Regulatory Notice 16-18: Recruitment Practices, Stealing Clients, or Maintaining Relationships – Rule 2273

By Becky Clapes, Guest Blogger

When representatives of investment firms leave their old firm for a new one, they often contact their former clients, telling them the “benefits” of transferring their investment from the representative’s old firm to his or her new one. The client may have built a relationship of trust with a representative which is a large motivating factor to move firms along with the representative. However, often, representatives do not tell their clients what it truly means to move investments, particularly, the costs that can be incurred. FINRA proposed Rule 2273 to provide clients with a more complete picture of what transferring assets truly means and what clients should consider when deciding whether or not to transfer assets.

The new rule requires that when investment firms hire associates with former clients from prior firms, the associate or firm provide education communication packets to the clients which were prepared by the FINRA. Firms are required to deliver the communication packets when:

  • They, either directly or through a representative, contact a former client of the representative in an effort to have the client transfer assets
  • A former client transfers assets to the representative’s new firm

When delivering educational communication to clients, firms must:

  • Deliver either oral or written information
  • Tell the former client that he or she is associating with the new firm
  • Discuss fees with the former client and pricing at the new firm.

The Georgia State College of Law Investor Advocacy Clinic filed a comment on then proposed Rule 2273 in January of this year.  For more information see here.