Can borrowing money from a sibling get you fired?
My broker-dealer terminated me because I borrowed money from my brother, who also happened to be a client. I think this is ridiculous. How can I not be allowed to borrow money from a family member?
FINRA Rule 3240 provides that no person associated with a member firm in a registered capacity may borrow money from or lend money to any customer of such person unless: (1) the member has written procedures allowing the borrowing and lending of money; (2) the borrowing or lending arrangement meets one of five conditions stated in the rule; and (3) the associated or registered person notifies the member of the borrowing or lending arrangement prior to entering into the arrangement. More specifically, one of the five conditions is that you can borrow money if “the customer is a member of such person's immediate family” (and, yes, a sibling is specifically included in the definition of immediate family).
So why were you terminated? Well, the rule also provides that with regards to borrowing from family members, “a member's written procedures may indicate that registered persons are not required to notify the member or receive member approval either prior to or subsequent to entering into such borrowing or lending arrangements.” (Emphasis added). In your particular situation, I believe that your employer’s policies and procedures did require notification and approval of all borrowing situations, even those involving family members, or rather I should say that the policies and procedures did not exclude such scenarios from the notification and preapproval requirement. So it wasn’t so much that you were terminated for violating the FINRA rule but, rather, that you were terminated for violating the firm’s internal policies and procedures. Which is why it’s so important to make sure you know your firm’s policies and procedures and not simply rely on the FINRA rule.
Are you an advisor with a dilemma? Submit a question to Alan Foxman at email@example.com.