FINRA Member firms have been creating their own proprietary products for distribution and sale to retail investors. These SRPs include complex products such as structured notes with complicated payout structures. These SRPs may use proprietary indexes as reverence assets that are hard to track making the products difficult to understand for retail investors. The payout structure may also be based on longer terms and other conditions adding to the complexity of the products.
Firms must ensure that its representatives understand the performance characteristics and operational risks prior to recommending these products to investors. All members who create retail communications relating to SRPs must file the communications with FINRA within 10 business days of first use. FINRA is concerned that member firms in an effort to increase revenue will offer complex SRPs through distributors who do not have the knowledge or expertise to properly understand or recommend the products. If the member engages a wholesaler to sell its SRPs the member must have written supervisory procedures in place to Òknow your distributorÓ to ensure that the distribution channels have controls in place regarding the proper training of representatives who sell the products to customers. An additional concerns are created when there are potential conflicts of interest between the creator of the SRP and the wholesale distributor such as when the two companies are affiliated. Pass your FINRA exam with with ease and save 10 percent by clicking this free securities training coupon
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