A new Financial Industry Regulatory Authority (Finra) rule requires brokers to obtain firms' approval before they can serve as a client’s beneficiary, executor, power of attorney or trustee.

Finra said it adopted the new rule because Finra examiners have observed brokers skirting firm rules that prohibit them from having such roles.

“Finra observed situations where registered representatives tried to circumvent firm policies, such as resigning as a customer’s registered representative, transferring the customer to another registered representative, or having the customer name the registered representative’s spouse or child as the customer’s beneficiary,” the organization said in a notice on the rule.

The regulatory organization said registered reps holding such roles often constitutes a conflict of interest.

"Investment professionals ... face potential conflicts of interest when they are named a customer’s beneficiary, executor or trustee, or hold a power of attorney or similar position for or on behalf of their customer," Finra said in the release. "These conflicts of interest can take many forms and can include a registered person benefiting from the use of undue and inappropriate influence over important financial decisions to the detriment of a customer.

"Moreover, problematic arrangements may not become known to the member firm or customer’s other beneficiaries or surviving family members for years," Finra continued. "Senior investors who are isolated or suffering from cognitive decline are particularly vulnerable to harm."

The rule goes into effect Feb. 15 and does not apply where the customer is a member of the registered person’s immediate family.

Under the rule, unless a registered person obtains written permission from their firm, he or she must decline acting in the following positions of trust for a client:

• A beneficiary of a customer’s estate or receiving a bequest from a customer’s estate upon learning of such status.

• An executor or trustee or holding a power of attorney or similar position for or on behalf of a customer.

Firms that receive notices from reps are required to perform “a reasonable assessment of the risks created by the registered person’s assuming such status or acting in such capacity, including, but not limited to, an evaluation of whether it will interfere with or otherwise compromise the registered person’s responsibilities to the customer,” Finra said.

If a firm imposes conditions or limitations on its approval, the member firm is required to “reasonably supervise the registered person’s compliance with the conditions or limitations,” Finra added.