The Financial Industry Regulatory Authority (FINRA) exists to protect would-be and current investors in securities by regulating the market. It licenses and legislates the parties who deal in securities, meaning the financial advisors and brokers who deal in stocks and bonds—and the larger companies they operate as part of. FINRA has authority to discipline non-compliant parties granted by the Securities and Exchange Commission (SEC).
In 2019, the SEC made a considerable change to broker standards, referred to officially as Regulation Best Interest (Reg BI). FINRA is responsible for helping firms prepare for the change and evaluating the implementation after the mandated compliance date of June 30, 2020.
How this will change a broker’s dealings with you
- A firm or broker cannot put their interest above your best interest when recommending securities. The previous “suitability standards” did not say this outright.
- Your best interest must also come first when a broker recommends a specific type of account. The SEC provides guidelines for choosing accounts by best interests and lists specific factors for consideration.
- The broker must address the elements of care, skill and cost in the process of selling an investment.
- You and the broker should, if possible, explore reasonable alternatives to compare options.
- The broker must provide full written disclosure of all facts relating to the purchase as well as any conflicts of interest.
These new changes have yet to go into effect, yet they signal potentially positive changes in the world of securities.