Suitability Archives - MasterCompliance

FINRA’s New And Improved Fund Analyzer Tool

Posted on July 16, 2021July 16, 2021 by admin

FINRA has recently given us all a new and improved Fund Analyzer tool. With the recent emphasis on Share Class selection, Regulation Best Interest (Reg BI) for broker-dealers, and the fiduciary duty of Registered Investment Advisers. Firms are encouraged to train their staff on using this new tool.

The new analyzer allows individuals to sort through and compare more than 30,000 products and run a wide variety of investment scenarios. The tool’s enhancements enable users to better calculate how a fund’s fees, expenses, and discounts impact the value of a fund over time.

Regulators Focus on Reg BI During 2021 Audits

Posted on June 30, 2021June 30, 2021 by admin

The Securities and Exchange Commission adopted a new rule under the Securities Exchange Act of 1934 that established a standard of conduct for broker-dealers and the natural persons who are associated persons of a broker-dealer. It was established to enhance the broker-dealer’s standard of conduct to retail customers beyond the existing suitability obligation.

This standard of conduct takes critical principles from the underlying fiduciary obligations under the Investment Advisers Act of 1940. The SEC’s focus was regardless of whether a retail investor chooses a broker-dealer or an investment adviser, all retail investors should be entitled to a recommendation (by a broker-dealer) or advice (by an investment adviser) given in the best interest of the retail investor. It is essential to recognize that the term “retail investor” also includes Accredited Investors.

Share Class Selection

Posted on May 12, 2021 by admin

Advisers have a fiduciary obligation to recommend a share class that will provide their clients with the lowest overall expenses, based on anticipated transaction costs and holding periods. Moreover, if the Firm recommends mutual funds that carry 12b-1 fees when lower share class options exist, the Firm must make full and fair disclosure, including conflicts associated with making investment decisions in light of the receipt of 12b-1 fees; and selecting the more expensive 12b-1 fee paying share class when a lower-cost share class is available for the same fund. Share class selection is a regulatory priority. The SEC has indicated that examiners will conduct focused, risk-based examinations to assess whether investment advisers are meeting their obligations to

Seek best execution;
Disclose material conflicts of interest; and
Maintain an effective compliance program.

Investment adviser should determine its approach for meeting these three obligations and train its personnel to comply with any policies, procedures, and guidelines governing share class selection.

Disciplinary Actions by FINRA: April 2020

Posted on May 15, 2020May 27, 2020 by SCM Communications

FINRA publishes a monthly review of disciplinary actions taken against both firms and individuals. These disciplinary actions are useful tools to look for trends in violations and other sanctions. These trends can assist you in identifying weak areas in your firm’s compliance programs or surveillance. Below is a list of a few key actions from last month.

AML and Suitability Challenges During COVID-19

Posted on April 20, 2020April 22, 2020 by SCM Communications

FINRA Rule 3310 provides broker-dealer guidance on how to design, test, and enforce a firm’s Anti-Money Laundering Program (“AML”). One main element of AML is to “establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder.” FINRA Notice to Members 19-10 identified a key list of red flags that may be used to help identify suspicious activity in trading, money movements, insurance, and securities.

Quantitative Suitability – FINRA Rule 2111

Posted on November 29, 2018September 16, 2019 by SCM Communications

Welcome to the third and final part in our series on the three main suitability obligations outlined in FINRA Rule 2111 (Suitability). As with our earlier posts, “FINRA Rule 2111: Reasonable-Basis Suitability” and “FINRA Rule 2111: Customer-Specific Suitability”, we will begin with a brief overview of the three main suitability obligations imposed on broker-dealers and their associated persons; then, this particular blog will focus in on Quantitative Suitability.