FINRA’s Focus On Minor Infractions: A Threat To Investor Protection?


As a financial advisor, your reputation is your most valuable asset. AdvisorLaw provides expert guidance and representation to help you navigate complex issues with confidence. From investor complaints to regulatory investigations, we’re committed to protecting your career and safeguarding your future.

Over the past decade, the Financial Industry Regulatory Authority (FINRA) has experienced a significant decline in disciplinary actions. This trend has raised concerns among industry experts, investors, and regulators alike.

The primary reason for the decline is a substantial decrease in settlement letters and formal complaints. While the total fines levied by FINRA have remained relatively consistent, the reduced number of cases raises questions about the effectiveness of its enforcement efforts.

Shift In Focus

One of the most notable changes to FINRA’s enforcement approach is a shift toward focusing on minor infractions. Minor infractions, such as failure to update forms or respond to inquiries, can inadvertently lead to disciplinary actions. These actions, even if seemingly insignificant, can have a significant impact on an advisor’s professional standing. A single blemish on a BrokerCheck report can create unnecessary challenges when seeking new opportunities or building client relationships.

It’s important to understand the specific types of offenses FINRA has been targeting. Here are some common examples:

  • Failure To Update Form U4 or U5: These forms are crucial for disclosing any disciplinary actions, judgments, or liens against a broker.
  • Not Responding To Information Requests: Failure to respond to inquiries from FINRA can hinder investigations and result in potential disciplinary actions.
  • Violations Of Suitability Rules: Brokers must ensure that the investments they recommend are appropriate for their client’s risk tolerance and financial goals.
  • Failing To Disclose Conflicts Of Interest: Brokers must disclose any conflicts of interest that could influence their recommendations.
  • Firm-Related Infractions:
    • Supervisory Failures: Firms must have adequate systems in place to supervise their employees and prevent misconduct.
    • Recordkeeping Violations: Firms must maintain accurate records of their business activities.
    • Anti-Money-Laundering Violations: Firms must have procedures in place to prevent money laundering.

Balancing Investor Protection & Advisor Rights

While it’s crucial for FINRA to maintain a vigilant approach to protecting investors, it’s equally important that disciplinary actions be proportionate to the offense. Overly stringent enforcement can have unintended consequences, including:

  • Discouraging New Entrants: Fear of minor infractions may deter qualified individuals from entering the financial services industry.
  • Hamstringing Experienced Advisors: A single misstep can jeopardize the careers of seasoned professionals.
  • Creating A Climate Of Fear: A culture of excessive regulation can stifle innovation and lead to a risk-averse mentality.

The Importance Of Fair Treatment

Advisors deserve a fair hearing and the opportunity to rectify minor errors, without facing disproportionate consequences. A more nuanced approach that balances investor protection with advisor rights is essential.

The decline in disciplinary actions also raises concerns about FINRA’s ability to protect investors. If the regulator is not devoting sufficient resources to investigating and addressing more serious misconduct, investors may be at greater risk of financial harm.

AdvisorLaw’s Role

AdvisorLaw is committed to providing comprehensive regulatory defensearbitration, and expungement services. Our experienced attorneys have a deep understanding of the regulatory landscape and are dedicated to protecting the interests of our clients. If you’re facing a regulatory investigation or disciplinary action, we can provide the representation you need.

In addition to our core services, we also offer:

  • Disclosure Expungement: We can help you remove negative disclosures from your BrokerCheck, IAPD, IARD, and CRD records, which can have a significant impact on your career.
  • Regulatory Investigation Defense: Our attorneys can represent you in investigations by FINRA, the SEC, and other regulatory bodies.
  • Complimentary Consultation: We offer a free initial consultation to discuss your specific situation and determine the best course of action.

While FINRA’s focus on minor infractions may have raised concerns, it’s important to recognize the potential impact on advisors’ reputations. A more balanced approach that ensures fair treatment and proportionate penalties is crucial for maintaining a healthy and vibrant financial services industry.

If you’re facing a regulatory investigation or disciplinary action, AdvisorLaw is here to help. Our experienced attorneys can provide guidance and representation to protect your professional standing. Contact us today for a complimentary consultation.

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