In a FINRA report released this week, the SRO warned members about potentially abusive sales practices and lack of oversight, with an emphasis on broker compensation.
The report, the product of a study involving 14 member firms, cited concerns about sales incentives on commissioned-based products that FINRA claims may lead advisors to recommend products that are not in their clients’ best interests. It suggests using product-agnostic compensation models and capping fees paid by mutual funds and VAs. Last month, FINRA sent recommendations to the SEC about disclosure of bonuses received by advisors when they switch firms.
The report led some experts to opine that FINRA was nudging members to adopt a fiduciary-like standard emulating the fee structure, even though jurisdiction over fiduciary advisors lies with the SEC — and perhaps the DOL if their fiduciary redefinition rule is promulgated as planned. Currently, non-fiduciary advisors are held only to a standard of suitability and may receive commissions from the products they sell. The SEC is working on a uniform fiduciary standard for fee- and commissioned-based brokers, but under Dodd-Frank they cannot eliminate the commission model or require advisors to monitor investments on an ongoing basis.
With FINRA potentially joining the SEC and the DOL in the fiduciary debate, some are speculating that FINRA is angling to be the SRO for all advisors, including RIAs, since it has far greater resources than the SEC to conduct reviews and audits of its licensed members.
