Yield of Dreams

FINRA Cracks Down on Structured Products, Branches in 2011

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finra-officeFINRA got more aggressive in its examinations and enforcement actions this year, with an increased focus on branch offices and structured products.

According to 2011 data, FINRA brought 1,411 disciplinary actions against registered individuals and firms, levied fines totaling more than $63 million and ordered more than $19 million in restitution to harmed investors. Last year, FINRA brought 1,310 disciplinary actions, with fines and restitution totally $42.5 million and $6 million, respectively. FINRA expelled 17 firms from the industry, barred 317 individuals and suspended 432 brokers from association with FINRA-regulated firms, all higher than 2010 numbers.

FINRA also shifted its focus toward branch-level activity, conducting 350 more branch office exams than 2010. Total branch office exams are nearly 800.

The agency also had a closer eye on firms selling structured products, with several notable enforcement actions for improper product promotion or unsuitable sale of structured products. Just recently, FINRA filed sanctions against eight firms and 10 individuals for their sales of private placements gone awry. FINRA has also been paying extra attention to the sales of non-traded REITs, something that has been making firms a little nervous about these investments lately.

No wonder the broker/dealers are losing market share to the RIA channel, which is regulated by the SEC (although that could change). I heard that firms just don’t want to deal with the regulatory burdens of FINRA. According to Cerulli Associates, the wirehouse channel’s market share of assets will decline to 35 percent in 2013 from 40.1 percent today. Meanwhile, the RIA’s market share of assets will climb to 14 percent in 2013 from 12.4 percent now.

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Casting a gimlet-eye on asset management issues.

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