The Financial Industry Regulatory Authority (FINRA) has released a regulatory notice designed to spotlight issues that arise when retiring advisors transfer clients to their successors.
In the regulatory notice, FINRA highlights issues, including lack of transparency with customers, abuse of compensation arrangements, and cases where clients have been transferred to bad actors.
In particular, the regulator mentioned the "risk of improper alteration or falsification" of representative codes when firms lack operational control against altering codes assigned to an account or when a representative is unclear in what instances they can use a personal rather than joint production number.
FINRA further advised firms to conduct due diligence on would-be buyers and sellers. The regulator has identified cases where advisors were looking to circumvent industry rules by creating a deal that would allow them to stay involved and run a business by proxy following a regulatory bar or suspension. FINRA also noted that the risk of a representative's continuing improper involvement is more significant when there is a familial or personal relationship between representatives.
Finally, the notice cited a typical communication breakdown where firms fail to learn that an advisor is deceased. For example, a firm was not aware that its advisor died until a customer called after not being able to contact the advisor.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.