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August 22, 2016 at 09:23 AM
The Financial Industry Regulatory Authority has released Q&A guidance on its rule requiring member broker-dealers to provide an educational communication in connection with member recruitment practices and account transfers. The rule takes effect Nov. 11.
FINRA filed late in 2015 for Securities and Exchange Commission approval its Rule 2273, and the SEC approved the rule in March.
FINRA stated in the rule proposal that it believes that “former customers would benefit from receiving a concise, plain-English document that highlights the potential implications of transferring assets.”
The educational communication, according to FINRA, “is intended to encourage former customers to make further inquiries of the transferring representative (and, if necessary, the customer’s current firm), to the extent that the customer considers the information important to his or her decision making.”
The Q&A guidance covers such areas as format of educational communication, “individualized contact,” delivery requirements and who qualifies as a former customer.
Some examples of the questions and FINRA’s answers follow:
Question: Does Rule 2273 apply if the registered representative was hired by or associated with the recruiting firm prior to the effective date of the rule?
Answer: No. FINRA interprets Rule 2273 to apply if the registered rep is hired by or associates with the recruiting firm on or after the effective date of the rule. Pursuant to Rule 2273(b)(3), delivery of the communication is required for a period of three months following the date the registered rep begins employment or associates with the recruiting firm.
