The head of the Financial Industry Regulatory Authority said he’d like to see ‘top to bottom’ reviews of broker operations become a “standard part of operating procedure.''
The reviews would have “the goal of addressing conflicts of interest of every kind,’’ FINRA chief executive Richard Ketchum said in opening remarks at the broker regulator’s annual conference in Washington, D.C.
To be identified would be conflicts that in some fashion put the firm’s interests or its employees’ interests ahead of customers’ interests, he said.
The conflict review, he said, was first proposed nine years ago by Stephen Cutler, then-director of the SEC's Division of Enforcement.
He did not announce a plan to have such conflict reviews applied across the board to all brokers overseen by FINRA.
“What I can promise you is that, particularly with respect to the large integrated firms, we will look to have a focused conversation with you about the conflicts you have identified and the steps you have taken to eliminate, mitigate or disclose each of them,’’ he said, without identifying any of those “large integrated firms.’’
He said that brokers, however, must ensure that the investment products they offer for sale are appropriate for each investor that purchases them.
“We’ve brought a number of enforcement actions involving complex products where we found firms didn't adequately supervise the sale of the products, the recommended products were unsuitable for the investors, or the sales material were misleading,’’ he said.
Before any complex product is offered to a retail client, a financial adviser should be able to write down on a single page why that investment is in the best interests of the client, he said.
“Being able to articulate why an investment is in the best interests of your client is fundamental to what the securities industry must be about if it is to deserve the trust of investors,’’ he said. “The time to do it is now. “
He said FINRA is interested in expanding the amount of information disclosed about brokers in its BrokerCheck online system.
Brokers’ test scores on rules and practices tests won’t be revealed, he indicated.
But a zip code search function and plain English educational content were added last week; and, merging search results of BrokerCheck with that of the Securities and Exchange Commission’s the Investment Adviser Public Disclosure system is likely.
Two years ago, FINRA added criminal convictions, civil injunctions, customer complaints and records on former brokers whose registrations have terminated within the last 10 years to the BrokerCheck system.
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