In light of recent market events (to put it mildly), it's important to step back and consider simple guidelines for walking a compliant path. Here are 10 ways to help prevent risk in your practice.
- Pick your clients carefully. Not every client is a good client. Some clients withhold important information, some clients have unreasonable service expectations and some clients won't take advice. Representatives should require that a client provide complete suitability information and share with you their complete financial picture, even accounts with other firms. Clients that aren't willing to do so aren't worth your time.
- Never ignore your clients, even the whiners. Let's be honest, some calls you don't want to take. But for those of you who took the call, hard as the conversation probably was, you did the best thing in avoiding a formal complaint.
- Don't guess. Get help on issues that arise for which you don't know the answer. The tax code is bigger, the products are more complicated and compliance is more burdensome. You will do much to help yourself if you're effective at issue spotting. And by that I mean someone who identifies pitfalls in a set of facts.
- Know your customer and be able to prove it. There are two benefits here. First, knowing your customer is more than obtaining suitability information. Knowing things like family members, employment, health and common interests provide you with a deeper understanding of a client's wants and needs. Secondly, best practices for anti-money laundering require that you know your customer beyond suitability. You need to know that the name on the application is indeed the name of the person giving you the account check.
- Be a good record keeper. Record keeping is important because it reflects your ability to maintain an organized office. Well-kept records allow you to be efficient and accurate when responding to client requests.
- Use approved advertising. Simply put, if you're sending the same thing to more than one person it needs to be reviewed and approved by your compliance communications department. FINRA advertising rules are complex. Many representatives are surprised to learn the rules apply in unexpected ways and to communications they never dreamed would be subject to FINRA rules.
- Variable and mutual fund products. Market timing, revenue sharing and breakpoints have dominated the headlines recently, but that's no excuse to forget about our obligations when counseling clients on exchanges, replacements or switches. Such transactions continue to be the focus of regulators during broker/dealer examinations.
- Avoid personal business dealings with clients. It's good to have close relationships with clients that are deep and long lasting. However, that doesn't mean that you should start a pizza parlor with your best clients. Remember, friendship aside, you must put your clients' interests above your own.
- Avoid exotic products. Products that promise abnormal returns and little or no risks are sure to result in little or no returns and abnormal risk. Clearly, there will always be new financial products -- many of which will have a place in client portfolios. You should exercise care when recommending new products or products that are new to you.
- Help compliance and supervision staff help you. The goal is that every single one of your clients is 100 percent satisfied. Seek the advice and counsel of your compliance division - they're a critical part of your business.
Jim Heeney is vice president of sales supervision with Securities America.