Finra wants member firms to be wary of brokers who produce consolidated statements for clients.
In a regulatory notice posted yesterday, the Financial Industry Regulatory Authority Inc. warned that if broker-dealers can't supervise the practice, they "must prohibit the dissemination of those reports and take the necessary steps to ensure that its registered representatives comply with this prohibition."
(Regulatory Notice 10-19)
Consolidated statements and reports typically track all of a customer's assets, including investments not held at the brokerage firm.
Finra said this type of reporting is most commonly used by broker-dealers that maintain an affiliated investment adviser or by registered representatives who also provide investment advisory services.
The regulator said consolidated reports can communicate inaccurate or misleading information to customers and open the door for fraud.
Finra suggested that firms consider auditing the reports, verify assets held away, and centralize the production and dissemination of consolidated reports.
Firms should also make adequate disclosures so that customers understand the limitations of tracking outside assets, the notice said.
