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IAA Objects to FINRA’s Sales Practices Questions Aimed at Advisers

May 11, 2022

On May 9, the IAA submitted a letter to FINRA responding to two questions it posed in its regulatory notice on complex products and options. FINRA solicited comment on (i) effective practices that FINRA members have developed for complex products and options, particularly when retail investors are involved; and (ii) whether the current regulatory framework, which was adopted at a time when the majority of individuals accessed financial products through financial professionals, rather than through self-directed platforms, is appropriately tailored to address current concerns raised by complex products and options.

The questions ask whether standards comparable to any that FINRA has or will consider for broker-dealers should apply to investment advisers.

The IAA supports FINRA’s goal to protect retail investors. However, the IAA strongly objects to these questions because FINRA has no authority over investment advisers. Its jurisdiction is limited to the oversight of broker-dealers and their associated persons. We emphasize in our letter that FINRA may not propose rules or issue guidance statements that purport to apply to investment advisers, directly or indirectly.

We also note that it would be inappropriate for FINRA to attempt to substitute its or broker-dealers’ judgment for an adviser’s fiduciary judgment about what is in the adviser’s client’s best interest. Attempting to apply prescriptive sales practices standards to investment advisers with respect to complex – or indeed any – products or options would be inconsistent with the well-established principles-based Advisers Act fiduciary duty and disclosure framework and outside of FINRA’s jurisdiction.

The comment letter is on our website under Issues & Advocacy/Comment Letters.

Tags: Advocacy, FINRA

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