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Regulation and Compliance > Federal Regulation > SEC

What's Good For Grandma

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In a world where regulators dictate more and more how broker/dealers may operate their businesses, and compliance seems to have been elevated to equal footing with investment management and sales at many firms, it was perhaps no surprise that the featured speaker at the closing general session of the Financial Services Institute’s Broker/Dealer Conference in San Diego (January 23-25) was SEC Commissioner Cynthia Glassman.

Commissioner Glassman was asked to give “A View from Inside the SEC,” and that she did. She spoke about the debate over treatment of dually licensed professionals and whether it makes “sense to have two separate regulatory schemes supervising substantially similar activity” and about a study that the SEC is planning that would look into whether the Commission should seek legislation that integrates regulation.

But she spent the most time talking about how to have a good relationship with the SEC. Here’s what she suggests: “Think about how you’d like your grandmother to be treated. Then, what if your activities were chronicled on the front page of the newspaper? What would your grandmother think if she read the story of your activities?” Or, in a nutshell, what would be good for Granny should make the SEC happy. Glassman stressed that advisors should communicate in ways that are “clear, understandable, and use plain language.”

The Commissioner said that the SEC got more complaints in 2005 about broker/dealers than any other investment entity, and that some of those appear to be communication issues. The top five types of complaints included: transfer of account problems where a fund cannot be transferred to a new firm; Glassman says this might be avoided if customer expectations are better managed and they are told beforehand that a certain fund cannot be transferred. Unauthorized transactions where brokers were not given permission to execute a trade; the Commissioner says often this is a trade to cover a margin call but the customer does not understand the ramifications of a margin account. Here, she says “clear, up front communication” might have prevented some of these complaints. Back-end fees that a client incurs if an account is closed; errors or omissions on account statements; and unsuitable recommendations round out the top five complaints about brokers. One way to minimize the number of complaints is to educate customers, and keep them informed, Glassman says.

The bottom line? “Do what’s right for the customer and provide what they need to know to make an informed decision,” that should help create a good relationship with the SEC, says Glassman.


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