Category Archives: Business Development Companies

Department of Labor Fiduciary 60-Day Rule Delays Financial Industry Crunch Time

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The new Department of Labor (DOL) Fiduciary Rule that was enacted and scheduled to begin this month on April 10th has been postponed 60 days to June 9th.  Brokerage Firms and Financial Advisors are responsible for compliance with the rules as they are now written.  Keeping in mind that the requirements may be modified or eliminated based on the what happens during the 60-day delay. Klayman & Toskes, P.A. is monitoring the developments and will keep investors posted and provide further updates as they become available.

Best Interest Contract (BIC)

Brokerage firms and financial advisors who recommend investment of retirement funds into investment and insurance products that provide commission-based compensation are subject to Best Interest Contract disclosure requirements.  The BIC requires the disclosure of compensation to the client and the acknowledgement of the Fiduciary Standards, which are met through the recommended investment.

Fiduciary Standards

Under the current DOL Fiduciary Rule, brokerage firms and financial advisors are considered Fiduciaries for all retirement accounts.  Accordingly, the following fiduciary standards must be met:

Avoid Conflicts of Interest

This primarily refers to receiving Commissions on brokerage accounts or compensation paid by Product Vendors.  The BIC allows the payment of commissions to brokerage firms and financial advisors but requires that all other aspects of the fiduciary standards are followed.

Advice Must Be in Client’s Best Interest

A written explanation and proof of “client’s best interest” will be required for every transaction.

Give Prudent Advice

Financial advice must be prudent and suitable based on the clients’ risk tolerance, in the clients’ best interest, have reasonable expenses and pay no more than reasonable compensation.

The DOL Fiduciary Rule recommends two tiers of investments when giving advice on retirement accounts. The second Tier of investments will be prohibited in retirement accounts unless an exception is provided.  The prohibited investments include, Illiquid and difficult to value securities, such as:

About Klayman & Toskes, P.A.

Klayman & Toskes, P.A. is dedicated to the protection of investor rights and the recovery of investment losses in retirement accounts that are the result of violations of FINRA sales practice rule and regulations.

 

Notice to Franklin Square Energy and Power Fund Investors: The Securities Arbitration Law Firm of Klayman & Toskes, P.A. Launches Investigation into Potential FINRA Sales Practice Violations by Brokerage Firms

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Boca Raton (Globe Newswire) – April 7, 2016 – The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, announces that it is conducting an investigation into potential Financial Industry Regulatory Authority (FINRA) sales practice violations by brokerage firms for solicited investments in Franklin Square Energy and Power Fund (“FSEP”), a non-traded Business Development Company (“BDC”). FSEP assets, with assets in excess of $3.6 billion, are invested primarily in senior secured loans made to private companies focused in oil industry infrastructure for drilling and exploration. FSEP investors have experienced a decline in the value of the non-traded BDC Net Asset Value (NAV) along with the decline in the price of oil. According to K&T, the scope of the investigation includes whether brokerage firms made suitable recommendations related to FSEP and whether adequate disclosure was made concerning the syndication costs and risks of non-traded BDC concentrated in the energy sector.

A new regulatory notice, FINRA Notice to Members 15-02, effective April11, 2016 instructs brokerage firms to provide greater disclosure concerning BDCs, such as FSEP on customer account statements. Securities attorney Lawrence Klayman, Esq. comments on the regulatory notice, ”Investors in Franklin Square’s Energy and Power Fund will now receive more accurate information disclosed on account statements, including deductions of 10% for distribution costs and changes in the value of the loan portfolio concentrated in the energy sector.” Mr. Klayman asserts, “Our investigation is to determine whether financial advisors failed to adequately disclose the risks related to concentration in the energy sector and the effects of syndication costs on the valuation of this BDC.”

FINRA sales practice rules related to potential violations may include misrepresentations and omissions of material facts, conflicts of interest, unsuitable investment advice, securities concentration, or failure to supervise its financial advisors. Our investigation relates to brokerage firms and its financial advisors’ recommended investments in Franklin Square Energy and Power Fund for customer accounts.

About Klayman & Toskes, P.A.

K&T is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds, in large and complex securities matters. K&T has office locations in California, Florida, New York and Puerto Rico. If you wish to discuss this investigation or have knowledge of brokerage firm sales practices related to Franklin Square Energy and Power Fund can contact us, or call Steven D. Toskes, Esq. at 888-997-9956.

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