FINRA Points to Fair and Balanced Customer Communications Regarding Departing Registered Representatives

The Financial Industry Regulatory Authority (FINRA) has consistently sought to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative (i.e., a person registered with the member who has direct contact with customers in the conduct of the member’s securities sales) leaves a member firm. To that end, registered representatives move with some frequency between member firms and across financial firms under various regulatory jurisdictions, in addition to registered representatives just leaving the financial industry entirely.  As a result, FINRA has recently issued guidance (Regulatory Notice 19-10) for member firms regarding FINRA expectations on related customer communications.

Impact of Registered Representative Departures

FINRA noted in its guidance that a registered representative’s departure may prompt customer questions about the departing representative and the status of their accounts following the departure.  Based upon member firms’ different business models, there are different approaches to managing the customer relationship, and that the expectations regarding a member firm’s handling of a departing registered representative.  As a result, the management of expectations and handling of client communication vary significantly.  For instance, the departure of a registered representative who works closely with customers in a one-on-one relationship will likely be handled differently than the departure of a registered representative in a customer advisory center model or a group service model.

Communications with Customers

While member firms have flexibility in reassigning customer accounts and communicating with customers about the reassignments, they should provide timely and complete answers, if known, to all customer questions resulting from a departing representative, so that customers may make informed decisions about their accounts.   Thus, Customers should not experience an interruption in service as a result of a registered representative’s departure.

FINRA Expectations

FINRA understands that decisions about the reassignment of customer accounts, if applicable, are typically made promptly following the departure of a registered representative.  In the event of a registered representative’s departure, FINRA expects that the member firm will have policies and procedures reasonably designed to assure that the customers serviced by that registered representative are aware of how the customers’ account will be serviced at the member firm, including how and to whom the customer may direct questions and trade instructions following the representative’s departure and, if and when assigned, the representative to whom the customer is now assigned at the member firm.  In addition, a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative.

Consistent with privacy and other legal requirements, these communications may include, when asked by a customer:

  • Clarifying that the customer has the choice to retain his or her assets at the current firm and be serviced by the newly assigned registered representative or a different registered representative or transfer the assets to another firm; and
  • Provided that the registered representative has consented to disclosure of his or her contact information to customers, providing reasonable contact information, such as phone number, email address or mailing address, of the departing representative

Ultimately, FINRA believes that as with all communications with customers, the information provided by the member firm about the departing registered representative must be fair, balanced and not misleading.