FINRA, the Financial Industry Regulatory Authority, regulates the conduct of brokers in the securities industry to protect you from losses tied to bad advice or outright misconduct. The agency writes rules spelling out exactly how broker-dealers and financial advisors have to treat their investment clients. And despite all those rules, FINRA still fields thousands of customer complaints every year.
Two rules show up again and again in those complaints. FINRA Rule 2090, the Know Your Customer (KYC) rule, and FINRA Rule 2111, the suitability rule, mandate minimum knowledge requirements for brokers when making investment recommendations.
If you lost money because your broker recommended something that never fit your situation, the investment fraud attorneys at The Law Offices of Robert Wayne Pearce, P.A. can help you figure out whether Rule 2090 or Rule 2111 got broken along the way. Contact our office today for a free consultation.
Regla 2090 de la FINRA: Regla de Conozca a su Cliente
FINRA Rule 2090 requires your financial advisor to learn the “essential facts” concerning you and concerning the authority of each person acting on behalf of such customer. Firms need this information before they open your account, and they need to keep it current for as long as they manage your money.
Los "hechos esenciales" descritos en la norma incluyen detalles necesarios para:
- Atienda la cuenta con eficacia;
- Satisfacer cualquier instrucción de manejo especial para la cuenta;
- Comprender la autoridad de cualquier persona que actúe en nombre del cliente; y
- Comply with relevant laws, regulations, and rules.
The Know Your Client rule protects clients from investment losses by requiring their financial advisor to learn detailed information about their personal financial circumstances. This protects financial advisors by outlining the essential information about customers at the outset of the relationship, prior to any recommendations.
The financial adviser also receives notification of any third parties authorized to act on the customer’s behalf. The information learned by financial advisors through the KYC requirement factors into the analysis of whether an investment recommendation is suitable.
Anti-Money Laundering: Broker-Dealers’ Second KYC Duty
Suitability is only half of “know your customer.” Broker-dealers also run a second KYC process built to catch money laundering, and it comes from a different set of laws entirely.
The Bank Secrecy Act requires financial institutions, including broker-dealers, mutual funds, futures commission merchants, and introducing brokers, to build anti-money laundering programs and flag financial crimes. FINRA Rule 3310 makes that a FINRA-specific obligation. The Financial Crimes Enforcement Network (FinCEN) writes the money laundering regulations that financial firms and other financial institutions across the financial services industry follow, usually announced through a regulatory notice or the Federal Register.
Before opening your account, a firm’s Customer Identification Program runs identity verification on your customer accounts, so companies opening accounts understand exactly who they’re dealing with. Customer identification is the first checkpoint against potential money laundering. If a firm can’t confirm your customer identity, it can’t move forward with the business relationship.
Next comes customer due diligence. FinCEN’s CDD rule requires financial institutions to understand customer relationships well enough to build accurate customer risk profiles, covering a customer’s financial situation and, for business clients, a customer’s business activities. Firms must also identify the beneficial owners behind any legal entity, since beneficial ownership information exists to prevent money laundering through shell companies.
Firms assess accounts on a risk basis. Higher-risk customers trigger enhanced due diligence, while every account gets ongoing monitoring and a duty to report suspicious transactions to FinCEN.
The Financial Action Task Force sets the global standard that US financial institutions follow to improve financial transparency across the financial system and cut off terrorist financing. Sloppy KYC compliance is sloppy KYC compliance, no matter which rule it breaks.
Norma 2111 de la FINRA: Idoneidad
Suitability complaints show up in FINRA’s Rule 4530 Customer Complaint Report every quarter, and they’re consistently one of the most-cited problem codes firms report.
La norma de idoneidad exige que los asesores financieros tengan una "base razonable" para creer que una transacción o estrategia de inversión recomendada es adecuada para el cliente.
A financial advisor determines the suitability of a transaction or investment strategy through ascertaining the customer’s investment profile.
Factors involved in a suitability analysis include the customer’s:
- La edad,
- Experiencia en inversiones,
- Situación financiera,
- Situación fiscal,
- Objetivos de inversión,
- Horizonte temporal de inversión,
- Liquidity needs,
- Risk tolerance, and
- Other investments.
Numerosos casos interpretan que la norma de idoneidad de la FINRA exige a los asesores financieros que hagan recomendaciones que redunden en beneficio de sus clientes. La FINRA describe situaciones en las que los asesores financieros han infringido la norma de idoneidad al anteponer sus intereses a los de sus clientes, entre ellas:
- Un corredor que recomienda un producto sobre otro para recibir mayores comisiones;
- Los asesores financieros que recomiendan a los clientes que utilicen el margen para comprar un mayor número de valores con el fin de aumentar las comisiones; y
- Corredores de bolsa que recomiendan valores especulativos con altas comisiones debido a la presión de su empresa para vender los valores.
Cualquier indicio de que un asesor financiero ha antepuesto sus intereses a los del cliente puede respaldar una reclamación por incumplimiento de la norma de idoneidad.
La norma 2111 consta de tres obligaciones principales: (1) idoneidad de base razonable, (2) idoneidad específica del cliente y (3) idoneidad cuantitativa.
Idoneidad de la base razonable
La idoneidad de base razonable requiere que un asesor financiero tenga una base razonable para creer, basándose en una diligencia razonable, que una recomendación es adecuada para el público en general.
La diligencia razonable de un asesor financiero debe permitirle comprender los riesgos y beneficios asociados a la inversión o estrategia recomendada.
A failure to comprehend the risks and rewards associated with a particular investment prior to recommending the investment to a client can result in allegations of misrepresentation or fraud. If a broker fails to perform reasonable diligence regarding either component, the financial advisor violates this obligation.
Adecuación al cliente
La idoneidad específica del cliente implica considerar los detalles específicos de un cliente individual para determinar si una transacción o estrategia de inversión es adecuada. El asesor financiero revisa los detalles mencionados anteriormente para determinar la idoneidad de una operación o estrategia concreta para cada cliente.
Idoneidad cuantitativa
The quantitative suitability element requires financial advisors to recommend transactions that are suitable when viewed as a whole, not only when viewed in isolation. This element aims to prevent financial advisors from making excessive trades in a client’s account solely for the purpose of generating commission fees.
Factores como el índice de rotación, la relación coste-capitalidad y el uso de la negociación in-and-out indican que se ha infringido la obligación de idoneidad cuantitativa.
Qué constituye una "diligencia razonable"
La norma de idoneidad de la FINRA exige a los corredores que ejerzan una "diligencia razonable" al intentar obtener información específica del cliente. La razonabilidad del esfuerzo de un asesor financiero por obtener dicha información dependerá de los hechos y circunstancias de cada relación de inversión.
Un asesor financiero suele basarse en las respuestas proporcionadas por el cliente a la hora de recopilar información relevante para el perfil de inversión del cliente. Algunas situaciones pueden impedir que un corredor se base exclusivamente en las respuestas del cliente, entre ellas, las ocasiones en que:
- Un asesor financiero plantea preguntas engañosas o confusas hasta el punto de empañar el proceso de obtención de información;
- El cliente muestra signos claros de capacidad disminuida; o
- Existen banderas rojas que indican que la información puede ser inexacta.
Además, la norma de idoneidad exige a los corredores que tengan en cuenta cualquier otra información proporcionada por el cliente en relación con las recomendaciones de inversión.
Read up on FINRA Rule 2010 if a broader ethics violation might be in play, or check out stockbroker fraud, since suitability claims often overlap with both.
What Should You Do If Your Broker’s “Know Your Customer” File Is Wrong or Outdated?
If your broker’s “know your customer” file is wrong or outdated, you should correct it immediately because suitability depends on accurate facts about you. FINRA Rule 2090 equals an “essential facts” requirement, and your investment profile equals your age, time horizon, liquidity needs, tax status, and risk tolerance, so a stale profile can make a risky recommendation look “appropriate” on paper.
Start by requesting a copy of your new account form, any updates, and any risk-tolerance questionnaires, then compare them to your real finances (income, net worth, expenses) and goals (capital preservation, retirement, education). A red flag equals blanks filled in by someone else, aggressive objectives you never chose, or repeated “speculation” ratings that conflict with conservative holdings.
Send a written update (email or secure message) stating the corrected facts and the date, and ask the firm to acknowledge the change before any new trades. At the Law Offices of Robert Wayne Pearce, P.A., our lawyers have seen that documentation (statements, notes, recorded calls, disclosures, and trade confirmations) often becomes the proof that a recommendation was unsuitable or not in your best interest.
Contratación de un abogado especializado en pérdidas de inversiones
Violations of FINRA Rules 2090 and 2111 cost investors real money every year. If you lost money to an unsuitable recommendation, you have the right to pursue the people responsible for it.
Cases against brokers and registered investment advisors get complicated fast, especially without an attorney who actually knows securities law. Robert Wayne Pearce has spent over 45 years representing investors against financial advisors and broker-dealers, and has tried, arbitrated, and mediated hundreds of disputes involving FINRA rule violations. He even serves as a FINRA mediator from time to time.
If you’re in Florida, Texas, or anywhere else in the country, an attorney experienced in suitability claims changes how much you recover. Contact The Law Offices of Robert Wayne Pearce, P.A. today for a free review of your case.
