On February 15, Financial Industry Regulatory Authority (FINRA) new Rule 3241 — “Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer” — becomes effective. The new rule limits any associated person of a member firm who is registered with FINRA (each a “registered person”) from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a customer.
Under Rule 3241, all member firms must affirmatively address registered persons being named beneficiaries or holding positions of trusts for customers. The rule requires the member firm with which the registered person is associated, upon receiving required written notice from the registered person, to review and approve or disapprove the registered person assuming such status or acting in such capacity. The rule does not apply where the customer is a member of the registered person’s “immediate family.”
Rule 3241 provides that a registered person must decline:
- being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate upon learning of such status, unless the registered person provides written notice upon learning of such status and receives written approval from the member firm prior to being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate; and
- being named as an executor or trustee or holding a power of attorney or similar position for or on behalf of a customer unless:
- upon learning of such status, the registered person provides written notice and receives written approval from the member firm prior to acting in such capacity or receiving any fees, assets or other benefit in relation to acting in such capacity; and
- the registered person does not derive financial gain from acting in such capacity other than from fees or other charges that are reasonable and customary for acting in such capacity.
FINRA notes that to provide flexibility to member firms, Rule 3241 does not prescribe any specific form of written notice and instead permits a member firm to specify the required form of written notice for its registered persons. A member firm must (1) perform a reasonable assessment of the risks created by the registered person’s assuming such status or acting in such capacity, including, but not limited to, an evaluation of whether it will interfere with or otherwise compromise the registered person’s responsibilities to the customer; and (2) make a reasonable determination of whether to approve the registered person’s assuming such status or acting in such capacity, to approve it subject to specific conditions or limitations, or to disapprove it.
The rule also does not affect the applicability of other rules (e.g., FINRA Rule 2150 regarding improper use of customer securities or funds). FINRA notes that a registered person being named as a beneficiary or to a position of trust without his or her knowledge would not violate the rule; however, the registered person must act consistent with the rule upon learning that he or she was named as a beneficiary or to a position of trust.