FINRA Examines Conflicts of Interest

This week, FINRA sent out a targeted exam letter to certain firms about their compensation practices. Conflicts of interest created by compensation policies (and their oversight) were listed as a key priority for examination in 2015, as we blogged about previously. The letter follows up on that priority, while also referencing back to a longer piece issued by FINRA in October 2013 seeking to understand how member firms were managing potential conflicts of interest. The 2013 piece also outlined some practices that could help firms avoid or mitigate conflicts in the future. FINRA is using this new letter to check in on about a dozen firms, and in the words of Dan Sibears, FINRA's executive vice president of regulatory operations, the intent of the sweep is to "...determine whether practices around compensation or certain products that are sold are being sold for the right reason and there are not compensation incentives that could lead to products being pushed to investors that are not in their best interest. We really want to find out if they've taken the original guidance to heart.”

Broker-Dealers are working to determine the best way to respond to FINRA's ongoing probes, and to determine what type of compensation practices will not run afoul of the regulator. One industry insider commented that “every area of our industry is getting drilled down on," so brokers are “having a difficult time coming up with a product mix that will not be problematic."

The letter contains 19 questions related to each firm’s retail accounts only, and must be answered by September 18th. All 19 questions can be viewed here.