Walter A. Saurack – Securities Arbitration

April 25, 2024April 25, 2024 by Walter A. Saurack

DOL Finalizes Retirement Security Rule – Effective September 2024

The U.S. Department of Labor has finalized its Retirement Security Rule, which updates the definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act and the Internal Revenue Code.

The determination of who is a fiduciary is important because ERISA protections hinge on fiduciary status. ERISA imposes strict requirements on persons deemed to be fiduciaries and severe consequences for breaching fiduciary duties. The updated definition of “investment advice fiduciary” takes effect on September 23, 2024.

The current definition was written when individual retirement accounts were less common and before 401(k) plans existed. Before the changes, there was a five-part test before financial advisers were held to a fiduciary standard―and one part provided that the advice had to be made on a regular basis, meaning, for example, that one-time recommendations on 401(k) rollovers potentially were unprotected.

Under the new rule, investment advisers will not be able to provide advice that affects their compensation unless they ensure investors are protected. Policies have to be put in place to mitigate conflicts, and investment advisers must advise customers that they are fiduciaries. They cannot place their interests ahead of the investor when the investor pays them for advice on individual retirement accounts, 401(k)s and similar categories of tax-advantaged dollars.

Investment advice fiduciaries must:

Give advice that is prudent and loyal;
Avoid misleading statements about conflicts of interest, fees and investments;
Follow procedures designed to ensure advice given is in an investor’s best interest;
Charge no more than is reasonable for their services; and
Give investors basic information about any conflicts of interests.

The rule covers all financial professionals, including brokers and insurance salespersons, who describe themselves as trusted advisers.

The Biden administration says the rule will help eliminate junk fees in the consumer financial markets and make sure that investment advisers do not put their interests before their clients’ interests.

April 27, 2023April 28, 2023 by Walter A. Saurack

SEC Approves FINRA’s Proposed Changes to Expungement Rules

On April 12, 2023 the Securities and Exchange Commission approved FINRA’s proposed rule modifications for expungement of publicly available records concerning customer arbitration disputes and customer complaints. As discussed in our prior Securities Arbitration Alert, FINRA introduced proposed changes to the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes on July 29, 2022 in response to concerns raised by various industry organizations and participants. The approved changes impose more stringent requirements and procedures for expungement requests. Some significant modifications to the current rules include:

Stricter time limits under which an associated person may initiate an arbitration for the sole purpose of seeking expungement (also known as a “straight-in” expungement request);
a requirement that expungement relief may only be granted pursuant to a unanimous finding of an arbitration panel that the information at issue is factually impossible, clearly erroneous, false, or that the associated person was not involved;
a prohibition of expungement requests concerning customer dispute information where the same information was previously considered on the merits by a panel or denied by a court of competent jurisdiction;
increased customer participation through enhanced notice requirements and rules that grant customers broader entitlement to participate in expungement proceedings;
a requirement that a panel of not less than three arbitrators hear straight-in expungement proceedings;
a prohibition on striking arbitrators, stipulating to remove arbitrators, or choosing arbitrators by prior agreement in straight-in expungement proceedings; and
a bar on the resubmission of withdrawn expungement requests to prevent “arbitrator shopping”[1].

Continue reading “SEC Approves FINRA’s Proposed Changes to Expungement Rules”

March 13, 2023April 27, 2023 by Walter A. Saurack

Proposed FINRA Expungement Rules

FINRA filed proposed rule modifications with the SEC on July 29, 2022, that would significantly alter the process by which registered financial professionals and broker dealer firms can expunge publicly available records concerning their conduct. By federal statute, FINRA is required to preserve information concerning financial professionals and broker dealer firms registered under FINRA rules. This information is maintained in a Central Registration Depository (“CRD”) and includes records related to customer complaints and customer arbitration disputes. CRD is the source of publicly available information on BrokerCheck, a tool that allows investors to review a broker’s employment history, prior regulatory actions, complaints and arbitrations. If an associated person or registered professional or firm can establish that information associated with a customer complaint or customer dispute arbitration is inaccurate, false or erroneous, they can seek expungement from CRD by (1) initiating an arbitration or (2) requesting expungement in an existing customer arbitration. A party granted an award of expungement must then obtain a court order confirming the award before FINRA will expunge the disputed records. Continue reading “Proposed FINRA Expungement Rules”