FINRA Rule 3210 is a newer FINRA rule, approved by the U.S. Securities and Exchange Commission (SEC) in the Spring of 2016.
The regulators’ goal in approving this rule was to prevent conflicts of interest by financial advisors and broker dealers.
To carry out this goal, the rule governs the ability of registered financial advisors to use investment accounts outside of the accounts offered by their FINRA member firm.
Rule 3210 requires financial advisors to make a request and obtain consent from the FINRA member firm they work for to keep their accounts somewhere else. It also requires a disclosure letter to the outside firm when a securities industry professional opens an account.
This disclosure action is sometimes referred to as a FINRA 3210 Letter. Making this disclosure is one important step in preventing conflicts of interest for either firm.
At the Law Offices of Robert Wayne Pearce, P.A., we are committed to helping you enhance your investor education and understand all the FINRA registered broker dealer rules that may impact your decision-making.
IMPORTANT: Understanding rules like FINRA Rule 3210 can help you become a well-informed investor. It may also help you know what to look for when selecting a brokerage firm or a registered financial professional.
FINRA Rule 3210 Broker Dealer Overview
When an individual works for a brokerage firm, they typically keep their assets at that firm. The firm is therefore able to monitor their trades and can ensure that the financial advisor is not frontrunning their clients in a personal brokerage account.
The firm can also monitor the financial advisor’s account for insider trading or other bad activity. But what happens when the financial advisor works for Bank A but wishes to keep their accounts at Bank B?
Rule 3210 specifies that the financial advisor must receive written permission from Bank A to open the account at Bank B. Not only may the financial advisor not open the account without permission, but they must also declare any account in which they have a “beneficial interest.”
This means that if their spouse has a brokerage account at Bank B, they must disclose that to their employer as well.
These FINRA registered broker dealer rules may seem challenging at first. However, they have been carefully implemented to protect investors from financial advisor conflicts of interest.
Your Financial Advisor’s Requirements Under Rule 3210
Rule 3210 is not merely about allowing your financial advisor’s employer to see what is in their account. It is primarily about preventing conflicts of interest. In doing so, the rule requires:
- Obtaining prior written consent for opening accounts outside of the employer firm;
- Giving written notification of the financial advisor’s employment at his or her brokerage firm to the brokerage firm opening the new account; and
- Submitting written copies of brokerage statements or transaction data to the employer firm upon request.
An important part of this rule is the written consent part. Everything must be in writing under Rule 3210. Indeed, keeping written records is a requirement under most FINRA registered broker dealer rules. Maintaining a record of requests and consents is important in this case because Rule 3210 pertains to conflicts of interest.
FINRA does not have a set form for requests and consents under Rule 3210. Each firm creates their own FINRA Rule 3210 letters.
Even more important than consent may be the fact that a financial advisor must submit duplicate brokerage statements to their employer. A financial professional may have their brokerage accounts at an outside firm.
However, their employer must have transparency into their account activity just as if the accounts were in the employer’s custody. Rule 3210 is essential in balancing the right of financial professionals to use whichever brokers they choose with an employer’s need for compliance and a client’s need for transparency.
Close Family Members Must Also Comply with FINRA 3210
It may seem hard to believe that a FINRA broker dealer rule might apply to someone who doesn’t work in the financial services industry. But it’s true—FINRA 3210 requires disclosure of accounts from the following people related to a registered financial industry professional:
- A spouse;
- A financially dependent child of the registered financial industry professional or a child of the registered financial industry professional’s spouse;
- A relative over whose accounts the registered financial industry professional has control; and
- Any other person over whose accounts the registered financial industry professional exercises control and who they materially financially support.
In the event that both spouses work at FINRA member firms, then each spouse would have to comply with this rule. Both member firms would be notified about the other spouse’s accounts.
Protecting Against Conflicts of Interest
A primary goal of FINRA Rule 3210 is to prevent FINRA member conflicts of interest. Your financial advisor and your brokerage firm should be working for you, in your best interest. Where an undisclosed conflict is lurking, your broker simply cannot provide you with the advice or level of service you should expect.
An important part of investor education about FINRA broker dealer rules is to allow you to understand the issues behind rules like FINRA 3210. Being well-informed about what these rules are and how they work helps make you a savvy investor.
You will be better equipped to ask questions about potential conflicts of interest. You will also know to ask about your brokerage firm’s compliance systems and record retention.
Concerned That a Conflict of Interest Has Led to Investment Loss?
If you are concerned that a conflict of interest caused you investment loss, we are here to fight for your rights. When you engage an investment advisor or a brokerage firm, you expect the highest level of service. When these professionals fail to act in your best interest, they should be held accountable. Learn how you can file a formal FINRA complaint against your advisor.
Our team has the expertise and savvy to take on even the most complex disputes. Contact our office today for a free consultation, and let’s discuss what we can do to help you move forward.