Website AdvisorHub recently posted the story, "Finra to Probe Effect of Waning Commissions on Firm Practices," which quotes from a letter on Finra's "2020 Risk Monitoring and Examination Priorities"," which says, "As commission practices change, cash management services that sweep investor cash into firms’ affiliated or partner banks or money market funds (Bank Sweep Programs) have taken on a greater significance." The article explains, "The Financial Industry Regulatory Authority put member firms on notice this week that it will be tracking whether brokerage firms’ shift away from commission revenue is affecting sales and order-execution practices for customers. In addition to focusing on such perennial issues as variable annuity sales, private placements and elderly investor communications, Finra examiners in 2020 will prioritize how brokerage firms manage their compliance responsibilities as they rely increasingly on cash-sweep bank programs and incentives from third-party trade execution firms as revenue sources." AdvisorHub also tells us, "In addition to making more bank loans to investment customers, firms ranging from traditional discount brokers to wirehouses across the retail brokerage industry have bulked their net interest revenue and spreads by moving brokerage account cash into bank accounts rather than into higher-paying money-market accounts that were the traditional sweep destinations. Concerns have risen about how the programs comply with a range of Finra and Securities and Exchange Commission rules, including net capital and customer protection rules, the Finra letter said. The industry-financed regulator outlined nine factors it may review in considering whether money moved into affiliate or outside bank accounts complies with its rules and standards." The Finra letter asks, "Does your firm clearly communicate the alternative for cash management available to customers, the terms provided by the Bank Sweep program and any alternatives? Has your firm omitted or misrepresented material information about the amount of FDIC insurance coverage on deposits, the nature and structure of the accounts, the relations of the brokerage accounts to partner banks, the amount of time it takes for funds to reach bank accounts and the risks of participating in such programs?"

Email This Article




Use a comma or a semicolon to separate

captcha image