FINRA proposal would make e-delivery broker standard

If brokerage clients want to continue receiving account statements on paper, they may soon have to ask for it.

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The Financial Industry Regulatory Authority’s board of governors is moving forward with a proposal that would allow firms to make email and other forms of electronic delivery their default means of communicating with clients. Now, if they prefer e-delivery to paper account statements and other documents, they have to opt into it. 

The proposal came at a meeting that also saw the FINRA board put forward rules to bolster fraud protections for broker-dealer clients, particularly the elderly.

Brokerages long push to make e-delivery the norm

Broker-dealers have long pushed FINRA to make electronic delivery firms’ default method of sending account statements and other messages to clients. In a blog post on “Modernizing Delivery,” the Securities Industry and Financial Markets Association said electronic communications are still governed largely by standards that regulators adopted nearly 30 years ago, when fewer than half of U.S. households had computers.

That situation has changed greatly. A SIFMA survey from 2022, polling 1,312 respondents with $5,000 or more, found that nearly 80% are already receiving financial communications by electronic means.

Yet, brokerage clients generally still have to opt out of receiving paper statements and other communications and opt in for e-delivery, SIFMA wrote in its blog last year.

“This framework is outdated and more costly and less efficient and invites more risk,” wrote SIFMA, an industry group representing more than 500 brokerages, investment banks and other firms. “It also creates unnecessary costs, inefficiencies, and barriers to innovation—while most investors have already signaled a clear preference for electronic delivery.”

FINRA Forward and the drive to have up-to-date rules

FINRA, which oversees roughly 3,300 firms and 624,000 registered representatives, is the broker-dealer industry’s self-regulator and has authority to put forward new rules for the firms under its jurisdiction. FINRA said in a report on its latest board of governors’ meeting that it’s planning to file its proposal on electronic communications for approval by the Securities and Exchange Commission.

“By enabling electronic delivery as a default option, we’re aligning our rules with how many investors prefer to receive information in the digital age,” FINRA Board Chair Scott Curtis said in a statement.

The proposal stems in part from the regulator’s “FINRA Forward” initiatives, which have solicited comments from throughout the industry on ways the regulator’s requirements might be revised to better fit modern conditions. In announcing FINRA Forward, FINRA President and CEO Robert Cook said one goal was to look at “rules that affect the extent to which member firms can organize and operate their workplaces using modern technology and related business practices.”

New proposal to combat elder fraud

Independent of FINRA Forward, FINRA has been moving forward with several proposals meant to accommodate the remote-work arrangements that became common in the industry following the outbreak of COVID-19 nearly five years ago. FINRA, for instance, has allowed firms to sign up for a three-year pilot program allowing them to conduct in-house inspections of their branch offices at a distance, rather than in person.

But modernization isn’t the only goal of FINRA Forward. At their meeting last month, the FINRA board of governors also said the agency will soon be seeking comments on a proposed rule meant to give firms more ways to protect clients from fraud and exploitation. The details of the proposal remain somewhat unclear.

FINRA said it wants to boost firms’ use of “trusted contacts” — or third parties clients have given firms permission to check in with any time they suspect something is amiss. The proposal would also allow brokerages to extend the emergency holds on accounts held by older clients or vulnerable adults in order to suspend transactions while they look into unusual or questionable activity. To protect clients of any age, FINRA would also permit the use of short, temporary holds — or “speed bumps” — that would allow for quick investigations into suspect dealings.

“Our enhanced safeguards against financial exploitation demonstrate our determination to protect vulnerable investors, particularly seniors, from fraud and abuse,” said Curtis, also the chief operating officer of Raymond James.

Allowing IPO money in pooled retirement accounts

A third proposal put forward by FINRA’s board of governors last month would allow retirement funds known as collective investment trusts to take in money raised through initial public offerings. CITs, also called collective trust funds, often combine savings held in multiple 401(k)s and other retirement plans into one large fund. FINRA said its proposal would allow CITs to be treated “comparably to other types of pooled investments.”

“By updating our new issue rules for collective trust funds, we’re ensuring retirement savers have equitable access to investment opportunities,” Curtis said.