FINRA Issues Report on Conflicts of Interest
FINRA issued a “Report on Conflicts of Interest” addressing some best practices for firms to manage conflicts. FINRA said that “firms should do more to manage and mitigate conflicts of interest” with a focus on three areas: enterprise-wide conflicts management framework, new products, and compensation practices. To establish an effective enterprise-wide framework, firms should define conflicts, implement escalation procedures, disclose conflicts to clients, and conduct adequate training. In the new product process, firms should utilize new product committees, ensure disclosure in plain English, establish know-your-distributor policies and procedures, review products on a post-launch basis, and separate private wealth businesses to avoid incentives to recommend proprietary products. Firms should ensure that their compensation practices include product-agnostic compensation grids, examine trading as representatives near compensation milestones, and investigate trading around key client liquidity events.
OUR TAKE: While FINRA has addressed conflicts of interest in the past, this Report offers some very specific suggestions that compliance personnel can utilize.