FINRA's Regulatory Notice 10-54 is a "concept proposal" prompted by Dodd-Frank and related SEC mandates, to address the underlying obligations of broker-dealers and investment advisers "to facilitate simple and clear disclosures of material conflicts by both broker-dealers and investment advisers." The proposal seeks to enhance retail investors' understanding of the business, relationships and conflicts of their brokers and would require "each firm to timely provide to retail customers a statement of services, conflicts and duties." Comment on the Notice must be submitted by December 27, 2010.
The Notice focuses on disclosures at the commencement of the business relationship with retail customers and the benefit to those customers of a disclosure in plain English of a "firm's accounts and services, its associated conflicts of interest and any limitations on duties owed to the customer." A "retail customer" is distinct from institutional accounts under NASD Rule 3110(c)(4) which include banks, savings and loans, insurance companies, registered investment companies, registered investment advisers "or any entity (which includes natural persons) with total assets of at least $50 million."
RN 10-54 should be consulted for detailed information. Briefly summarized, the scope of the disclosure document would include such information as: the types of brokerage accounts and services the firm provides to retail customers; disclosures that enable existing and prospective retail customers to evaluate services provided, and products offered, to retail customers; and, the limitations on those services.
Another area of disclosure includes specific information about fees associated with brokerage accounts and financial or other incentives that a firm or its registered representatives are provided on the recommendation of certain products, investment strategies or services. This area of disclosure is fairly extensive including commissions and other compensation.
Finally, the Notice addresses disclosure of "conflicts that may arise between a firm and its customers, as well as those that may arise in meeting the competing needs of multiple customers, and how the firm manages such conflicts." The limitations on the duties a firm owes to its customers is also included in the proposed disclosure with regard to such things as "the ongoing suitability of an investment or portfolio of investments" and other more specific limitations.
FINRA is interested in comments on whether this rule is too broad or too narrow, whether the disclosure should be both electronic and hard copy and other feedback on the what should or should not be included to ensure that the disclosure is meaningful and does not overwhelm retail customers.
Please contact New York City's Gusrae Kaplan Nusbaum PLLC, for more information on FINRA RN 10-54 or questions regarding our broker-dealer advisory services and representation before regulatory entities.
