‘Hold’ orders not suited for Finra’s new suitability rules, advisers say

Even though the broadened suitability rule goes into effect today, broker-dealers are still feeling their way on how to comply with at least one aspect of the new requirements: how to track brokers’ recommendations to hold on to a specific security.
“With the hold, it’s an absence of a transaction. There are no checks and no applications being submitted, so how do you document it?” asked Mark Quinn, chief risk officer at First Allied Securities Inc.
Firms are confounded by this part of the rule because their systems track “sell” and “buy” orders. But “hold” orders don’t involve a transaction.
Therefore, firms need to note the fact that representatives are telling clients to stay the course. Some, for example, are using “hold” tickets to reflect the rep’s recommendation, while others are simply asking reps to document when a client is told to hold on to a security.
First Allied uses a “hold blotter” — which is used to record particular transaction details — as well as additional documentation for certain risky assets.
Investments such as options and structured products warrant that extra layer of detail, Mr. Quinn said.
John Hancock Financial Network has added a hold check-off on tickets in the event that a broker thinks that he or she made a recommendation, according to Thomas Horack, chief compliance officer.

Related Topics: Financial Industry Regulatory Authority