Most producers value the independence of being their own boss and many try to become as independent as possible of the companies whose products they sell.
Being your own boss brings freedom, but also the responsibility to self-supervise compliance and market conduct. There are other aspects of self-supervision, including administration, training and logistics. However, of all of the aspects of being your own boss, compliance self-supervision poses some of the greatest risk.
For a registered representative of a broker-dealer, there is no such thing as self-supervision. Registered representatives do not have independence from their broker-dealer, since no matter how independent the producer believes he or she is, the broker-dealer has the responsibility and the right to monitor and supervise the representative. So for registered business, the producer is monitored and supervised by the broker-dealer and in many cases quite closely. Most broker-dealers monitor and supervise e-mail communications with the public and conduct file reviews. They also scrutinize sales to seniors, replacements of variable products, 1035 exchanges, mutual fund switches, etc. In addition, they monitor continuing education and mandatory attendance at annual meetings.
For the independent producer’s registered side of the business, he or she cannot escape the broker-dealer’s monitoring and supervision. Though some broker-dealers have more aggressive supervisory programs than others, all must supervise their registered reps.
However, for the non-registered side of a producer’s business, the independent producer is appointed with several companies, making direct supervision by any one company impractical. While there may very limited monitoring and supervision by the companies whose products the producer sells, generally speaking, for the traditional side of the producer’s business, he or she is the boss.
There are 5 areas where self-supervision of compliance is critical for the independent producer to avoid creating potential risk. There are other areas where there are compliance responsibilities (e.g., licensing, anti-money laundering) but in these areas companies tend to exert somewhat greater monitoring and control.
These are the 5 critical areas:
–Compliance communications. Producers need to be up-to-date on regulations and each company’s policies and procedures to avoid compliance and market conduct problems. Most companies hold the producer responsible for keeping up-to-date. Since some companies send out bulletins and notices of changes to policies, procedures and regulations, the total volume of compliance communications for a producer who has relationships with many companies can make distinguishing the important issues from less important ones difficult.