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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.