New FINRA Rule 2273 Regarding Recruitment Practices and Account Transfers

When brokers change firms, their customers are often encouraged to follow because of their existing relationship. Customers may not fully understand the financial incentives that influenced the broker’s decision to move, the costs for moving assets, and the changes in service levels that are part of these transitions. To ensure customers understand consequences and potential costs of changing firms to follow their brokers, FINRA’s new rule 2273 requires delivery of a FINRA-created educational communication. Starting on November 11, 2016, this communication must be delivered to customers by the firm that recruited the registered representative.

Key points of this communication include the following:

• Financial incentives received by the broker could create conflicts of interest and encourages customers to ask why the broker changed firms.
• Financial incentives could be based on assets the broker brings to the firm, the sale of in-house products, and total assets under management.
• There may be costs, new fees, changes in available services and potential tax consequences that customers should understand before transferring accounts.
• Certain assets may not be transferable, which may subject customers to additional cost implications.

Timing of the Communication

The new firm – the recruiting firm – is required to deliver this educational communication. It must be supplied at the time of the first contact with a former customer regarding transferring assets, in paper or electronically.

• If the contact is in writing or electronic, the communication must be included with this contact.
• If the contact is made by phone or in conversation, the communication must be delivered within 3 business days.
• When a former customer transfers assets to an account assigned to a new representative without individual contact from that representative, the communication must be delivered with the account transfer approval documentation. The delivery of the educational communication under these circumstances is required for a period of three months following the representative’s association with the new firm.

To read more about new Rule 2273, review FINRA’s Notice.

FINRA exams may include questions on these changes after the November effective date. Our materials and classes will be updated to reflect this change.

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