Obligations to Your Customers

The foundation of the securities industry is fair dealing with customers. Whether your work is with individuals, institutions, or business entities, your obligation in this profession is to serve your customers with honesty and integrity by putting their interests first and foremost.

 

The first step in serving your customers properly is to obtain a clear understanding of each customer's financial condition. You will obtain some of this information when opening a new customer's account with your firm. You may learn other information through conversations with your customer or checks your firm makes with credit agencies or other financial institutions. Because a customer's financial status is constantly changing, account records should be updated whenever necessary.

 

The second step in serving customers properly is for both you and the customer to have a clear understanding of the customer's investment objectives. As a professional, you will be trained to recognize the risks of various types of investments and to discuss with the customer which strategies are most suitable. Once you determine these objectives and record them in your customer's account records, you must make certain that specific recommendations for that customer fall within these objectives and would, therefore, be suitable. Just as your customer's financial position may change, your customer's investment objectives may change as well. You should, therefore, review your customer's investment objectives periodically, and make a written record of any changes as they occur.

 

Securities Transactions

 

During your training period, you will learn about the "settlement" of securities transactions, when the seller delivers the securities sold and the buyer pays for the securities purchased. Depending on the security traded, settlement is usually three business days but may be the same day, the next day, or some other time period. It is important that you know Regulation T, margin, and the "prompt receipt and delivery" rules for the securities you sell and that you inform your customer of the consequences if timely settlement does not occur. To avoid misunderstandings later, it is advisable to do this prior to entering any order.

 

Orders for securities transactions are contracts. Unlike many business contracts, which are usually written, most securities orders are given orally. In your training, you will learn the terms used in the securities industry to describe how to place an order and, thereafter, settle it. Until you feel comfortable that your customer understands this process, take a few moments with each customer order to explain the mechanics of the transaction and the market conditions that may delay or prohibit its execution.

 

You must discuss each order with your customer prior to entering it, unless the customer has given written discretionary authority to you, which has been approved by your firm. An oral grant of discretionary authority is not sufficient and acting on such authority violates FINRA rules. Discretionary orders, you will learn, require more frequent supervisory review. You are strongly advised to first discuss the solicitation and opening of discretionary accounts with your supervisor before engaging in such activity.

 

Fees Charged for Services

 

Federal and state securities laws, SEC rules, and FINRA regulations affect the fees charged for all transactions including, for example, placing new securities issues, secondary market offerings, and transactions involving mutual funds and variable contracts. You should always question situations in which you are asked to market securities with extraordinarily high markups, sales charges, or payouts.

 

Remember, if your customer is to benefit, the investment's performance must first overcome the initial charges. When in doubt, ask your supervisor, consult the rule manuals, or call FINRA—you could be in violation of the FINRA pricing rules and become subject to significant disciplinary sanctions.

 

During your training, you will learn that FINRA and other regulators have rules regarding how much you can charge a customer for services. Generally, charges must be reasonable and not unfairly discriminatory among customers. For transactions in The Nasdaq Stock Market, exchange-listed securities traded in the over-the-counter market, and other OTC equity securities, markups (the amount charged above the market value) on principal transactions may take into account the type of security involved; its availability in the marketplace; its price; the size of the order; disclosure prior to effecting the transaction; the type of business in which your firm specializes; and the general pattern of markups at your firm. Rarely is a markup on equity securities above 5 percent considered fair or reasonable. Indeed, depending on the circumstances and the type of security involved, markups at or even below 5 percent may be considered unfair or unreasonable.

 

The 5 percent policy applies equally to agency transactions in that the amount of commissions charged for such transactions must meet the same "fair and reasonable" standard. Commissions approaching or exceeding 5 percent are subject to close regulatory scrutiny and must be justified, taking into account all relevant circumstances.

 

FINRA BrokerCheck®

 

The overwhelming majority of securities professionals conduct a fair and honest business. However, as with all professions, some organizations and individuals at times may not. FINRA is committed to providing investors with an opportunity to make informed decisions in today's complex investment landscape. Toward that end, FINRA provides FINRA BrokerCheck® for investors to gain convenient access to information about securities firms and their associated personnel.

 

BrokerCheck allows investors (and others) to learn about the professional background, business practices, and conduct of FINRA member firms and their brokers. Investors may request disclosable information under BrokerCheck by calling (800) 289-9999—a toll-free hotline operated by FINRA—or by visiting the FINRA BrokerCheck website.

 

Through the hotline or website, investors can request a report of background information that is disclosable via BrokerCheck. This information is provided by brokers, firms, and securities regulators as part of the securities industry's registration and licensing process. BrokerCheck features professional background information on approximately 1.3 million current and former FINRA-registered brokers and 17,000 current and former FINRA-registered brokerage firms.

 

BrokerCheck reports contain information required to be reported under securities industry rules, which generally include:

  • Pending or final disciplinary actions (relating to securities or commodities businesses) that have been taken by FINRA and other self-regulatory organizations, or by federal, state, and foreign securities agencies.
  • Civil judgments and arbitration decisions in securities and commodities disputes involving public customers.
  • Certain criminal convictions and charges.
  • Customer complaints, arbitration claims, or civil suits involving securities or commodities transactions and allegations of sales practice violations.
  • Employment terminations after allegations were made involving violations of investment-related statutes or rules, fraud, theft, or failure to supervise investment-related activities.
  • Bankruptcies or compromises with creditors filed within the last 10 years and any outstanding judgments and liens.
  • Bonding company denials of coverage, payout, or revocation.
  • Any suspension or revocation to act as an attorney, accountant, or federal contractor.
  • Formal investigations involving regulatory or criminal matters. 

 

When evaluating the information in a BrokerCheck report, it is important to remember that some of these items may involve pending actions or allegations that have not been resolved or proven. Those items may, in the end, be withdrawn or dismissed, resolved in favor of the registered person, or concluded though a negotiated settlement with no admission or conclusion of wrongdoing.

 

Additionally, please review Regulatory Notice 10-34 for information regarding changes to the information released through BrokerCheck, which took effect in August and November of 2010.