[5] However, transactions in exchange-traded funds are reportable securities according to an SEC response to National Compliance Services, Inc.'s 2005 request for no action guidance.
Although the rule contains certain minimum provisions, advisers have "substantial flexibility to design individualized codes that would best fit the structure, size and nature of their advisory businesses.
The financial industry and lawmakers have yet to establish a consistent standard for providing investment recommendations to retail investors.
Section 202(a)(11)(C) of the Investment Advisers Act of 1940[7] exempts from the definition of an Investment Adviser (and therefore the associated fiduciary standard) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor."
Registered Representatives (RRs) affiliated with a Broker Dealer are therefore required to recommend securities that are deemed "suitable" for non-institutional clients.
[10] Some "dually registered" advisors are limited in the scope of their recommendations by their affiliation with their broker-dealers and therefore do not have unfettered access to all product/service solutions for their clients.
[11] "New FINRA Rule 2111 generally is modeled after former NASD Rule 2310 (Suitability) and requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile".
Following are some of the more substantive changes under FINRA's new "know your customer" (KYC) rules : Section 913 of the Dodd-Frank Act[13] mandated that the SEC study whether a uniform fiduciary standard should be applied to brokers and investment advisers.
34-69013[15] to request information for a cost-benefit analysis to determine the anticipated economic impacts of moving forward with uniform fiduciary standard rulemaking.
[1] In general, RIAs that manage $100 million or more in client assets must register with the U.S. Securities and Exchange Commission (SEC).
[23] Unlike mutual funds, RIAs may not report their overall performance, since they represent a varied number of clients and investment objectives.