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FINRA Watching Transactions With Aging Clients

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Do you supervise anyone in your office or firm?

One of FINRA’s persistent recommendations matches the stated goals of both the SEC and NASAA as well: it is that you keep your aging clients safer. Given that shared regulatory mission, it is understandable that they are looking for places to hold you accountable in your transactions with seniors.

Beware of supervision over improper mutual fund switching, especially with older clients.

FINRA Rule 3110(a) requires each member to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”

An individual supervisor may be held liable under Rule 3110(a) for failure to provide reasonable supervision. When a supervisor is charged with a failure to supervise, it’s because of not acting on the red flags the examiners felt were evidence of wrongdoing. Those red flags could include switching to up-front sales loads with a number of elder investors and unusually high commissions that result. When this happens with a number of older clients, it will alert them to scrutinize you more closely.

If older clients have shown signs of diminished capacity and this sort of switching is going on, it is asking for trouble from FINRA. This agency is particularly interested in anything that appears to be taking unfair advantage of seniors. They want you to understand diminished capacity and to be able to identify the warning signs. Every supervisor should know this information well.

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