FINRA Says Watch Out for “Free” or “No-Fee” Claims for IRAs

Tuesday, August 06, 2013

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

IRA custodians are allowed to charge fees on IRAs, but the fees must be properly disclosed to you. These fees are required to be spelled out in the disclosure statement portion of the custodian’s IRA document that you get when you open the IRA.

The Financial Industry Regulatory Authority, Inc. (FINRA) has provided information on the disclosure of fees in communications concerning retail brokerage accounts and IRAs. Regulatory Notice 13-23, dated July 2013, gives guidance on the disclosure of IRA fees in sales and marketing communications of retail brokerage firms. http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p304670.pdf

FINRA is the largest independent regulator of securities firms doing business with the public in the United States. Its core mission, according to its website is “…to pursue investor protection and market integrity, and we carry it out by overseeing virtually every aspect of the brokerage industry.”

In Regulatory Notice 13-23, FINRA stated that some firms’ sales and marketing material emphasizes “free” or “no-fee” claims with respect to IRAs when in fact, fees are charged. They observed overly broad language in sales material of broker-dealer firms that implies there are no fees charged to investors who have accounts with the firm. In other instances, fees that are not charged are highlighted and separated from the disclosure of fees that are charged. In other cases, fees are not discussed or are difficult to determine. FINRA said that these kinds of sales materials can mislead investors and violate FINRA Rule 2210’s requirement to claim or imply that accounts are “free” when in fact there are fees. FINRA Rule 2210 requires that broker-dealer communications be fair and balanced and that they don’t omit material information that would cause them to be misleading.

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