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Regulation and Compliance > Federal Regulation

How Agents Make A Virtue Of Necessity

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A common complaint among professionals in the insurance business is keeping up with all the regulatory compliance requirements. Mentioning the word “compliance” to almost anyone elicits a negative reaction, as compliance activities may take up to 25% of an agents time.

“Its a restriction of your freedom,” says a producer from Pennsylvania who did not want to be identified. “Here youre supposed to be in business for yourself and you cant talk to people, or write to people without somebody approving what you do,” he says.

He adds that he cant even stick a post-it note on a document hes sending out to a client without getting approval for what hes written on the note.

Other advisors have shared this same frustration, but William Gettings, a partner with Gettings Reed Financial Services, LLC, Lafayette, Ind., found a way to make this requirement work for his practice. He had a special post-it note printed that says “I thought youd be interested in this,” along with his broker-dealers disclosure statement. Gettings filed the note with his broker-dealer and now he is able to use it when he sends correspondence to his clients.

While following these types of procedures can be an annoyance to registered representatives, many look at compliance procedures in a positive light.

“It needs to be taken very seriously,” says Terrance Kral, a partner with Kral, Goodenough & Kral, Inverness, Ill.

“Compliance forces us to take a closer look at things we ought to be paying attention to anyway,” says Daniel Childress, president of Financial Management Group Inc., Mt. Pleasant, S.C. “It keeps us all safe; it makes sure the clients are well served,” he says.

“In our office, were doing what we can to embrace compliance procedures,” says Gettings. He adds that by documenting every phone call and what was discussed, it not only keeps him in compliance, but it helps him remember what he discussed with his clients.

“Ive had clients come in and ask me to remind them why we did something, and since we had good documentation it was easy to remember,” he says.

“You want to document everythingeverything you put in print and all your phone conversations,” adds Kral. Many times, what a client may think hes asking will be different than what he is actually asking, Kral notes.

Childress has had similar situations where strong documentation due to compliance procedures has helped him serve his clients. “Ive had a couple of situations where the strength of our compliance has shone through,” he says.

When questions have been raised about suitability of investmentsafter the markets have declinedthe documentation was so strong there ultimately was no question, he says. “When you get a he said, she said situation we have it all documented. Weve seen it in action,” he says.

One area of frustration for Gettings is communicating with clients via e-mail. Copies of all business related e-mail must be sent to his broker-dealer for approval. “It forces us to choose our words a bit more carefully,” he says. “From an e-mail perspective, its cumbersome.”

There have been instances where producers have voluntarily given up their securities license rather than follow all the rules and regulations necessary, explains Robert A. Kaiser, president of Kaiser Financial Group, Fanwood, N.J. In one situation of which Kaiser is aware, a representative was filling out the outside activity form required by the NASD and the issue of rental property came up, he explains.

Apparently, the registered rep had some properties that were generating rental income and he had failed to notify his broker-dealer. As a result, a close examination of all his holdings revealed that his wife had also invested in an IPO, which was considered a prohibited transaction. The rep was fined.

“It had nothing to do with his clients, it was his personal investments,” Kaiser says.

In the end, this rep dropped his securities license altogether. For this agent, securities were only a very small part of his business. “He said it wasnt worth the trouble,” Kaiser says.

To avoid this and other problems with meeting compliance requirements, reps suggest that others look at the relationship with their broker-dealer as more of a partnership than an adversarial one.

“A broker-dealer should work with you in interpreting and understanding the rules. Then you tend to go back to the broker-dealer more because they are really partnering with you to help you stay in compliance and follow the rules,” says Kral.

There are 4 registered representatives in Krals firm. A few years ago, they all had different broker-dealers, which made compliance activities a bit difficult. “It caused a lot of problems with keeping files separated and that sort of thing,” he says.

Now, Kral and his associates made the decision to all use the same broker-dealer, which makes staying in compliance much simpler.

“The positive approach is to embrace it, with the understanding that youre not going to do everything right the first time, but youre ultimately going to get to a point where its working,” adds Gettings.

“We welcome broker-dealer visits,” says C. Robert Brown, president of UCL Financial, Memphis, Tenn. “Our attitude is we can use all the help we can get.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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