Finra wants ADV-like form for brokers

Plain-English disclosure document would describe services, conflicts and limitations on duties

MAR 25, 2011

By Dan Jamieson

The Financial Industry Regulatory Authority Inc. is thinking about creating an ADV-like form for broker-dealers. Finra has yet to formally propose a rule, but last week, it asked for comment on the idea, in Regulatory Notice 10-54. In the notice, Finra said customers of broker-dealers might benefit from an "upfront disclosure document that sets forth in plain English a firm's accounts and services, its associated conflicts of interest and any limitations on duties owed to the customer." The document would be “similar in purpose to Form ADV,” the notice said. Investment advisers are required to file ADV forms to the Securities and Exchange Commission. Conflicts in the sale of certain products and whether fees were received from product providers would be disclosed, as well as whether brokerage fees were negotiable. It would also disclose instances where brokers receive higher pay on some products. Finra asked whether the proposal seems too broad or too narrow, and when and how the disclosures should be made. “I think it's overkill,” said Jim Biddle, founder of The Securities Center Inc. Finra may see it as a simple disclosure document, he said, “but I see it as having a lot of legal [implications].” The disclosure document also could “become an exam item” that firms could get in trouble for if not done to Finra's liking, he added.

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