FINRA Rule 2140, titled "Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes," aims to protect investors' rights to choose their financial advisor when a change in employment occurs. It prohibits member firms and associated persons from hindering customers' requests to transfer their accounts when their registered representative changes firms.
Here's a breakdown of the key points:
Prohibition: No member firm or associated person can interfere with a customer's wish to transfer their account in connection with their registered representative's new job unless:
The account has a lien: This means the customer owes money to the current firm, preventing the account transfer until the debt is settled.
Bona fide claim exists: The current firm has a legitimate legal claim to the account, independent of the employment dispute.
Examples of interference: The rule prohibits actions like:
Discouraging customers from transferring their accounts through negative statements or misinformation.
Delaying or hindering the transfer process by creating unnecessary bureaucratic hurdles.
Offering incentives to stay that are not commercially reasonable, potentially pressuring customers into an unfair choice.
Benefits of the rule:
Investor protection: Customers retain control over their investments and choose advisors who best align with their needs.
Fair competition: Prevents firms from leveraging employment disputes to unfairly retain customers, promoting a healthier market.
Clarity and consistency: Provides clear guidelines for member firms and investors, reducing potential conflicts and disputes.
Additional notes:
The rule applies regardless of the reason for the employment change, be it voluntary or involuntary.
FINRA can impose sanctions on member firms or individuals who violate the rule.