FINRA OFFERS GUIDANCE WHEN RECEIVING CLIENT INSTRUCTIONS TO SELL ILLIQUID SECURITIES
FINRA recently provided guidance when a firm receives unsolicited client instructions on liquidating illiquid securities. Noting that a failure to follow a client’s instructions would violate its rules, FINRA indicated that the firm should disclose the pricing risks and obtain a written acknowledgement that (a) the client understands the risks, (b) the firm is not recommending the transaction or making a suitability determination, and (c) the firm cannot comment on the sufficiency or competitiveness of the pricing.
OUR TAKE: Firms do have an obligation to make all the disclosures necessary to protect clients from themselves. However, once clients make a seemingly bad decision in the face of such disclosures, the firm must follow the instructions.