FINRA Proposes Educating Customers on Costs of Account Transfers

FINRA proposed Rule 2273 would establish an obligation by a member firm to deliver an educational communication in connection with recruitment practices and account transfers.

A registered representative who changes jobs will often contact former customers and encourage them to transfer their assets to the firm that recruited the representative. Proposed Rule 2273 would require that the new firm inform the customer of potential costs that may be incurred. Accordingly, the proposed rule change would require the delivery of an educational communication to customers by the recruiting firm. The communication would highlight key considerations before transferring assets to the recruiting firm, and the impact of such transfers on customers' assets. The rule applies to a firm recruiting customers who are natural persons and to all non-institutional accounts.

The customer would be advised to consider the following:

(1) whether financial incentives received by the representative may create a conflict of interest;

(2) whether some assets may not be directly transferrable to the recruiting firm and, as a result, whether the customer may incur costs to liquidate and move those assets or account maintenance fees in order to leave them with his or her current firm;

(3) the potential costs of transferring assets to the recruiting firm, including differences in pricing structures and fees imposed by the customer's current firm and the recruiting firm; and

(4) differences between the current firm's products and services and those of the recruiting firm.