FINRA

FINRA PROVIDES GUIDANCE ON FINANCIAL ADVISOR SUCCESSION PLANS

November 10, 2022 | Herskovits, PLLC

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FINRA recently released Regulatory Notice 22-23 providing guidance on what firms should consider when constructing succession plans for Financial Advisors (“FAs”) who will no longer service their customers do to expected or unexpected life events.

The Need for a Plan

The Notice begins by listing the various cost/benefits of having or not having a succession plan, which would seem obvious to all. It takes no great imagination to see the benefits of a sound succession plan in the event of an FA’s sudden death or the consequent difficulties of not having such a plan. The Notice, however, provides some interesting real-life anecdotes that FINRA Staff have witnessed of the years regarding succession failures and successes.

FINRA HITS AN FA FOR FAILING TO DISCLOSE BENEFICIAL OWNERSHIP OF AN ACCOUNT

December 29, 2019 | Herskovits, PLLC

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On December 20, 2019, FINRA announced a settlement with John Carneglia. According to the AWC, Carneglia violated FINRA Rule 3210 for failing to notify his member firm of a brokerage account and violated FINRA Rule 3270 for failing to timely disclose an outside business activity.

Underlying Facts

Carenglia was registered with BNP Paribas from June 2006 through July 2017. According to FINRA, Carneglia didn’t inform BNP of his wife’s brokerage account and likewise failed to inform the firm that maintained his wife’s account of his association with BNP. Further, FINRA alleges that Carneglia was a member of an LLC that owned an income-generating rental property (ski-resort condominium), yet failed to timely notify BNP of that outside business activity.

FINRA ACCUSES NY LIFE OF FALSIFYING CUSTOMERS’ INVESTMENT OBJECTIVES: OUCH

November 21, 2019 | Herskovits, PLLC

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FINRA wants a member firm to enforce its written supervisory procedures. And FINRA wants a member firm to recommend securities that fit within the customer’s investment objectives. And certainly FINRA wants a member firm to avoid falsification of business records. So what happens when a member firm doesn’t quite live up to FINRA’s expectations? Let’s play the over / under game and try to guess the size of the FINRA sanction when a member engages in the following misconduct:

Failure to enforce WSPs governing the sale of high-risk mutual funds subject to significant volatility
Failure to reallocate portfolios to reduce risk or otherwise update investment objectives to correspond with the assumption of additional risk