Independent broker/dealer CEOs are not going to go easy on their reps when it comes to managing risk going forward, at least that’s the message I got during a panel at the Financial Services Institute’s OneVoice conference in Orlando this week. It sounds like the one broker and even one product can topple a firm.is getting tougher on and more scrutinizing of the reps they take on as well as the products they use. Margins are tight, and as we know quite well,
Jim Nagengast, CEO of, which had its fair share of troubles with problematic alternative investments last year, said his firm has started to look at tax returns and personal checking accounts of new recruits as part of a heightened supervision plan. This type of scrutiny needs to be the new normal for the industry, Nagengast said.
Adam Antoniades, president and CEO of First Allied, will also look at tax returns and bank accounts if a situation with a rep warrants it. This is a way to see a rep’s revenues streams.
Part of the reason for the tightening up is FINRA’s intent to target branch offices and structured products this year. Antoniades said First Allied was one of the first firms audited under the new initiative. “As far as FINRA is concerned, your advisors may as well be employees of your offices.”
FINRA is not only coming after the branches, but also after the broker/dealer, Nagengast said.
That’s why such firms are making painstaking efforts to make sure problems don’t surface. Antoniades said due diligence is his firm’s fastest growing department, and the crackdown has taught them how to say no to certain products. “If we can’t sit across from an advisor and get them to intellectually understand why we don’t offer a product, then those advisors don’t have a place with our organization.”
Tim Murphy, president and CEO of Investors Capital Corp., echoed similar sentiments. His firm has let a lot of its top producers go because they were using a certain product. The firm is also more focused on virus protection, use of firewalls, and documenting client interactions.
What does this all mean for advisors? Well, for one thing, hopefully the increased scrutiny will create a more stable firm that’s less vulnerable to toppling by peers or products. On the other hand, it means being more careful about the products you use and about how you run your business. Doesn’t mean you’re a bad apple; it’s just means you’re going to be under the microscope more so than in the past. Just what we need.