Some firms are even failing to properly use the terms “advisor” or “adviser,” Finra found. “Associated persons, firms or both, are using the terms “advisor” or “adviser” in their titles or firm names, even though they lack the appropriate registration,” the regulator said.
When it comes to communicating fairly and effectively to customers, Finra found that some firms Reg BI disclosures were insufficient. They failed to provide retail customers with “full and fair” disclosures of all material facts related to the scope and terms of their relationship with customers or any conflicts of interest that are associated with the recommendation.
Firms failed to provide disclosures on material fees received as a result of recommendations, including revenue sharing or other payments received from product providers or issuers, fees tied to recommendations to rollover qualified accounts, potential conflicts of interest, for instance “associated persons trading in the same securities in their personal accounts or outside employment”; and material limitations in securities offering, Finra found.
Examiners also found that B-Ds Form CRS, or customer relationship summary—the key customer disclosure required by Reg BI—had deficiencies and “significantly departed from the Form CRS instructions or guidance from the SEC’s FAQ on Form CRS.”
Top Form CRS deficiency involves inaccurately representing financial professionals’ disciplinary histories; failing to describe types of compensation and compensation-related conflicts; incorrectly stating that the firm does not provide recommendations; changing or excluding language required by Form CRS; and not resembling a relationship summary, Finra said.
The blueprint on not only what Finra examiners found in 2021 but expect to focus on in 2022, also noted that B-Ds failed to implement cyber-security and mobile app trading rules to safeguard client information.