Ketchum Wants Firms to Segregate Advisory Activities
In his address to the FINRA Annual Conference, Chairman and CEO Richard Ketchum warned firms that FINRA would closely scrutinize “any advisory business conducted through the firm or any affiliate, or by associated persons.” Mr. Ketchum said that FINRA is concerned about conflicts of interest and is “looking for appropriate internal controls and segregation of duties.” He explained that firms that act as both adviser and broker without segregation of duties “have a higher level of control over customer assets,” giving rise to custody and customer protection issues. Separately, Mr. Ketchum advised small firms to focus on financial and operational issue, books and records, supervision, and anti-money laundering.
OUR TAKE: We agree with Mr. Ketchum that firms should segregate advisory and brokerage activities, although for different reasons. The two activities charge differently, apply a different standard of care, and have different operational and documentation requirements.