The Financial Industry Regulatory Authority is moving ahead on its rule to create a uniform, national standard to govern a broker-dealer or broker “holding positions of trust” for clients — such as being named a client’s beneficiary, trustee or executor, or being given power of attorney.
FINRA has sent its proposed change to Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) to the Securities and Exchange Commission for approval.
Under FINRA’s plan, a new national standard “will better protect investors and provide consistency across member firms’ policies and procedures.”
In November, during the self-regulator’s Senior Investor Protection Conference in Washington, FINRA CEO Robert Cook said most — but not all — firms it talks to have policies tied to this type of arrangements and “sometimes they outright prohibit it.”
FINRA’s proposal provides that a registered person must decline:
· Being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate upon learning of such status, unless the registered person provides written notice upon learning of such status and receives written approval from the member firm prior to being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate; and
· Being named as an executor or trustee or holding a power of attorney or similar position for or on behalf of a customer, unless upon learning of such status, the registered person provides written notice and receives written approval from the member firm prior to acting in such capacity or receiving any fees, assets or other benefit in relation to acting in such capacity; and the registered person does not derive financial gain from acting in such capacity other than from fees or other charges that are reasonable and customary for acting in such capacity.
The proposed rule change applies to clients “who are not immediate family members, because of the greater potential risk that the registered person has been named a beneficiary or to a position of trust by virtue of the broker-customer relationship,” FINRA states.
FINRA’s plan also would not affect the applicability of other rules (e.g., FINRA Rule 2150 regarding improper use of customer securities or funds).
If approved, FINRA states that the regulator “would assess registered persons’ and firms’ conduct pursuant to Rule 3241 to determine the effectiveness of the rule in addressing potential conflicts of interest and evaluate whether additional rule-making or other action is appropriate.”