The Financial Industry Regulatory Authority has launched a review of broker-dealers’ cross-selling programs, and is probing BDs on a laundry list of questions, including whether they’ve opened accounts for clients without their consent.
FINRA said in a statement that the self-regulator “often undertakes targeted reviews in areas of regulatory interest. In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.”
The self-regulator’s probe comes on the heels of the Wells Fargo fake accounts scandal, in which the bank opened 2 million unauthorized accounts to reach cross-sale goals. The bank was fined $185 million by the Consumer Financial Protection Bureau.
(Related: DOL Releases FAQs on Fiduciary Rule)
BDs are to produce the information (with supporting documents where noted) for the period from Jan. 1, 2011, through Sept. 30, 2016, by no later than Nov. 15.
Jon Henschen, founder of BD recruiting firm Henschen & Associates, said that the list of questions in FINRA’s crosshairs are cross-selling tactics that are “largely limited to bank, wirehouse and regional firms that have both financial and banking proprietary products.”
The independent broker-dealer channel, Henschen said, “has little in the way of proprietary products but they do have internal proprietary advisory platforms,” such as the SAMS platform at LPL or internally managed money programs at the Advisor Group of broker-dealers.
These internal proprietary advisory platforms “are not on FINRA’s radar – yet,” Henschen added. “Cross-selling perception in the independent channel is more along the lines of advisors getting new clients with say insurance products and then cross-selling them securities and advisory products to round out their needs. So far, this type of cross-selling has not been demonized by regulators.”