FINRA, the Financial Industry Regulatory Authority, has eased up on a controversial interpretation of its new suitability rule in a move that is bound to make the industry happy writes Dan Jamieson in a recent artilce in InvestmentNews.com.
The new guidance issued December 10th., 2012, FINRA backtracked from an earlier interpretation of the rule, which said that people who were not customers, and investment strategies that did not involve securities, were covered under the suitability rule. But in the Regulatory Notice 12-55, Finra now says the rule applies only to customers who open an account or buy a product for which the brokerage firm receives compensation. Also, the new notice says the suitability rule does not apply to recommendations of non-security products made as part of an individual broker’s outside business activity writes Jamieson.
However, a firm’s “suitability analysis also must be informed by a general understanding of the non-security component of the recommended investment strategy,” FINRA said in it’s notice.
For example, independent registered representatives often sell insurance and engage in investment advisory activities outside of their broker-dealers, which brokerage firms must approve of and track under FINRA’s outside-business-activity rules. FINRA also said that its new suitability rule would generally not create a continuing duty to monitor an investment or strategy.
The InvestmentNews.com article adds that the new guidance was welcomed by industry lawyers, who have complained that the earlier guidance, issued in May, caught the industry by surprise.
FINRA spokeswoman Nancy Condon wrote that the self-regulator wanted to clarify “issues relating to who is considered a ‘customer’ and provide greater detail on what investment strategies are covered.”
Securities Lawyer, Lars Soreide, of Soreide Law Group, represents clients nationwide before FINRA. If you or a loved one have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses through a FINRA arbitration. To speak with an attorney call 888-760-6552, or visit our website at: https://www.securitieslawyer.com.