Articles Tagged with Reg-BI

Stoltmann Law Offices is representing investors in arbitration claims where brokers have violated the “Best Interest” rule of the Securities and Exchange Commission (SEC), known as Regulation BI.

In its first enforcement action relating to Regulation BI, FINRA, the U.S. securities industry regulator, fined a former broker, Charles V. Malico, $5,000 for violating Reg BI “by recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest,” according to Investment News.

FINRA alleged “Malico’s conduct occurred from July 2020 through November 2021, when he worked for Network 1 Financial Services Inc. He recommended to a customer, a 63-year-old tax preparer who was not identified, that he make more than 350 trades in his account, which generated $54,000 in commissions and other trading costs,” Investment News reported. The customer, who earned $100,000 annually and had a liquid net worth of approximately $50,000, had an account balance of about $30,000.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with financial advisors who’ve had conflicts of interest when representing investors. Is your broker-dealer working in your best interest? Sometimes it’s difficult to tell, particularly when they don’t reveal hidden conflicts. Broker-Dealers who fail to properly inform their clients may be guilty of violating U.S. Securities and Exchange Commission (SEC) regulation “Best Interest (BI).”

In a study conducted by Finra, the federal securities regulator, the agency found that “firms are failing to update their existing policies and procedures to reflect Reg BI’s requirements by “making recommendations that were not in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks, rewards and costs associated with the recommendation,” the self regulator said. FINRA also found that brokers and their registered reps “recommended transactions that were excessive in light of a retail customer’s investment profile and placed the broker-dealer’s or associated person’s interest ahead of those of retail customers.”

What should brokers be doing to protect clients? Firms should be “identifying and mitigating conflicts of interest by identifying, disclosing, and eliminating or mitigating conflicts of interest across business lines, compensation arrangements, relationships or agreements with affiliates, and activities of their associated persons,” FINRA said. This means brokers need to “implement policies and procedures to identify and address conflicts of interest, such as through the use of conflicts committees or other mechanisms or creating conflicts matrices tailored to the specifics of the firm’s business that address.” Firms also should be “identifying conflicts across business lines and how to eliminate, mitigate or disclose those conflicts.”

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