The Financial Industry Regulatory Authority says an insurer ought to be able to keep new reps from replacing their existing customers’ variable annuities from the “old companies” without using the existing customers’ personal information.
Officials at FINRA, Washington, give that advice in FINRA Regulatory Notice 07- 36.
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.
The new notice is a sequel to a notice that the NASD issued in February. In the earlier notice, which is now designated FINRA Notice To Members 07-06, officials warned NASD member companies to pay close attention to sales recommendations made by new reps who had been hired away from competitors.
A rep’s new company must work to stop 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, officials write in the February notice.
When a rep shifts from one company to another, the rep might have trouble servicing the old products and also might have trouble collecting commissions from the old company, officials observe.
In that case, officials write, 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.”
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 private, 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 are not necessary or relevant to meet the objectives of this review.”