In April of 2016, the Securities and Exchange Commission (SEC) approved FINRA Rule 3210. The rule actually went into effect as of April 1st, 2017. This rule is a very important industry safety guard that governs how registered financial advisors can use brokerage and investment accounts outside of their own member firm. The primary purpose of the rule is to ensure that registered brokerage firms and individual financial advisors are able to maintain high ethical standards and avoid any conflicts of interests.
At Sonn Law Group, our FINRA arbitration attorneys are committed to promoting investor education. We want to make sure that all investors have the knowledge and tools they need to protect themselves. Here, we explain how FINRA Rule 3210 works in practice.
Understanding a Financial Advisor’s Requirements Under FINRA Rule 3210
Regulates the Use of Outside Accounts
As a general matter, brokerage firms are able to monitor the internal investment accounts of their own employees without much trouble. However, monitoring outside accounts can be a problem. With this in mind, FINRA Rule 3210 seeks to regulate the use of outside (non-member firm) accounts by registered financial advisors.
Requires Notification and Consent
The requirement under FINRA Rule 3210 is relatively straightforward: All registered investment advisors must declare their outside accounts to their member firm and notify their member firm in writing when they intend to open any new account. Further, to open or maintain an outside account, a registered financial advisor must have obtained written consent from their employer. If a financial advisor fails to notify their member firm, or if they fail to obtain consent, then the rule has been violated.
Applies to the Investment Accounts of “Associated Persons”
Additionally, registered financial advisors must also notify their employers regarding the accounts of any “associated persons”. The term associated person covers immediate family members and any other party whose account provides an interest for the financial advisor. Generally, this includes spouses, financially dependent children, other dependents, and any other person who has given control of their account to the financial advisor.
Protecting Investors Against Conflicting Interests
Investors need to know that their representatives (brokerage firms and financial advisors) have their best financial interest at heart. If your financial advisor has an undeclared conflict of interest, they cannot properly serve you. Registered broker-dealers must ensure that investment advice is not tainted by any conflicting interests. FINRA Rule 3210 puts obligations on both firms and financial advisors to ensure that all potential conflicts of interests are declared.
Contact Our FINRA Arbitration Lawyers Today
At Sonn Law Group, our legal practice is dedicated to protecting the rights and interests of investors. If you believe that you lost money due your broker’s negligence or conflicting interests, we are here to help. For a free, fully confidential case evaluation, please contact our team today. From our primary office in Aventura, Florida, we represent investors throughout the United States and in Puerto Rico.