Challenges Persist: Firms Struggle to Comply with Regulation Best Interest
From the desk of Jim Eccleston at Eccleston Law
FINRA's annual report for 2024 reveals a concerning trend among broker-dealers, with numerous instances of violations of Regulation Best Interest (Reg BI).
According to Think Advisor, the report emphasizes that broker-dealers and advisors continue to make recommendations without a reasonable basis to believe they are in the best interest of retail customers. Moreover, firms neglect to conduct thorough investigations of offerings before recommending them, often relying on past experiences with issuing companies.
Another notable violation involves recommending transactions not aligning with customers' investment profiles, such as those with high cost-to-equity ratios and high turnover. Despite Reg BI's requirement for due diligence on costs, examiners found that consideration of costs is often limited to sales charges, neglecting other relevant fees like product or account-level fees when making recommendations.
Finally, the report highlights instances where firms and advisors recommend complex or illiquid products that contradict the retail customer's investment profile, exceed concentration limits specified in firm policies, or comprise a significant portion of a customer's liquid net worth or securities holdings.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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