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FINRA: Firms Must Adhere to Industry Rules and Be Honest with Investors

On May 21, 2013, FINRA chairman and CEO Richard Ketchum praised firms' overall improvement in increasing compliance with industry rules, but stated there is still work to be done.

Specifically, Ketchum requested firms continue to adhere to FINRA rules by creating solid disclosure policies and have honest conversations with investors in which the firms use "plain English" in all conversations in an effort to rebuild investor confidence and trust. Ketchum cited communicating bond risk as one area in need of improvement.

Finra Chief Urges Brokers to Revisit Bond Risks with Clients (The Wall Street Journal)

Ketchum mentioned that compliance itself is not enough: "We need to move beyond a culture of compliance to ensure that investors have a better understanding of risk and what's being sold." Ketchum stated it is vital that "investors better understand their investments."

He referenced, as an example, fixed income markets and cautioned that informing clients of risk and investment strategies in such volatile markets are equally important.

Ketchum pointed out other specific risks, such as those associated with bond funds, noting that if the market moves, losses will occur "instantaneously."

Among those products Ketchum urged firms to have clear, comprehensive and honest conversations with investors about are investments which are illiquid, complex and/or are of a speculative nature.

In regards to clarity and using "plain English," Ketchum pointed out firms are more than capable of adjustment: "[Firm] websites are filled with examples of plain English…They just all reside in the marketing side of the sites, not the legal and risk-disclosure side."

In February, we reported on brokerage firm UBS' move to arbitrarily classify all of its clients as "aggressive" if they hold bonds. The move effectively characterized clients—even those previously deemed "conservative" investors—as willing to take on risk and at the time, we stated that in our opinion, this unilateral risk reclassification was little more than an effort to stave off what UBS appears to believe will be the next major wave of arbitration claims—bond investments.

If you have invested with UBS or with any other FINRA-member firm that has attempted to reclassify your investment profile, failed to clearly communicate investment policies or strategies or used complex language to the point of potentially creating a misrepresentation or omission of material facts which has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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