FINRA's Annual Regulatory And Examination Priorities Are Helpful To RIAs As Well As BDs And Their Registered Reps

Monday, February 06, 2012 09:29
FINRA's Annual Regulatory And Examination Priorities Are Helpful To RIAs As Well As BDs And Their Registered Reps


FINRA, in its annual letter to broker-dealers listing regulatory and examnation priorities, says private placements and enhanced-yield products, remain top concerns, but the list does not stop there.  "Yield chasing," especially if it drives advisors into illiquid assets unable to support investor cash flow needs, along with mortgage-backed securities, muni bonds, non-traded REITs,

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complex and structured products, and private equity placements are all on FINRA's watchlist for 2012. As always, so are life settlements and variable annuities. 


The FINRA list, incidentally, is as useful to RIAs as BDs and their registered reps. While RIAs are unlikely to get into selling mortgage-backed securities and other exotic instruments, it does happen. Scandals involving RIAs, once uncommon, seem to be in the headlines more often since the 2008 financial crisis. Knowing which alternatives are on FINRA's watchlist is wise -- especially if you think FINRA will be regulating RIAs in three years. 


FINRA warns member firms about offloading responsibilities for information-technology security, social media compliance, and other functions to third-party vendors. Though these tasks can be outsourced, a broker-dealer is ultimately responsible to FINRA, of course.


FINRA also said it is seeing instances in which firms are "charging retail investors hidden, mislabeled or excessive fees" -- such as inflated postage bills -- and "recording expenses that are not the broker-dealer’s obligations."


Some firms have tried to write off employees' personal expenses and charge clients to cover it.




Comments (1)

Scott, great insight. A few months ago I got a blast email from TDAI's fixed income desk pushing a structured product that they were participating in the underwriting.

I thought to myself, why the hell would an RIA firm allow a rep to place in an investor's portfolio. It was a Barclay's bank thing with a ridiculous yield.
brentb843 , February 08, 2012

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