable products with other investments, without adequately considering the customer’s best interests and the suitability for the customer of those recommendations,” FINRA officials write.
Because of that temptation, financial services companies must have procedures in place to review new reps’ mutual fund and variable product investment recommendations, officials write.
“Some firms have questioned the scope of the due diligence described in the [notice to members], and have specifically asked whether any such due diligence procedures may conflict with a firm’s obligations under” U.S. Securities and Exchange Commission privacy regulations, officials write.
In NTM 07-06, FINRA was not recommending that a company get nonpublic personal information about any customers a registered rep might bring to the new company, FINRA officials write.
“The new firm needs to learn only the identity of the various mutual fund and variable products held by the registered representative’s customer base,” officials write. “Detailed, nonpublic, personal information about individual customers and their particular investments is not necessary or relevant to meet the objectives of this review.”
A copy of the FINRA notice is on the Web