Wednesday’s Word: Associated Persons

By Jason Robinson, Spring 2015 Student Intern

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The Financial Industry Regulatory Authority or FINRA is not your typical organization. FINRA’s power emanates from member brokerage firms recognition of FINRA as the sponsor of the forum for member firms’ self-regulation.

FINRA is the largest independent regulator of securities in the United States. It operates in a zone outside the courtroom. Here arbitration decides conflicts between investors and their broker-dealers.

Broker-dealers buy and sell securities.  There are also other parties who are associated with broker dealers. These parties are referred to as “registered representatives” or “associated persons.” These individuals often interface with investors directly, which gives them intimate access to the investors’ financial circumstances. Rule 12100 (r) (2) of the FINRA Code of Arbitration defines a “person associated with a member” broadly, showing that associated persons come in a number of different forms:

a sole proprietor, partner, officer, director, or branch  manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member.

Associated persons must follow FINRA rules, including a rule that requires them to ensure that an investment is suitable for a client.

How do you know if a financial professional is an associated person and registered with FINRA?  Use FINRA’s BrokerCheck to research the history and qualifications of both registered representatives and their broker-dealers. By gathering as much information on all the parties related to an investment, investors empower themselves to made prudent investment decisions.