On April 9, 2013, Richard Ketchum, Chairman and Chief Executive Officer of FINRA, delivered a speech regarding the National Compliance Outreach Program for Broker-Dealers.2 Mr. Ketchum repeated several of FINRA’s concerns regarding the suitability of structured products for some retail investors, such as uncertain risk-adjusted rates of return, liquidity risk (due to the lack of an active secondary market), market risk, and the credit risk associated with issuers of the products. To address these concerns, Mr. Ketchum advised financial advisors to discuss the following issues with retail customers before recommending a structured product: features of the product, how it is expected to perform under different market conditions, and the product’s risks, potential benefits, and costs (including the direct and imputed costs clients will incur).
The speech also identified the need for financial advisors to disclose conflicts of interest with regard to the sale of structured products to their customers. One such conflict is where a financial advisor moves to a new firm and receives a recruitment compensation package. Under a proposed FINRA rule, when a registered person receives "enhanced compensation" in connection with recruitment to a member firm, the recruiting firm would have to provide details of that compensation to the registered person’s prior customers before taking their accounts.3