FINRA Rule 3241 Protects Investors from Conflicts of Interest
What is FINRA Rule 3241?
The Financial Industry Regulatory Authority (FINRA), the securities regulator, supervises the operations of brokerage firms, as well as enforces rules and regulations pertaining to securities trading. If you believe you have fallen victim to fraud, seeking restitution through FINRA arbitration is a legal recourse.
FINRA has implemented a new rule– FINRA Rule 3241 — to limit brokers from holding positions of trust for clients. Rule 3241 states that a registered person must decline being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate unless:
- The registered person provides written notice and receives written approval from the member firm prior to being named a beneficiary; or
- The registered person doesn’t receive any financial compensation other than the fees and charges that are reasonable and customary.
If a registered person is named as a beneficiary or to a position of trust without his or her knowledge, they would not be violating the rule, but must act consistent with the rule but upon learning of this status. FINRA does not specify the form of written notice required, leaving that decision to the individual firms, but they do require some form of written notice. Upon receiving a written notice, a firm must:
- Perform a reasonable assessment and evaluate if it will interfere or otherwise compromise the registered person’s responsibilities to the customer; and
- Make a reasonable determination to accept, accept under specific conditions/limitations, or deny the request.
One thing to keep in mind: Firms can set even stricter rules than what the official regulations require for their employees seeking approval on certain activities. If they choose, firms can outright prohibit such arrangements. For example, numerous entities prohibit their personnel from accepting additional money from their clients, even if Rule 3241 condones it in certain situations.
The rule, effective Feb. 15, 2021, does not apply where the customer is a member of the registered person’s immediate family.
FINRA claims that the rule creates a uniform, national standard to govern registered persons holding positions of trust, better protects investors and provides consistency across member firms’ policies and procedures.
FINRA Rule 3241 Violations
According to the Financial Industry Regulatory Authority (FINRA), Joe David Gainer Jr. allegedly accepted a $3 million gift from one of his clients, which violates FINRA rule 3241. Gainer reportedly refused to appear for on-the-record testimony requested by FINRA in connection with the investigation. The investigation itself was in regards to whether Gainer failed to disclose a position of trust in relation to and receiving a $3 million dollar gift. In the meantime, while this investigation is in place, Gainer will remain barred by FINRA.
In May of 2022, the Financial Regulatory Authority (FINRA) suspended a Wells Fargo broker from associating with any FINRA member in any capacity for 45 days. This suspension was brought on after this individual purportedly asked a client to designate his friend as a beneficiary of the client’s accounts, in violation of FINRA Rules 3241 and 2010. The regulator’s investigation originated from a FINRA Rule 4530 report filed by Wells Fargo disclosing that a form was submitted by a family friend as the beneficiary of a client’s accounts. Along with the suspension, this individual was also fined $5,000, and did not admit or deny the findings of FINRA’s investigation
Conflicts of Interest – Can a Broker be a Customer’s Beneficiary?
FINRA Rule 3241 is designed to assist in the efforts of addressing and preventing conflicts of interest and exploitation. This rule is structured to follow the national standards for fiduciary relationships, singularly preventing brokers from receiving financial benefits beyond reasonable and customary fees. The regulation highlights the commitment of brokers to maintain integrity and fairness within financial dealings.
This rule often stirs up issues between broker dealers and investor firms because some brokers see a chance for personal gain when they’re named as a beneficiary, executor, trustee, or power of attorney for one of their customers. Conflicts of interest can arise whenever there’s a duty of care or trust in a relationship. Therefore, it’s always a good idea to have some kind of written proof of your deal, your bond with the customer, and any discussions you’ve had with the firm about the lending or borrowing setup.
Though this regulation may not prevent all instances of financial exploitation, conflicts of interest, or misappropriation by financial advisors, it serves as an additional instrument. Financial institutions and federal agencies can utilize this tool to discern questionable intentions, ideally intervening before clients get financially hurt.
Hiring a FINRA Attorney
If you have an investment related dispute, the securities fraud attorneys at the White Law Group may be able to help you. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision. The White Law Group helps clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary.
For a free consultation, please call our offices at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.
The firm has offices in Seattle, Washington and Chicago, Illinois and reviews securities cases across the country. For more information please visit our website at http://whitesecuritieslaw.com/
Tags: broker as executor, broker client beneficiary, can a broker be a customer’s beneficiary?, FINRA Rule 3241, FINRA rules for beneficiaries Last modified: December 14, 2023
