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FINRA Proposes Rule to Limit Registered Reps from Being Named as Client Beneficiary

The Financial Industry Regulatory Authority is seeking comment on a proposed rule (Rule 3241) that would limit any registered representative from being named as a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust on behalf of a customer.

The Financial Industry Regulatory Authority is seeking comment on a proposed rule (Rule 3241) that would limit any registered representative from being named as a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust on behalf of a customer. The comment period expires on January 10, 2020.

The proposed rule would require firms to review and approve the representative’s designation as beneficiary, executor, trustee, etc., and should only be given to those that do not present a risk of financial exploitation. The proposed rule would not apply in cases where the customer is an immediate family member.

“Recognizing that a registered person and customer may have a close and longstanding friendship or relationship that may be akin to, but not actually, a familial relationship, the proposed rule would not prohibit a registered person being named a beneficiary of or receiving a bequest from a customer’s estate,” FINRA stated.

“However, given the potential conflicts of interest,” FINRA said that it “would expect a member firm to employ heightened scrutiny in assessing a registered person’s request to be named as a beneficiary of or to receive a bequest from a customer’s estate.”

FINRA said that it considered various alternatives to the proposed rule including prohibiting a registered rep from encouraging a customer to name the rep as a beneficiary, which would be difficult to prove. FINRA also considered an outright prohibition of some or all positions of trust, but decided against that approach as some positions of trust may benefit customers.

The regulatory notice for FINRA’s proposed Rule 3241 can be read in its entirety here.

Comments can be submitted via email to pubcom@finra.org and will be made available to the public.

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