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Regulation and Compliance > Federal Regulation > FINRA

Out to Lunch

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Compete or comply? When it comes to the tried and true marketing strategy of meal-included seminars, FAs are feeling the heat of an intensifying spotlight on this practice. Firms resolved to maintain their place on the cutting edge know well that in order to keep ahead of the regulatory climate in America, their compliance division must always worry about what they will regulate next. And how do you simply and honestly compete for business without getting fined or sued?

In the same way that the “do not call” list forever changed cold calling, if you offer seminars or host client group gatherings of any kind, this intensified regulatory focus on the seminar is going to change the way you do business. Client or potential client gatherings remain one of the most civilized ways for consumers who need financial advice to connect with those qualified to give financial advice, and yet FAs and firms will need to decide how to defend this practice.

Without a doubt, the Financial Industry Regulatory Authority is and will continue to be the SRO that impacts the way the public perceives seminars. FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. It was created in July 2007 through the consolidation of NASD and the member regulation functions of the New York Stock Exchange. With over 3,000 employees and offices in Washington, DC, New York and in 15 district offices around the country, their tag line reads: “Every day FINRA protects investors by working to keep the capital markets fair.”

From April 2006 through June 2007 the NASAA (the umbrella arm of state regulatory agencies), FINRA and the SEC collaboratively conducted 110 examinations of what they refer to as “free lunch” seminars. The stated purpose of these inspections was to review sales seminars targeted toward seniors and retirees for compliance with securities laws and regulations. The joint report, published in September 2007 and prepared by FINRA, concluded that: “Financial services firms should take steps to supervise sales seminars more closely, and specifically take steps to review and approve all advertisements and sales materials for accuracy.”

Indeed, FINRA’s Herb Perone confirms that these fact-finding studies or sweeps of seminar practices are now an ongoing and continuing aspect of FINRA’s program to protect elderly investors.

The next move by FINRA, in November 2007, was to announce plans to launch a comprehensive “integrated, multimedia advertising campaign aimed at baby boomers.” The first of its planned ad campaigns will include television, radio and print media. Ads are running in frequent rotation over a seven-week period on CNBC, Discovery and History channels, with print ads running in Fortune, Forbes, Kiplinger’s, Smart Money, BusinessWeek, and US News & World Report. Both these and FINRA’s online advertisements are intended to drive their target demographic to their website

FINRA’S website is discreet, comforting; nothing flashy. There, investors will find simple, user-friendly investor tools and educational resources. If you have not already visited their website, certainly take the time to do so. You should know exactly how their broker check and complaint procedure links are structured as well as what type of information and perspective your clients will find on the site about you, your firm or your meal-included seminar. You should duplicate this effort with your state regulator and understand the political climate of securities regulation in your locale: Is your state regulator fulfilling its mandate to enforce securities rules and regulations or is it aggressive, prosecutorial and overreaching?

Stanton Selbst, of SmartPros Financial Services Training in Hawthorne, N.Y., is concerned that FINRA is disconnected from the business it is regulating. He observes: “There are over 670,000 advisors registered with the SEC and of that number 99.9 percent are honest. They work hard for their customers, and they are not perfect, because none of us are. They don’t have crystal balls about the future of the marketplace, and so many of them say they stay awake at night worrying about what happens to their clients. This is really a case of a few infecting the mass. To indict the industry because of [the misdeeds of] a few is guilt by association, and I thought Senator McCarthy was gone.”

No BalanceIndeed, when you consider that FINRA’s sting-like investigation included only 110 seminars and you take a minute with your calculator and imagine how many meal-included gatherings or seminars might have been hosted by the nation’s 5,100 firms and 670,000 FAs during that same period, from April ’06 to June ’07, it may seem disproportionate to launch an expensive and comprehensive PR campaign targeting the seminar practice as a whole.

Selbst continues: “It’s the same thing with the so-called crackdown on annuities. Annuities are not bad products. You just have to know what they are. Likewise with junk bonds. Junk bonds are not bad. There is nothing wrong with a junk bond! As long as you know exactly what you’re buying, so that if it reacts negatively, you’re not surprised. Because there are times in the market cycle when they respond exceedingly positively. They can be a great investment.”

In the same way that a junk bond can make you some real money if you know what you are doing, a meal-included or hospitality-type seminar can be a golden opportunity for investors, and especially senior investors, to locate the advisor that they need. Consider this: Here we have an industry which hosts civilized meetings where potential clients can essentially audition and interview several candidates while searching for one they can work with. If FINRA were only motivated by what was best for the vast majority of investors, their priorities and approach would reflect these facts. After all, if you really talk to investors and ask them about how they found an advisor and achieved a comfort level, many will tell you that they found their advisor through one of these seminars against which FINRA and the state regulators are waging their pricy crusade.

If FINRA placed a survey on its website for satisfied investors to report on their experience with meal-included seminars, it is certain that many seniors would freely admit to taking advantage of numerous seminars to try-out advisors for a good fit, and maybe enjoy a canap? or a cup of joe in a local venue. In fact, in many communities when the cycle for marketing with seminar events fails to produce new client relationships and the same people are just making the rounds and enjoying the hospitality and conversation, firms have to abandon this practice altogether.

When a senior investor or retiree attends a seminar she is not automatically a victim. Rather, the odds are that what she has is a rare opportunity to sit comfortably in an audience and quietly ask herself: Am I comfortable with this advisor? Do I feel a connection of shared values? Could I develop trust in this person? Imagine if you had a chronic health condition and you anticipated needing many years of ongoing care: Would it not be a blessing to have the opportunity to listen to several physician specialists explain their approach, the various medications and treatment options available, as well as the organization of their practice?

If FINRA follows its stated mission of keeping the capital markets fair, why is there is no apparent mention of how seniors and other baby boomer investors may benefit from the wide availability of meal-included seminars? Its investor tools might suggest that seminars can be of great use to consumers: So, you do not have time to get your MBA in finance? So, you have some money and you need advice? And, what’s that, you are overwhelmed by all the information on CNBC and the Internet? Here is a way to help you decide whom you can work with.

For example, at the very top of FINRA’s list of investor alerts, you will find: “Free Lunch” Investment Seminars — Avoiding the Heartburn of a Hard Sell.” What follows is an article that lists some very sensible strategies for the prudent consumption of any sales or marketing efforts, but at the same time it conveys a victim-beware mentality by means of a subtle expos? approach to the very practice of marketing with seminars. The article points out: “Seminars are designed to sell. Even when advertised as educational, many investment seminars are intended to sell something” — as if it were illegal or immoral to sell a product or service.

The state-level regulators take their queue from FINRA. On Missouri Secretary of State Robin Carnahan’s Securities Division’s list of “Top Ten Threats For Missouri Investors 2007,” No. 1 on the list is “Free Lunch or Dinner Offers: Along with the free meal often comes the promise of investments with high returns and little or no risk.” If you and your firm ever end up in front of state regulators, make no mistake about it, your meal-included seminar may become their revenue stream.

R. Gina Renee is a freelance writer based in Kansas City,


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