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Rules & Regulations

FINRA: How Firms ‘Should’ Communicate with Customers When RRs Depart

April 8, 2019

by Howard Haykin


On Friday, FINRA published Regulation Notice 19-10, which addressed the responsibilities of member firms when they communicate with customers about departing registered representatives. On Monday, Wall Street lawyer Bill Singer expressed through his BrokeAndBroker blog (at times in biblical terms) the shortcomings of FINRA’s pronouncement, and those of its related policies and rules.
In this post, I choose not to side with FINRA or Mr. Singer, or attempt to paraphrase or summarize the contents of their respective postings. Instead, I've shared what I believe are salient features of their opposing viewpoints – and ask that you read the publications and reach your own conclusions.



FINRA:  ‘Guidance on Customer Communications Related to Departing Registered Representatives’.    When dealing with the departure of a registered representative (“RR”), FINRA contends that customers should not experience an interruption in service and should be able to make timely and informed choices about where to maintain their assets. 


To that end, FINRA member firms should communicate clearly, and without obfuscation, to affected customers about how their accounts will continue to be serviced at the current firm, where it would be serviced by a newly assigned RR or a different RR. Alternatively, customers should be advised that their assets could be transferred to another firm.


FINRA further notes says that member firms should also provide customers with timely and complete answers, if known, when the customer asks questions about a departing RR. This includes how they might contact the departing RR, provided that the RR consented to disclosure of his or her contact information.



SINGER:  ‘FINRA Notice to Members 19-10 Should Have Said What it Meant’.   Bill Singer might have retitled his blog, “Don’t Get Me Started.” From the get-go, he wasted no time in venting his disgust, frustration, and outrage’ over FINRA's persistent use of the term, "should," when more appropriate terms, "must" or "shall," would have established what is needed most - hard and fast requirements. 


Rather than state in specific terms what member firms must do when RRs depart, Mr. Singer says that FINRA opted to state what member firms should do. In doing so, FINRA has effectively left it up to firms to use their own discretion in how best to deal with affected customers. And by failing to be definitive, he says, FINRA has perpetuated a long-standing industry battle that pits RRs against their former firms in deciding ‘who owns the customer’ and ‘what’s best for the customer’ – when, in truth, “the customer owns himself or herself; and it is up to the customer whether to stay or go.” As such, Mr. Singer says that FINRA NtM 19-10 comes across as a ‘colossal waste’ and "an embarrassment."


It's as if FINRA has left Registered Reps and their customers between ... "a Rock and a Hard Place."