FINRA Investigates Cross-Selling at Broker-Dealers

As reported recently, the Financial Industry Regulatory Authority has commenced an investigation into the cross-selling activities of several broker dealers in the wake of the Wells Fargo fallout. FINRA’s objective has reportedly been to determine just how much cross selling is taking place (including promotion of products such as credit cards and loans) and what incentives are being provided to employees to engage in the conduct.

FINRA-new-300x150A FINRA spokesperson was quoted as saying, ““In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.”

Supervision at broker dealers is a very critical aspect of customer service. It is important that brokers and their firms are only promoting and selling products to customers that are appropriate for that customer and in the customer’s best interest. As has been shown by the Wells Fargo disaster, cross-selling incentive programs can compromise that goal by creating a conflict of interest.

According to reports, FINRA is focused on “incentives for broker-dealer (“firm”) employees to: (1) promote bank products of the affiliate or parent company…to broker-dealer retail customers through referrals or direct sales, (2) add features (such as securities-based loans, credit or debit cards, or checking accounts) to broker-dealer retail customer accounts and (3) open additional broker-dealer retail accounts for customers (together referred to as cross-selling programs).”

Conflicts of interest can manifest in many ways, including cross-selling, unsuitable investment recommendations in high commission products, and others. Brokers have a clear duty to their customers and such a duty should never be breached to benefit the broker at the customer’s expense. It will be interesting to see what if anything comes of this investigation in the coming months.