for broker-dealer use only. annual compliance meeting 2013

For Broker-Dealer Use Only.

Annual Compliance Meeting2013

Compliance

How do you view your Compliance Department?

A.Business PartnerB.AdversaryC.Pain in the ButtD.Both B and C



Book Quote

The Social Media Handbook for Financial AdvisorsPublished 7/31/2012

: “To this day, it’s still hard for me to not see a compliance officer as the enemy…”

Compliance

Take a preventative approach with your business

Use Compliance:• Before purchasing marketing programs• Before clients sign sale paperwork• Before spending time writing newsletters



Compliance 2001


Compliance 2013


Regulatory Oversight



SEC

•New exam schedule: “We simply show up”•Enforcement actions up 92% from 2009—2011 •734 enforcement actions in 2012, $3b in penalties and disgorgement



FINRA

• $68,000,000 in fines 2012• Record $34,000,000 in restitution to customers• 800 branch office examinations in 2012• 5,100 internal examinations of broker/dealers and reps



States

• More States are active in on-site branch examinations

• Increased regulations regarding product sales (alternative investments)


Current FINRA Priorities


• Variable Annuities (suitability/recommendations, buy-back programs, rep product knowledge)

• Structured Products

• Non-Traded REITs

• Regulation D Offerings



Cyber-Security and Data Integrity

• Antivirus software on all machines• Password protection on all machines• Wi-fi password on network• Wire/distribution requests via email



Electronic Communication

Prohibited for business use. Examples:– Facebook – Twitter– MySpace – YouTube– Chat Rooms – Interactive Blogs– Cell phone text messaging– Instant messaging– Outside email



Customer Complaints

Client Expectations

• Do your clients expect 12% + per year? Risk?

• Clients understand risk until they lose a penny.

• Clients can handle volatility as long as their accounts go up in value.



Customer Complaints

Immediately notify Compliance of any client complaint

Never attempt to settle complaints on your own!


Best Practices

• Take notes during client meetings

• Mail meeting notes to clients

• Get family members involved

• Fully explain both the pros and cons of the investment

• Have clients complete & initial paperwork

Best Practices

Talk to your clients!



Top 10 Ways To Get Fired From Sigma

For broker/dealer use only. B/D OPS 2006

10. Improper Signatures

• Assistants signing rep name

• Using signature stamps

• Signing clients’ names/initials


9. Mishandled Funds

Reps May Not:

• Accept cash • Endorse checks made payable to you/your

business• Hold customer checks longer than 1 business day


8. Selling Away

• Selling securities not approved by your broker/dealer.

• Beware of the “non-security”


7. Settle Client Complaints

• Reps cannot settle disputes directly with clients

• Get compliance involved immediately


6. Paying Referral Fees

• Reps cannot compensate non-registered persons for securities transactions

• A series 7 rep may not pay commissions to a series 6 rep for sales which required a series 7


5. Sales Violations

• All direct business sales must be approved by the home office prior to submitting to the product company

• Sending the home office copies of sales is not sufficient

• Sales which are ‘rejected’ by the broker/dealer may not be submitted to the product company


4. Failure to Report OBAs

All outside business activities must be approved prior to engaging in them (Outside Business Activity form may be completed/submitted from our website)


3. Advertising Issues

• All advertisements, sales literature, and seminars must be approved prior to use

• Changes noted by compliance must be made

• Approvals are valid for one year


2. Failure to Update Form U-4

U-4 must be immediately updated to reflect such items as:

• Change of address, phone, website, DBA, etc

• Felony• Bankruptcy• Liens• Outside business activity


1. Take Shortcuts With Forms

The following items are NOT allowable:

• Having clients sign blank forms

• Changing client forms (dates, dollar amounts, etc)


Updating the Form U-4

Matthew Campbell (CRD #1879717, Registered Representative, Valparaiso, Nebraska)

Barred from the industry

Willfully failed to disclose material information on his Form U-4.


Client Signatures

Gary Martin (CRD #729331, Registered Representative, Indianapolis, Indiana)


Signed a customer’s name to a distribution form to facilitate a required minimum distribution (RMD) from an IRA account.


Email Usage

Dorian K. Saunders (CRD #4577155, Registered Representative, St. Louis, Missouri)


Sent public customers electronic mail from a personal email account, and instructed the customers not to send him emails at his member firm’s email address


Borrowing/Lending to Clients

Samuel Mugavero, Jr. (CRD #2189945, Registered Representative, Bethlehem, PA)


Borrowed $10,000 from a non-family customer in contravention of the firm’s written procedures


Using Discretion

Roger C. Faubel (CRD #1233851, Registered Principal, Canfield, Ohio)

Fined $5,000/Suspended for 10 days

Purchased $25,000 worth of mutual funds in a customer’s account without the customer’s prior authorization


Disclosing Outside Business

Dennis Brown (CRD #3022551, Registered Representative, Springfield, MA)


Engaged in outside business activities without providing written notice to his member firm.


Falsifying Documents

Angela Bounds (CRD #4460214, Registered Representative, Purvis, Mississippi)

Fined $10,000/Suspended for 6 months

Falsely represented that annuity purchases were not being funded with money from surrendered annuity contracts.


Outside Brokerage Accounts

Jeff Ng (Registered Representative, Stamford, CT)

Fined $25,000/Suspended for 2 years

Failed to disclose all outside brokerage accounts to his broker/dealer


Additional Items

• Maintain your blotters (paper, MasterTrack, Investigo)

• Keep all required Compliance files up-to-date

• Update Client Data Sheets at least every 2 years

• Ensure you are licensed in each state in which you transact business


Thank you

Questions?

for broker-dealer use only. annual compliance meeting 2013

Documents

sigma slide

enemy slide

disgorgement slide

regulatory oversight

clients namesinitials

business use compliance

current finra priorities

compliance officer