Rick Ketchum, FINRA Chairman and CEO, sees the industry moving toward a fiduciary standard that will require firms to re-jigger their relationships with customers.  And, it all starts with "disclosure" -  a key ingredient, though it cannot work alone.  For one thing, Mr. Ketchum believes today's account statements contain too much legalistic information, leaving them downright turgid - causing investors to tune out to the message.  

Relationships with your Customers.  Mr. Ketchum suggests 3 questions firms might address. 

1. How do we interact in an effective way with investors?  
2. How do we foster knowledge and understanding among investors?  
3. How do we deliver that message, both with respect to existing technology tools and with respect to how your financial advisers go through the message?

Toward this end, FINRA is working on a proposed rule that would address the above questions and provide guidance to firms.  It would require firms, at or prior to commencing a business relationship with a retail customer, to provide a written statement that describes the types of accounts and services it provides.  Firms also would be required to disclose the conflicts associated with such services.

How to Disclose Such Information?   We start with the presumption that all firms have conflicts and incentives in their relationships with customers.  The challenge, then, is to both capture investors' attention and provide sufficient detail from a Web-based standpoint.  Optimally, firms would use minimalist but effective point-of-sale disclosures for reminding customers of the questions they should be asking their brokers, again and again.  Admittedly, this would be a dramatic from the way firms have done business over the last 20 years. 

Need to Reform Debt Research.   FINRA believe it's time to expand the conflict-of-interest rules beyond equity research to include debt research.  In March, FINRA published for comment a proposed debt research rule.  The concept proposal presents a tiered approach to debt research regulation - one that would apply aspects of the equity rules to debt, based on whether the research is distributed to retail or institutional investors.

This approach recognizes a bifurcated debt research landscape in which retail investors and institutional investors are treated as customers and counterparties, respectively - but also provides an opt-in for institutions who desire the full range of protections.  FINRA is in the process of reviewing comments and plans to bring a final proposal to the Board in July.  Thereafter, the proposal again will go out for comment before it's filed with the SEC.

Conflicts Related to Mutual Fund Revenue Sharing.   FINRA is in the process of strengthening its rules that require disclosure of conflicts of interest related to mutual fund revenue sharing arrangements.  A proposal is currently out for comment to amendment the rules whereby, when fund companies provide firms with cash compensation that is beyond the normal sales charges and service fees, these firms would have to disclose the existence of these arrangements.  They also would have to make this disclosure before a customer first purchases shares of a mutual fund.

For further details, go to:   [FINRA Speech by Chairman & CEO Rick Ketchum, 5/24/11]