FINRA recently issued Regulatory Notice 13-231 providing guidance to its members regarding disclosures concerning fees associated with retail brokerage accounts and individual retirement accounts (IRAs).
The Notice warns that FINRA has observed language in broker-dealers’ communications with the public that it views as providing incomplete or misleading disclosure about fees charged to investors’ accounts. In particular, FINRA takes issue with broker-dealer communications that prominently display “free” or “no-fee” accounts, without adequately and clearly disclosing account fees that may be charged to customers. Such practices, FINRA says, may violate FINRA Rule 2210 — which requires broker-dealer communications to be fair, balanced, and not misleading — by failing to fully disclose to investors the costs of opening, maintaining, and closing an account.
The Notice offers two pieces of guidance when using a communication that describes an account as “free” or “no-fee.” First, communications must contain clear disclosure about all of the fees that may be charged. For instance, claiming that an account bears no annual maintenance fees, without also disclosing applicable opening or closing fees, or that there may be fees associated with the investments in the account, may violate Rule 2210. Second, fee disclosures in these communications must be prominently placed in close proximity to any “free” or “no-fee” claims. In the Notice FINRA provides a couple of examples of disclosures that it considers to be adequate.
This latest Notice demonstrates that FINRA continues to monitor closely the communications of broker-dealers seeking to attract retail brokerage and IRA customers. Broker-dealers advertising “free” or “no-fee” claims should review the Notice to ensure that all existing and future communications conform to FINRA’s guidance, and update, as necessary, any policies and procedures governing the creation and review of these communications.
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This article was originally published by Bingham McCutchen LLP.