B-Ds need to up their conflicts of interest prevention game, Finra says

Regulator's report identifies dozens of areas for potential pitfalls
OCT 15, 2013
Broker-dealers need to do more to prevent conflicts of interest, Wall Street’s industry-funded watchdog says in a new report. The Financial Industry Regulatory Authority Inc. identified dozens of potential conflicts that were outlined by broker-dealers the regulator surveyed, ranging from managers who spend more time on revenue-generating activities than supervision, compliance staff subjected to pressure from sales management to protect high-producing advisers and registered representatives recommending fee-raising transactions without regard to their suitability for clients. “While many firms have made progress in improving the way they manage conflicts, our review reveals that firms should do more,” Finra chairman and chief executive Richard G. Ketchum said in a news release. “To help firms analyze the conflicts they face and implement a conflicts management framework appropriate to the size and scope of their business, we are publishing examples of how some large broker-dealer firms address conflicts.” In the report, Finra called compensation a “major” source of conflicts of interest. “The rewards firms offer associated persons may influence their behavior in ways that affect customer interests,” the organization said, adding that it focused on four specific areas it said could “create, exacerbate or mitigate compensation-related conflicts of interest.” The areas included compensation for brokers, surveillance and supervision of registered representatives as they approach compensation thresholds, compensation for supervisory personnel, and deterrents to poor conflicts management. The report recommends that firms include independent voices when new products are pitched, maintaining the independence of their wealth management businesses and creating disclosures that allow clients to see what factors affect the performance of financial products they are sold. Finra started its review of firms’ conflict management practices in July 2012.

Latest News

Social Security COLA rises to 3.6% for 2027, largest since 2023
Social Security COLA rises to 3.6% for 2027, largest since 2023

Fuel-driven inflation drove the supersized adjustment, but advocates say retirees are still losing ground as trust fund insolvency nears.

Retirement advisors have a major small business opportunity
Retirement advisors have a major small business opportunity

State mandates and plan complexity are opening doors for financial advisors in the 401 market.

Most pre-retirees are planning without a planner - and it shows
Most pre-retirees are planning without a planner - and it shows

New LIMRA data reveal a stubborn advice gap that financial professionals are well-positioned to close.

Treasury hits BofA with $1.2B fine over money laundering violations
Treasury hits BofA with $1.2B fine over money laundering violations

“Today’s actions send a clear message that even the biggest financial institutions are not above the law,” said Treasury Secretary Scott Bessent.

The hidden cost of growing a firm without intention
The hidden cost of growing a firm without intention

To build a truly self-sustaining practice, enterprising advisors have to start with a vision of what they want to be – and accept the realities that come with building toward it.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor