FINRA recently adopted Rule 3241, limiting registered representatives from being named a customer’s beneficiary or holding a position of trust for a customer. The rule limits a registered representative from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a client, unless specifically approved by the broker dealer prior to accepting the position of trust. The rule does not apply, however, where the customer is a member of the registered person’s immediate family.

As it relates to member firms, the new rule requires member firms, upon receiving written notice from the registered representative, to review and approve the registered person assuming such status or acting in such capacity. In particular, member firms are required to perform an assessment of the risks created by the registered person’s assuming such status or acting in such capacity and make a determination of whether to approve the registered person’s assuming such status or acting in such capacity.

The new rule seeks to address the potential conflicts of interest associated with a registered representative having such a position of trust with a client. According to FINRA, these conflicts of interest can take many forms and may include a registered representative benefiting from the use of undue influence over important financial decisions to the detriment of a client.  While many member firms may have similar policies prohibiting or imposing limitations on their registered representatives holding a position of trust with clients, FINRA believes a new national standard better protects investors and provides consistency across member firms’ policies and procedures.

We encourage our client to review your current policy to make sure it complies with the new policies and procedures provided by FINRA Rule 3241. Rule 3241 becomes effective February 15, 2021.  We also recommend that firms document fully any decision to allow a representative to take on one of these roles, including documentation where the firm spoke directly with the customer about the situation.  This documentation will be crucial in any potential dispute.