More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
In a standing-room-only session on Tuesday at the FSI OneVoice 2012 conference in Orlando, a panel including John Cronin, Vermont's securities director, and John Walsh, a former SEC compliance chief, addressed some of the leading compliance issues facing independent broker-dealers. One of their main focuses was on the recently announced joint SEC-FINRA effort to examine BD branches.
Branch office inspections are necessary, according to Cronin, because “Most problems with consumers start in the branches.” Cronin also pointed out that the greater likelihood of problems occurring, such as reps running separate businesses or making unsuitable recommendations, is far more likely at branch offices than at home offices, thus highlighting the importance of branch office inspections.
Among the focus points in those examinations were a long laundry list of items, cited by Walsh—who is now at the law firm Sutherland in Washington—about which the SEC and FINRA were concerned. Walsh added, and other panelists agreed, that he expected more such joint efforts.
In a later interview, Cronin cited some of those focus points he said would also be of high interest to state regulators: “Supervision, structured products, private placements, other alternative-type products, and all the things that those incorporate,” including suitability and due diligence. “Those,” said Cronin, “will be high on the state lists, and, not surprisingly, also on the SEC-FINRA list.”
Whistleblowers who bring regulators down on branch offices for alleged violations were also on the minds of attendees. When a member of the audience asked during the discussion, “Don’t they all have axes to grind?” Cronin agreed that regulators do “discount” what whistleblowers say, looking for those axes, “but in the current political environment, we have to investigate every claim” from a whistleblower. “If I don’t,” he pointed out, “I’ll hear from legislators, or my boss will hear from the governor.”
Walsh said it’s important to understand that one of those axes from whistleblowers now was “that these people can be well compensated” under whistleblower programs. “That’s their axe to grind.”
Attendees, who were chief compliance officers, also heard panelists discuss suitability review and approval, as well as supervision of agents involved in that area. Another topic Cronin recalled as taking a fair amount of panelists’ time was stressing the importance of communications with regulators.
“Firms need to be open to communication both ways,” he said, “and if there are better ways to get regulators the information they need to do their jobs, [firms] need to explore those options to make things more efficient for both the regulator and the firm.”
Yet one more subject panelists covered was the issue of compliance executive or officer liability. Cronin pointed out in the interview that there had been a few SEC cases of the sort recently. Attendees, he said, were urged “to understand that as a compliance officer, they should have the authority to effect change within the compliance structure and processes [of their firms] to make sure their firms are complying and doing everything they can to protect firm, reps and, of course, clients.”