The SEC recently approved FINRA’s new Rule 2273 (Educational Communication Related to Recruitment Practices and Account Transfers), which requires delivery of an educational communication prepared by FINRA to customers of a transferring representative. The rule will become effective on November 11, 2016.

On May 16, 2016, FINRA released Regulatory Notice 16-18, which provides an overview of the new Educational Communication Rule and includes the rule text and the form of educational communication required by FINRA.

The rule requires a firm that hires or associates with registered representatives to deliver an educational communication to former customers of the representative when:

  • the firm or its registered representative individually contacts a former customer of that representative regarding transferring assets to the new firm; or
  • a former customer of the registered representative, absent individualized contact, seeks to transfer assets to an account assigned, or to be assigned, to the representative at the new firm.

The educational communication must be delivered at the time the registered representative or the firm first has individualized contact with a former customer about transferring assets. If the contact is made via e-mail, the requirement may be satisfied through a hyperlink. For situations without individual contact occurring before the former customer seeks to transfer assets, the delivery must occur with the account transfer approval documentation.

The educational communication must be in the form created by FINRA without alteration.

The purpose of the educational communication is to encourage former customers to focus on certain key considerations that could impact the decision to transfer assets. For example, former customers could be unaware of key implications of transferring assets to a new firm, such as potential costs, the inability to transfer existing assets to a new firm or incentives for the representative making the recommendation. The form of educational communication seeks to advise former customers regarding important factors to consider before transferring assets to recruiting new firm, as well as any direct and indirect impact such transfer may have on those assets.